474 F.Supp.3d 1149
D. Or.2020Background
- Fowler (general contractor) insured a micro-tunnel boring machine (MTBM) under a QBE contractors’ equipment policy for $2,206,947 while tunneling under Lake Sakakawea; Fowler seeks $1,884,520 for unrecovered portions of the MTBM.
- On October 5, 2017, tunnel jacking pipe became wedged/deformed by unexpected earth movement, immobilizing the MTBM roughly 100 feet below the surface so it could not be advanced or retrieved by planned means.
- Fowler notified QBE; QBE investigated and denied the claim in September 2018, asserting (inter alia) that there was no “direct physical loss” because the MTBM was undamaged, and relying on exclusions (orders of civil authority, loss of use, mechanical breakdown) and abandonment rules.
- Fowler moved for partial summary judgment asking the court to rule that burial/immobilization beneath the surface is a “direct physical loss” and not excluded; QBE filed a cross-motion for summary judgment.
- The district court held that “direct physical loss” under Oregon law does not require physical damage, rejected QBE’s asserted exclusions (QBE largely failed to rebut some arguments), and granted Fowler’s motion while denying QBE’s cross-motion.
- The court also found that the MTBM’s potential recoverability is not material to the coverage question because the policy contains a recoveries procedure allowing reimbursement if property later is recovered.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether burial/immobilization of intact equipment is a "direct physical loss" | “Direct physical loss” covers tangible property placed beyond practical recovery (loss need not show physical alteration). | Requires distinct, demonstrable physical damage to the insured property. | Held for plaintiff: "direct physical loss" need not require physical damage; burial/immobilization qualifies. |
| Whether the “orders of a civil authority” exclusion applies | N/A (argued it does not apply) | QBE asserted it applied based on possible governmental action; court notes QBE did not meaningfully oppose Fowler’s argument. | QBE waived the argument; exclusion not applied. |
| Whether the "loss of use" exclusion bars recovery for the MTBM's value | The claim is for the value of the unrecovered MTBM, not for consequential economic losses or delay. | The claim is akin to economic loss from deciding not to pursue recovery and thus excluded. | Held for plaintiff: exclusion does not preclude payment for the lost insured property. |
| Whether the mechanical/structural breakdown exclusion applies | Exclusion should be read to cover internal defects of the insured equipment, not external events (tunnel collapse). | Exclusion covers loss caused by any mechanical/structural breakdown, including the tunnel collapse that stranded the MTBM. | Held for plaintiff: exclusion does not apply because the breakdown was external to the MTBM; QBE failed to meet its burden. |
| Whether abandonment provision precludes recovery without attempting retrieval | Abandonment clause governs transfer of title after a covered loss; it does not define or negate coverage. | QBE contends insured must attempt recovery/repair before claiming a total loss. | Held for plaintiff: clause does not bar coverage or require proof that recovery is impossible; QBE could seek reimbursement if recovery later occurs. |
Key Cases Cited
- Hoffman Constr. Co. v. Fred S. James & Co., 313 Or. 464 (1992) (policy interpretation is a question of law; ascertain parties’ intent).
- Totten v. New York Life Ins. Co., 298 Or. 765 (1985) (terms construed from perspective of ordinary purchaser).
- Shadbolt v. Farmers Ins. Exch., 275 Or. 407 (1976) (ambiguities in insurance contracts resolved against insurer).
- Western Fire Ins. Co. v. First Presbyterian Church, 165 Colo. 34 (1968) (contamination/infiltration rendering property unusable can constitute direct physical loss even without traditional "damage").
- Wyoming Sawmills v. Trans. Ins. Co., 282 Or. 401 (1978) (use of "physical" excludes intangible/consequential losses).
- Cedar Bluff Townhome Condo Ass’n v. Am. Family Mut. Ins. Co., 857 N.W.2d 290 (Minn. 2014) (distinguishing "physical damage" from "physical loss"—loss can mean property rendered unusable though not physically altered).
- Caldwell v. Transp. Ins. Co., 234 Va. 639 (1988) (mechanical/structural breakdown exclusion typically limited to inherent/internal defects of equipment).
- Celotex Corp. v. Catrett, 477 U.S. 317 (1986) (summary judgment standards).
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) (standard for genuine issue of material fact on summary judgment).