913 F.3d 1245
10th Cir.2019Background
- MTI, a contractor, removed 64 corroded anchor bolts from WFEC’s Cooling Tower 1 but did not immediately replace them or brace the structure; high winds caused the tower to lean and suffer catastrophic structural damage.
- WFEC demanded MTI pay over $1.4 million to remove and replace the tower; MTI settled with WFEC for $350,000 and sought indemnity from its insurer, Wausau.
- Wausau denied coverage under Policy exclusions j(5) and j(6), which bar coverage for damage to “that particular part” of property on which the insured is performing operations or which must be repaired because the insured’s work was incorrectly performed.
- MTI sued for breach of contract; the district court granted summary judgment for Wausau, holding both exclusions applied; MTI appealed to the Tenth Circuit.
- The Tenth Circuit considered whether the phrase “that particular part” is ambiguous under Oklahoma law and, if so, how it should be construed.
Issues
| Issue | Plaintiff's Argument (MTI) | Defendant's Argument (Wausau) | Held |
|---|---|---|---|
| Whether the phrase “that particular part” in exclusions j(5) and j(6) is ambiguous | MTI: Phrase is ambiguous and should be read narrowly to mean only the distinct component worked on (anchor bolts) | Wausau: Phrase unambiguously excludes damage to the entire tower or any part affected by the insured’s work | The phrase is ambiguous under Oklahoma law and susceptible to both readings; ambiguity resolved for insured |
| If ambiguous, whether exclusions should be strictly construed for insured | MTI: Ambiguity must be resolved in insured’s favor to reflect reasonable expectations | Wausau: Policy should exclude broad consequential damage arising from insured’s faulty work | Court: Apply rules favoring insured; interpret “that particular part” to mean the distinct component worked on (anchor bolts) |
| Whether this interpretation would impermissibly convert the policy into a performance bond | MTI: Coverage for consequential damage to other property components is consistent with liability insurance, not a performance bond | Wausau: Allowing recovery for total replacement effectively guarantees performance and defeats business-risk allocation | Court: Not a performance bond; coverage for consequential damage to other property is permissible where faulty work damages property beyond the insured’s own work |
| Whether prior Tenth Circuit dicta controls (Advantage Homebuilding) | MTI: Advantage did not address the meaning of “that particular part” and is dicta here | Wausau: Advantage supports broad exclusion for damage arising from insured’s operations | Court: Advantage is distinguishable and dicta on this point does not control the present ambiguity |
Key Cases Cited
- Kerr-McGee Corp. v. Admiral Ins. Co., 905 P.2d 760 (Okla. 1995) (framework for determining policy ambiguity and resolving in favor of insured)
- Cranfill v. Aetna Life Ins. Co., 49 P.3d 703 (Okla. 2002) (policy-language ambiguity judged from perspective of reasonably prudent layperson)
- Greystone Constr., Inc. v. Nat’l Fire & Marine Ins. Co., 661 F.3d 1272 (10th Cir. 2011) (standard of review for summary judgment and contract interpretation)
- Mid-Continent Cas. Co. v. JHP Dev., Inc., 557 F.3d 207 (5th Cir. 2009) (interpreting “that particular part” to refer to distinct component parts)
- Fortney & Weygandt, Inc. v. Am. Mfrs. Mut. Ins. Co., 595 F.3d 308 (6th Cir. 2010) (narrow construction of exclusion to component worked on)
- Dodson v. St. Paul Ins. Co., 812 P.2d 372 (Okla. 1991) (distinguishing liability insurance from coverage for an insured’s faulty workmanship)
- Advantage Homebuilding, LLC v. Maryland Cas. Co., 470 F.3d 1003 (10th Cir. 2006) (previous Tenth Circuit discussion of exclusions but did not decide meaning of “that particular part”)
- Max True Plastering Co. v. U.S. Fid. & Guar. Co., 912 P.2d 861 (Okla. 1996) (prefer interpretation that yields fair and reasonable contract results)
Decision: Reversed the district court’s summary judgment for Wausau and remanded for further proceedings construing the ambiguous exclusions in favor of MTI.