GREAT AMERICAN ALLIANCE INSURANCE CO. v. SIR COLUMBIA KNOLL ASSOCIATES LIMITED PARTNERSHIP
No. 3:18-CV-00908-HZ
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF OREGON
September 4, 2020
HERNÁNDEZ, District Judge
HERNÁNDEZ, District Judge:
In this аction, the parties dispute insurance coverage for water-damaged apartment buildings. Four motions are before the Court: (1) Plaintiff Great American Alliance Insurance Co. (“GAIC“)‘s motion for summary judgment; (2) Third-Party Defendant Philadelphia Indemnity Insurance Co. (“Philadelphia“)‘s motion for summary judgment; (3) GAIC and Philadelphia‘s joint motion to exclude; and (4) Defendant and Third-Party Plaintiff SIR Columbia Knoll Associates Limited Partnership (“Columbia Knoll“)‘s motion to strike. For the reasons that follow, the motions for summary judgment are granted in part and denied in part. The motion to exclude is granted in part and denied in part. The motion to strike is denied.
BACKGROUND1
Defendant Columbia Knoll owns and manages the apartment buildings at issue, which are adjacent complexes in northeast Portland: The Terrace at Columbia Knoll, which contains 118 income-restricted apartments in nine separate buildings, and The Heights at Columbia Knoll Senior Residence, which contains 208 income-restricted apartments in one four-story building.
Construction on both The Terrace and The Heights began in 2005. Houser Decl. Ex. T at 2–3, ECF 88. Water intrusion began immediately due to defects in this construction. Id. at 8. In 2010 and 2011, after damage from this water intrusion was discovered, repairs were performed. Id. at 8; Houser Decl. RR at 10.
Between 2011 and 2017, GAIC and Philadelphia (collectively, “the insurers“) issued
In September 2016, Columbia Knoll brought a lawsuit in Multnomah County Circuit Court against a general contractor and two subcontractors, alleging that the defendants’ faulty workmanship on the property and violations of Oregon building codes had allowed water intrusion, causing extensive damage to the buildings. In its Multnomah County complaint, Columbia Knoll sought $8 million in damages. In October 2016, Columbia Knoll reported the loss to its insurance broker, which then reported the loss to GAIC. The loss notice described the loss as “recently discovered water damage at 2 properties.”
In April 2018, Columbia Knoll sent Great American a proof of loss statement, estimating the cost of repairs to the property at more than $14 million. Great American denied Columbia Knoll‘s claim.
In May 2018, GAIC filed its complaint in this action, seeking declaratory relief. In July 2018, Columbia Knoll filed its answer, asserting counterclaims against GAIC for breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of the Washington Consumer Protection Act. Columbia Knoll also sought coverage under Philadelphia‘s policies. In September 2018, after Philadelphia denied coverage, Columbia Knoll filed a third-рarty complaint against Philadelphia, asserting the claims it asserts as counterclaims against GAIC.
In a September 6, 2019 Opinion & Order, the Court ruled that Oregon law applies to the dispute and dismissed Columbia Knoll‘s claims for violations of the Washington Consumer Protection Act and for tortious breach of the implied covenant of good faith and fair dealing. The Court now turns to the pending motions to strike, to exclude, and for summary judgment.
I. Motion to Strike
Columbia Knoll moves to strike the Declaration of Jaqueline Mitchson, offered in support of GAIC and Philadelphia‘s joint motion to exclude the expert opinion testimony of Felix Martin and Matthew Anderson. In this declaration, Ms. Mitchson reports the contents of telephone call with Dr. Morell, the author of Predicting the Rate of Decay, and the Potential for Misinterpretation of Proper Scientific Method and a former professor of Columbia Knoll‘s expert Matthew Anderson. Columbia Knoll argues the Court should strike the declaration because it (1) contains hearsay and (2) “apparently falsely relays” the contents of the telephone call. Mot. Strike at 2, ECF 109.
First, regarding the issue of hearsay, Ms. Mitchson‘s declaration was submitted in support of a motion to exclude expert testimony. The rules of evidence do not apply to “any preliminary question about whether a witness is qualified.”
Second, regarding the alleged inaccuracies, Columbia Knoll provides no support
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II. Motion to Exclude Testimony
a. Standards
“Expert opinion testimony is relevant if the knowledge underlying it has a valid connection to the pertinent inquiry.” City of Pomona v. SQM N. Am. Corp., 750 F.3d 1036, 1044 (9th Cir. 2014) (citation and quotation marks omitted); see also Estate of Barabin v. AstenJohnson, Inc., 740 F.3d 457, 463 (9th Cir. 2014) (“Relevancy simply rеquires that [t]he evidence . . . logically advance a material aspect of the party‘s case.“) (citation and quotation marks omitted) (alterations in original).
Expert testimony “is reliable if the knowledge underlying it has a reliable basis in the knowledge and experience of the relevant discipline.” City of Pomona, 750 F.3d at 1044 (citation and quotation marks omitted). The inquiry into reliability is “a flexible one,” and the district court has “broad latitude” in shaping its contours. Estate of Barabin, 740 F.3d at 463. “The Supreme Court has suggested several factors that can be used to determine the reliability of expert testimony: 1) whether a theory or technique can be tested; 2) whether it has been subjected to peer review and publication; 3) the known or potential error rate of the theory or
technique; and 4) whether the theory or technique enjoys general acceptance within the relevant scientific community.” Id. (quotation marks and citations omitted).
“In evaluating proffered expert testimony, the trial court is a gatekeeper, not a fact finder.” City of Pomona, 750 F.3d at 1043–44 (citation and quotation marks omitted). “The test is not the correctness of the expert‘s conclusions but the soundness of his methodology, and when an expert meets the threshold established by Rule 702, the expert may testify and the fact finder decides how much weight to give that testimony.” Id. at 1044 (citation and quotation marks omitted). Challenges to the weight of the evidenсe and the expert‘s credibility are for a jury, not a trial judge, to evaluate. Id.
b. Discussion
Philadelphia and GAIC jointly move to exclude the testimony of two expert witnesses: Felix Martin and Matthew Anderson.
i. Felix Martin
Felix Martin is an engineering expert. Briefly, Martin opines that, based on evidence of damage to structural components
1. Collapse3
Both the GAIC and Philadelphia policies provide coverage for “direct physical loss or damage to covered property, caused by abrupt collapse of a building or any part of a building” insured under the policy. Houser Decl. Ex. A at 10 (“GAIC Policy“), ECF 88; Kirby Decl. Ex. A
at 54 (“Phil. Policy“), ECF 31. A collapse is defined as “an abrupt falling down or caving in of a building or any part of a building with the result that the building or part of the building cannot be occupied for its intended purpose.” Id.
In his report, however, Martin opines that a “structural collapse” occurs
when a building‘s (or a building portion‘s) structural support system has, due to a loss of strength, or through excessive deflection or deformation, reached a state of structural instability and cеased to provide its intended structural support purpose.
Hill Decl. Ex. A at 4, ECF 100 (“Martin Report“). The question is therefore whether Martin‘s definition of “structural collapse” is inconsistent with the policies’ definition of “collapse.”
The parties appear to agree that Malbco Holdings, LLC v. AMCO Ins. Co. provides the controlling interpretation of the term “collapse.”4 In Malbco, 629 F.Supp.2d 1185, 1188 (D. Or. 2009), a hotel brought suit against its insurer after the insurer denied coverage. The hotel alleged that a collapse occurred when several trusses deteriorated, causing parts of the hotel to fall more than three inches. Id. at 1191. The court examined the policy‘s definition of collapse—“an abrupt falling down or caving in of a building or any part of a building with the result that the building or part of the building cannot be occupied for its intended purpose“—to determine whether the damage was covered by the policy‘s “collapse” provision. Id. at 1193. The court found that while “the word ‘abrupt’ has a plain meaning, namely sudden[,] . . . the
[t]he Policy is not written in terms of how far a building must fall down or to what degree a building must cave in to constitute collapse. Clearly one cannot occupy a building if it has completely fallen down or caved in. However, the same may be true for a building which has partially fallen down or caved in. It is far from clear that the Policy requires total destruction in order for a collapse to occur. Instead, the occupancy restriction stands as a proxy for a substantial impairment of integrity by adding a life and/or safety element to the definition. If parts of a building abruptly fall or cave in to any degree such that they cannot be occupied for their intended purposes . . ., then a collapse has occurred.
Id. at 1196 (emphasis added). Thus, the court found that because the plaintiff claimed that “trusses broke and portions of the building fell a few inches,” it had alleged a collapse under the terms of the policy. Id.
Columbia Knoll argues that, under Malbco, a collapse requires only a “substantial impairment to the structural integrity” of the building. Resp. to Phil. Mot. Summary Judgment 11 (“Resp. to Phil.“), ECF 91. The Court does not agree; Columbia Knoll‘s interpretation simply—and impermissibly—ignores one part of the policy definition altogether. As explained above, the
Malbco court found that the occupancy restriction (“with the result that the building or part of a building cannot be occupied for its intended purposе“) stood as proxy for a substantial impairment of structural integrity. The Court sees no support for Columbia Knoll‘s position that the “‘falling down or caving in’ language . . . is a ‘proxy’ for the long-established rule that ‘collapse’ may be interpreted . . . in favor of coverage to require only ‘substantial impairment to the structural integrity’ of the insured‘s building.” Id. Rather, collapse, as defined by these policies and the Malbco court, requires, in relevant part, a showing that the building (1) abruptly fell down or caved in (2) such that it could not be occupied for its intended purpose.
Although somewhat unclear, Columbia Knoll also appears to argue that, because the policies do not specify how far a building must fall down or cave in, the provision is ambiguous and should be stricken. The argument is without merit. First, the parties do not contest that the policies require, at a minimum, an “abrupt falling down or caving in.” As a general matter, Oregon courts do not construe contracts in a manner that renders provisions meaningless. Thomas Creek Lumber & Log Co. v. State Forester, 157 Or. App. 204, 213 (1998). Striking or
Second, the Oregon Court of Appeals’ analysis in Hennessy provides persuasive guidance on this very issue. In Hennessy, the court reviewed the undefined term “collapse.” Hennessy v. Mutual of Enumclaw Ins. Co., 228 Or. App. 186 (2009). Consistent with the definition at issue here, the court found that “‘[c]ollapsing’ is a verb, whose root means, among other things, ‘to break down completely,’ ‘to fall or shrink together abruptly and completely,’ and ‘to cave in, fall in, or give way : undergo ruin or destruction by falling or as if by falling down.‘” Id. at 193 (citing Webster‘s Third New Int‘l Dictionary 443 (unabridged ed. 2002)). The court went on to conclude that both falling down and caving in did not require a “total or complete fall.” Id.
“Rather, they require only that an object, acting under the force of gravity, descend or drop involuntarily. Thus, although ‘collapse’ refers to a situation where an object, acting under the force of gravity, descends or drops, it is not clear that the definition requires a total or complete descent.” Id. In sum, “‘collapse’ requires only that an object fall some distance.” Id. (emphasis added). This is consistent with the Malbco court‘s conclusion that “[i]f parts of a building abruptly fall or cave in to any degree such that they cannot be occupied for their intended purposes . . ., then a collapse has occurred.” 629 F.Supp.2d at 1196 (emphasis added).
Notably, although Columbia Knoll argues that the phrase “falling down or caving in” is ambiguous, Columbia Knoll does not provide any alternative construction. Instead, it simply argues the phrase should be construed against the insurers. In its discussion of Hennessy, however, Columbia Knoll acknowledges that the insured‘s failure to offer an alternative construction was fatal to its argument. See Resp. to Phil. 15 (“The manifest failure of the insured in Hennessy to offer its own interpretation of ‘collapse‘—never mind a reasonable one—necessarily meant that the insured would lose its case.“). Here, too, with no alternative definition or argument, the Court cannot “construe” the phrase in Columbia Knoll‘s favor by simply striking it from the policies altogether.
In sum, the Court follows Malbco and Hennessy to find that, under the terms of the policies at issue, а collapse occurs when parts of a building abruptly fall or cave in to any degree such that they cannot be occupied for their intended purposes. Thus, to the extent Martin‘s opinion relies on his “substantial impairment” definition of collapse, the opinion is irrelevant and will be excluded.
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2. “Unseen and Untested Areas”
The insurers argue that Martin also offers opinions about unseen and untested areas of the buildings, and these opinions should be excluded as “pure speculation.” Mot. Exclude 13, ECF 84. According to the insurers, Martin assumes building-wide conditions based on an examination of “very limited portions of the building,” and his conclusions are not reliable because he did not perform strength testing and relied on Anderson‘s unreliable decay estimates. Id.6
The Court finds the insurers’ arguments unpersuasive at this time. The insurers offer no legal citation to support their position. Instead, they cite, without sufficient argument, a single paragraph from the declaration of expert Dr. Donald Bender. Bender does not explain why Martin‘s position is impermissibly speculative or why
ii. Matthew Anderson
Matthew E. Anderson is a consulting wood scientist. The insurers argue that Anderson applies the wrong definition of collapse and that his opinions and conclusions about historical, progressive wood decay are not reliable. For the reasons stated above, to the extent Anderson‘s opinion relies on Martin‘s definition of collapse, the opinion is irrelevant and therefore excluded. The question of reliability is, however, more complicated.
In broad terms, Anderson attempts to calculate the past rate of decay by using data about the present amount of decay. According to Columbia Knoll, Anderson used resistograph testing to determine the “resistance strength of the wood” and a microscope to determine the “existence and extent of ‘wood decay hyphae’ and ‘cellular degradation.‘” Resp. Mot. Exclude 10 (citing Hill Decl. Ex. C at 3–5 (“Anderson Report“)). After determining the current degree of decay and degradation, Anderson applied certain “well-known and peer-reviewed scientific papers and principles to estimate the ‘lag’ between the onset of moisture intrusion in 2005 and the onset of decay.” Id. Thus, according to Columbia Knoll, Anderson “is simply taking the known loss of wood, which necessarily is affected by all the factors in a given ‘microclimate,’ and drawing a relatively linear rate of decay backwards in time from there.” Id. at 17. Moreover, he is not attempting to define a specific time when the wood decay began, but estimating that decay, based on known “site-specific” conditions, “could not have been present at a given time, or occurred after a given time.” Id. at 18.
The insurers take issue with the second half of this analysis. In particular, the insurers argue that while “well-known and peer-reviewed scientific papers and principles” may be used to predict future rates of decay, they should not be used estimate historical wood decay. In other
words, “Anderson applies the information and conclusions from [thеse] peer reviewed papers differently than the authors of those papers intended and in a manner that has not been peer reviewed.” Reply Mot. Exclude 7.
Columbia Knoll argues that (1) Anderson has significant experience, (2) the identified criticism is not valid because “Anderson‘s opinions are based on a backward-looking assessment of the damages he observed in March 2019, not a forward-looking prediction” and (3) the methodology
First, Columbia Knoll concedes that Anderson‘s application of these methodologies has not been tested for proof of accuracy and there is no known or potential error rate. There is also no evidence that Anderson‘s application of these methodologies has been subject to peer review. Accordingly, no controlling standards exist.
Second, Columbia Knoll fails to persuasively respond to the insurers’ evidence that “retroactive predictions of when decay occurred are impossible and an inaccurate use of science.” See Reply Mot. Exclude 8. The insurers’ expert Bender opines that “[s]ervice life models, such as the Australian model,9 were developed as forward-looking prediction tools to estimate durability of populations of buildings on a regional scale. They are not intended, nor are
they appropriate, for backdating decay in a specific building.” Bender Decl. ¶ 6, ECF 83. Bender, in turn, points the Court to published criticism from experts in the field. For example, in the paper Predicting the Rate of Decay, and the Potential for Misinterpretation of Proper Scientific Method, Drs. Goodell and Morrell write that decay models “have been erroneously used to assess the initiation and progression of decay in individual structures or even specific wood members with insufficient prior knowledge of conditions over the entire progression of decay. Service life models do not account for issues such as the quality of construction in a specific structure, or whether maintenance was done to repair leaking gutters or flashing.” Bender Decl. ¶ 11; Bender Decl. Ex. E at 3–4. In the paper Deterioration of Wood Structures – Basic Forensic Considerations, Ronald Anthony writes that
[r]ecently, there hаve been attempts to take the Australian service life prediction model and apply it to forensic investigations to extrapolate the time at which decay began in a wood component or material. While the usefulness of such information, if it could be generated, is not in question, there is no accepted scientific method extant today that can pinpoint the time at which decay starts. The Australian service life model and other predictive models provide data for general assumptions on wood performance and life expectancy based on a number of assumed conditions and variables. They do not have the sensitivity to be applied in a retroactive manner to specific instances of decay.
Bender Decl. Ex. A at 5. In sum, “[t]he validity of using the Australian service-life model, or any service-life model, to work backwards to determine when the onset of decay occurred is not an accepted scientific practice.” Id. at 6.
Columbia Knoll does not cite any external support for the reliability of
for these “estimates.” With no error rate or confidence interval, the Court cannot determine how relevant or useful these estimates actually are.
Columbia Knoll also focuses on Anthony‘s criticism. According to Columbia Knoll, Anthony criticizes the “Australian model” because “all of the variables that go into the equations that are used to predict service life are based on assumptions about general conditions’ that ‘vary by individual site and site-specific micro-climatic conditions.‘” Resp. Mot. Exclude 15. Columbia Knoll argues that Anderson did, however, account for all relevant “site-specific” conditions. Specifically, he tested wood samples from the sites themselves. These samples were “necessarily affected by the ‘micro-climate’ at those sites,” and therefore account for the missing variables. Id.
Again, the argument is not persuasive. First, Columbia Knoll fails to explain why or how this accounting of variables is relevant to Anthony‘s conclusion that the models themselves “do not have the sensitivity to be applied in a retroactive manner to specific instances of decay.” Bender Decl. Ex. A at 5. Second, Columbia Knoll again relies solеly on attorney argument and Anderson‘s deposition testimony to support its position that Anderson accounted for all relevant micro-climate variables by examining the damage at a certain point in time. See Resp. Mot. Exclude 16 (“A: I couldn‘t predict [the decay] out into the future, but all of these factors are what we were talking about earlier that could exist at a particular location over time causing damage, and then the resulting damage that you see at the time of testing, represents all of these variables. That‘s all I‘m saying.“) (citing Clifford Decl. Ex. 10 at 112:5-11, ECF 98). The Court notes, however, that Anthony‘s article provides “a partial list of factors that can affect the rate of decay,” including: “wood species and product type, moisture content at the time of installation and during service life, construction details, moisture intrusion events, structure maintenance,
structure modifications and history, and moisture, temperature and air-flow micro environments.” Bender Decl. Ex A at 5 (emphasis added). In criticizing the use of service models to “assess the initiation and progression of decay,” Drs. Goodell and Morrell also note a lack of “prior knowledge of conditions over the entire progression of decay.” Bender Decl. Ex. E at 3. For example,
[s]ervice life models do not account for issues such as the quality of construction in a specific structure, or whether maintenance was done to repair leaking gutters or flashing. Nor do they address issues about whеther a given design feature in a specific structure increased the risk of fungal decay, what decay type or fungal species was involved, whether insect attack or another biological deterioration event occurred, or numerous other factors that affect decay processes at a point 10, 20, 30 or more years before the damage was detected in the structure.
Id. at 3-4. The Court sees no argument from Columbia Knoll about the relevance of these variables or how Anderson may have accounted for them. In other words, the Court sees no support—besides Anderson‘s own conclusory deposition testimony—for Columbia Knoll‘s position that
Lastly, the Court again notes that Columbia Knoll fails to address Dr. Goodell, Dr. Morrell, and Dr. Bender‘s criticism altogether. As Bender summarizes,
Goodell and Morrell reference forensic “experts” misusing research to make decay timing predictions that would shock the original authors. They discuss cases in which a forensic expert made plots of wood decay from as little as two presumed data points. They continue: “The first data point is the time of building construction, which would be assessed as time zero for the initiation of decay. The second data point is the amount of decay present in a small number of building structural members, assessed when the structure was opened up during inspection years or decades after the building was constructed.” Goodell and Morrell conclude by stating: “To say that such methodology is lacking in validity, vastly understates the problem.” Exhibit E, p. 5. Goodell and Morrell published this paper in 2013, but it appears that they are exactly describing Mr. Anderson‘s analysis with respect to the Columbia Knoll buildings.
Bender Decl. ¶ 11 (emphasis added). Given the issues discussed above, and the fact that Columbia Knoll provides no argument or additional evidence to address these points, the Court cannot find that Columbia Knoll has demonstrated that Anderson‘s method of predicting past decay is a reliable application of the methodologies at issue. This testimony is therefore excluded.
III. Motions for Summary Judgment
Before the Court are GAIC and Philadelphia‘s motions for summary judgment.
a. Standards
Summary judgment is appropriate if there is no genuine dispute as to any material fact, and the moving party is entitled to judgment as a matter of law.
Once the moving party meets its initial burden of demonstrating the absence of a genuine issue of material fact, the burden then shifts to the nonmoving party to present “specific facts” showing a “genuine issue for trial.” Fed. Trade Comm‘n v. Stefanchik, 559 F.3d 924, 927–28 (9th Cir. 2009) (internal quotation marks omitted). The nonmoving party must go beyond the pleadings and designate facts showing an issue for trial. Bias v. Moynihan, 508 F.3d 1212, 1218 (9th Cir. 2007) (citing Celotex, 477 U.S. at 324).
The substantive law governing a claim determines whether a fact is material. Suever v. Connell, 579 F.3d 1047, 1056 (9th Cir. 2009). The court draws inferences from the facts in the
light most favorable to the nonmoving party. Earl v. Nielsen Media Research, Inc., 658 F.3d 1108, 1112 (9th Cir. 2011). If the factual context makes the nonmoving party‘s
b. GAIC‘s Motion for Summary Judgment
“In disputes involving insurance policies, the insured has the initial burden of establishing conditions of coverage, the insurer has the burden of proving that the policy excludes coverage, and the burden to show an exception to an exclusion falls back upon the insured.” Ass ‘n of Unit Owners of Nestani v. State Farm Fire & Cas. Co., 670 F. Supp. 2d 1156, 1159 (D. Or. 2009) (citing Emps. Ins. of Wausau v. Tektronix, Inc., 211 Or. App. 485, 509–14 (2007).
GAIC raises five primary arguments in its motion for summary judgment: (1) Columbia Knoll cannot show that damage “commenced” during the policy period at issue; (2) coverage is barred because Columbia Knoll failed to provide prompt notice of any loss or damage; (3) coverage is barred by the policy‘s two-year statute of limitations; (4) the special “Cause of Loss” exclusions form was included in the first issued policy; and (5) policy exclusions bar recovery for all damage.
i. “Commenced”
The GAIC policy provides:
1. We cover loss or damage commencing:
a. During the policy period [6/30/2011 to 6/30/2014].
GAIC Policy at 34. GAIC argues that Columbia Knoll cannot meet its burden to establish that its claimed losses commenced within a GAIC policy coverage period.
The parties do not appear to dispute the meaning of the term “commencing.” Both parties rely on Ass ‘n of Unit Owners of Nestani. In that case, Judge Aiken found that the term “‘commencing’ may be reasonably read to include each identifiable instance of collapse, regardless of whether similar loss occurred prior to the Policy period.” 670 F. Supp. 2d at 1160.
GAIC argues that Columbia Knoll fails to identify any specific, identifiable instances of collapse or damage due to water intrusion during the policy period. Instead, Columbia Knoll‘s expert, Felix Martin, “erroneously lump[s] together both the GAIC policy periods of 6/30/2011 to 6/30/2014, with the Philadelphia policy periods of 6/30/2014 to 6/30/2016.” GAIC Second Mot. Summary Judgment at 8, ECF 87 (“GAIC Mot.“).10 Thus, the Court understands GAIC to argue that Columbia Knoll‘s attempt to attribute any specific damage to the covered policy period is speculative at best.
The Court agrees that Columbia Knoll has failed to offer any evidence of a covered collapse. As discussed above, to the extent Columbia Knoll‘s experts rely on Martin‘s definition of collapse, the testimony is excluded. Even with this testimony, hоwever, Columbia Knoll has failed to identify any specific, identifiable instance of collapse, as defined by policy, that occurred during the GAIC policy period. Summary judgment is therefore warranted.
As to the non-collapse damages,11 however, the Court finds that summary judgment is not appropriate. GAIC argues only that Columbia Knoll has failed to identify specific instances of damage due to water intrusion during the relevant policy period. The experts appear to agree,
however, that water intrusion and damage has been
ii. Late Notice
The GAIC policy provides:
3. Duties in The Event of Loss or Damage
a. You must see that the following are done in the event of loss or damage to covered property:
. . . .
(2) Give us prompt notice of the loss or damage. Include a description of the property involved.
(3) As soon as possible, give us a description of how, when and where the loss or damage occurred.
GAIC Policy at 29–30. GAIC argues that Columbia Knoll failed to provide prompt notice of any loss or damage, and its claims are therefore barred.
“Under Oregon law an insurer may deny coverage on the basis of an insured‘s failure to give timely notice of the claim if the insurer satisfies a two-part inquiry regarding prejudice and reasonableness.” Smagala v. Sequoia Ins. Co., 969 F.Supp.2d 1271, 1282 (D. Or. 2013). The first question is whether the insurer was prejudiced by the insured‘s conduct. Id. The second question is whether the insured acted reasonably. Id. Prejudice may be shown if the insurer did not receive the notice with sufficient time “to make a reasonable investigation and adequately protect its interest and that of the insured.” Lusch v. Aetna Cas. & Surety Co., 272 Or. 593, 599 (1975).
Columbia Knoll provided notice of a loss to GAIC on October 31, 2016. GAIC argues that this does not constitute prompt notice because Columbia Knoll disсovered water intrusion and damage in 2005 and 2010. GAIC argues it was prejudiced because “destructive testing and repairs were performed before GAIC had a chance to observe and evaluate the damage.” GAIC Mot. 16. Additionally, had it learned of these defects and the ongoing damage, it likely would have non-renewed the policy.
Columbia Knoll argues that notice was, in fact, prompt. While it learned of certain water damage in 2010, it also believed that this damage was successfully remediated. It did not learn of the hidden damage at issue here until destructive testing occurred in June 2016. Specifically, while Columbia Knoll “notified its building contractor, Synergy, about alleged defects in its buildings on May 26,” it was not aware of damage related to those defects until it performed testing less than a month later.
Moreover, the Court cannot find, as a matter of law, that Columbia Knoll did not provide notice within a reasonable period of time. As an initial matter, summary judgment is “generally an inappropriate way to decide questions of reasonableness because ‘the jury‘s unique competence in applying the “reasonable man” standard is thought ordinarily to preclude summary judgment.’” Gorman v. Wolpoff & Abramson, LLP, 584 F.3d 1147, 1157 (9th Cir. 2009) (quoting In re Software Toolworks Inc., 50 F.3d 615, 621 (9th Cir. 1994)). Summary judgment on questions of reasonableness is appropriate “when only one conclusion about the conduct‘s reasonableness is possible.” Id. Columbia Knoll has offered evidence that it believed the defects and damages discovered in 2010 were repaired. See Miller Decl. ¶ 2, ECF 96. Columbia Knoll also alleges that it did not discover the specific damage at issue until it performed destructive testing in June 2016. Id. Whether Columbia Knoll acted reasonably in failing to provide notice until October 2016—five months after it notified the building contractor of defects and four months after it performed destructive testing—remains a question for the jury.14 Summary judgment is therefore denied.
iii. Two-Year Suit Limitation Provision
Under Oregon law, all fire insurance policies must contain the following provision: “[n]o suit or action on this policy for the recovery of any claim shall be sustainable in any court of law or equity unless all the requirements of this policy shall have been complied with, and unless commenced within 24 months next after
The GAIC policy does not recite the statutory language verbatim. Instead, the policy provides that any legal action must be “brought within 2 years after the date on which the direct physical loss or damage occurred.” GAIC Policy at 33. According to GAIC, this provision differs only slightly from the statutory provision. Thus, GAIC argues that there is no discovery rule, and Columbia Knoll‘s claims fall outside of the two-year statute of limitations provided by the policy itself.
Judge Beckerman recently examined an identical policy provision in Housing Northwest Inc. v. American Insurance Co., 3:19-cv-00253-SB, 2019 WL 7040922 (D. Or. December 20, 2019). In the context of hidden and progressive water damage, Judge Beckerman found that the policy term “occurred” was ambiguous. Id. at *3. It could mean “‘to present itself,’ to ‘appear,’ or to ‘exist,’ so that the limitations period is not triggerеd until after the loss or damage presents itself or appears or ceases to exist.” Id. It could also mean “the date on which the damage begins.” Id. After looking for a contextual answer, Judge Beckerman relied on differences between the statutory language and the policy language, and construed the policy in favor of the insured:
First, any insurance company selling property insurance in Oregon should be aware that progressive water damage is a common occurrence, and should be motivated to draft clear policy language to govern coverage of such damage. Second, insurance companies have been litigating this same policy language in Oregon for over one hundred years, and Defendants were on notice regarding the ambiguity of the term “occurred” in this context. See, e.g., Egan v. Oakland Home Ins. Co., 29 Or. 403, 405 (1895) (discussing the interpretation of suit limitation provisions that begin to run from “the time the fire shall have occurred” from those that begin to run from the time “the loss or damage shall have occurred” or “after the loss,” and citing cases from throughout the 1800s). Third, the relevant Oregon statute (
OR. REV. STAT. § 742.240 ) provides clear language requiring an insured to commence an action “within 24 months next after inception of the loss,” but Defendants chose not to incorporate the statutory language in their policies. For these reasons, the Court finds that the longstanding rule of interрretation against the drafter is fairly applied here.
The Court is persuaded by Judge Beckerman‘s analysis and adopts it here.16
iv. Exclusions Form
Next, GAIC argues that it is entitled to a declaration that the first policy issued to Columbia Knoll, effective from June 30, 2011 through June 30, 2012, included the “Causes of Loss” exclusion form. GAIC argues that, by mutual mistake, the form was not attached to the June 30, 2011 policy. According to GAIC, while the parties agreed to the provisions in this form, “[w]hen the policy was issued, a computer error occurred and the form did not get attached to the policy.” GAIC Mot. 21 (quoting Houser Decl. Ex. PP at 18:4-6). Nevertheless, the policy was in fact endorsed “during the June 30, 2011 to June 30, 2012 policy period to include the missing Causes of Loss form.” Id. Specifically, Columbia Knoll‘s “insurance broker, Propel, received a copy of the endorsement on August 29, 2011 via email[, and] Propel‘s typical business practice when it receives an endorsement . . . would be to send the endorsement to the insured.” Id.
GAIC first argues that because “[e]ach of the elements of reformation is present,” the Court should order the policy “reformed” under Oregon law to include the Causes of Loss form. GAIC Mot. 22. In response, Columbia Knoll points out that, in amending its complaint, GAIC discarded its standalone reformation claim, and instead asked only for a declaratory judgment. Thus, Columbia Knoll argues that GAIC abandoned the claim. GAIC appears to concede this point in its reply, arguing instead that
[l]he first GAIC policy, from June 30, 2011 to June 30, 2012 (“the First GAIC Policy”), need not be reformed to include the “Causes of Loss” form because the First GAIC Policy was endorsed during the policy period—on August 23, 2011—to include the missing “Causes of Loss” form.
GAIC Reply 14, ECF 104 (emphasis added).
In other words, while GAIC first argues the Court should “reform” the policy, it then argues that reformation is not necessary due to the form‘s inclusion by endorsement. GAIC offers no explanation for this change of position. It also offers no explanation or citation in support of this position. Indeed, the Court sees no citation to any legal authority in this section at all. The Court will not attempt to flesh out legal arguments that GAIC failed to make. Thus, on this record, without any legal citation or explanation of the relevant endorsement analysis, the Court cannot find that GAIC has shown that the “Cause of Loss” form was included in the first GAIC policy.
v. Collapse
GAIC argues that there has been no “collapse” as defined in the GAIC policy. As discussed above, the Court agrees that Columbia Knoll has not identified any evidence that a collapse, as defined by policy, occurred during the relevant period. GAIC is therefore entitled to summary judgment on this issue.
vi. Remaining Exclusions
GAIC argues that the (1) defective
The first question is whether Columbia Knoll has identified a covered peril. GAIC does not dispute the general premise that “weather conditions” are a covered peril.18 Instead, GAIC appears to argue that rain is not a covered peril because it is not a “fortuitous” event.
According to GAIC, under an all-risk policy, covered perils must be “fortuitous.” See Market Place N. Condo. Assʼn v. Affiliated FM Ins. Co., No. C17-625 RSM, 2018 WL 2095733, *3 (W.D. Wash May 7, 2018) (“a loss which was certain to occur cannot be considered fortuitous, and may not serve as the basis for recovery under an all-risk insurance policy”). The Court is not convinced. While GAIC relies on Washington case law, it provides no evidence that Oregon law also requires proof of “fortuity.”19 To the contrary, Oregon law requires that “every contract of insurance shall be construed according to the terms and conditions of the policy,”
GAIC‘s reliance on Vision One in its reply is similarly unpersuasive. In that Washington case, the court wrote that “in insurance parlance, ‘perils’ . . . refers to fortuitous, active, physical forces such as
Because rain is a covered peril, the next question is whether the loss was caused by rain or by an excluded peril. When there are multiple causes for a single loss, “the ‘efficient proximate cause’ is the relevant cause for determining coverage under an insurance contract.” Naumes, Inc. v. Landmark Ins. Co., 119 Or. App. 79, 82 (1993) (citation omitted).
The “efficient proximate cause” of a loss is the active and efficient cause that sets in motion a train of events which bring about a result without the intervention of any force, starting and working actively and efficiently from a new and independent source.
Id. (citation omitted). “Generally, if the facts are disputed, or different inferences may be drawn from undisputed facts, the question of the ‘efficient proximate cause’ of a loss is for the jury.” Id. at 82–83. Thus, if weather conditions—i.e., rain—are the efficient proximate cause of Columbia Knoll‘s loss, “then all of the subsequent, intervening perils excluded by [GAIC‘s] policy cannot negate coverage for the ‘entire loss’ at issue here.” Resp. to Phil. 21. If one of the excluded perils—e.g., defective construction, water seepage for more than fourteen days, or fungus/dry rot—is the efficient proximate cause, however, GAIC is not liable.
Judge Jelderks examined a very similar issue in Point Triumph Condominium Ass‘n v. American Guarantee and Liability Insurance Co., No. 99-1504-JE, 2000 WL 34474454 (D. Or. Dec. 29, 2000). In that case, water began penetrating the siding on condominium buildings near the Oregon coast. Id. at *1. Plaintiff, the buildings’ owner, first brought a successful warranty claim against the siding manufacturer. Id. Plaintiff then brought a claim against the insurer, arguing the buildings had been damaged “as a result of weather.” Id. The insurer denied the claim, asserting that defective siding, construction, and maintenance had instead caused the loss. Id. at *2, *5.
Judge Jelderks first confirmed that expert reports “link[ed] the damages to plaintiff‘s buildings to either failure of the siding or to improper construction and maintenance.” Id. at *5. After examining the relevant Oregon cases, he then relied on two Ninth Circuit cases in which the court found that a contractor‘s failure to cover exposed premises was the “efficient proximate cause” of damage that occurred after rain. Id. at *6. He concluded:
Plaintiff‘s loss here was caused by moisture penetrating the siding and substructure of several of plaintiff‘s buildings. Wind-driven rain, a peril covered by the policy, is a common phenomenon on the Oregon Coast, and there is no evidence in the record that it would have damaged plaintiff‘s buildings in the absence of defects in material or inadequacies in construction or maintenance that
are specifically excluded under the policy. The damage to plaintiff‘s buildings was not a “natural” direct or indirect consequenсe of the rain, but instead was an abnormal occurrence that would not occur in the absence of other conditions—the faulty material, construction, or maintenance established by the record—that were specifically excluded from coverage under the policy. Under these circumstances, as in Smith and Tento, rain may have “operated more immediately” than other factors in producing the loss. Like the failure to cover exposed property in those actions, use of defective siding, or improper construction or maintenance here “set in motion” the chain of events leading to the loss. Here, as in those decisions, the rain cannot be characterized as the “dominant” or “most important” cause of loss. Accordingly, a trier of fact could not conclude that wind-driven rain constituted the efficient proximate cause.
Here, Columbia Knoll identifies no disputed facts; the parties appear to agree that defects in construction allowed rain to damage the buildings. Instead, Columbia Knoll relies on a number of Washington cases, applying Washington law, to argue that because rain “caused ongoing, repeated instances of water-intrusion damages,” a jury could determine that rain was the proximate efficient cause of the damage. Rеsp. to Phil. 25.
The Court does not agree. First, by Columbia Knoll‘s reasoning, all rain damage claims would survive summary judgment on the issue of proximate cause. Yet the Ninth Circuit has found that these questions may, in fact, be resolved on summary judgment. See, e.g., Tento Int‘l Inc. v. State Farm Fire and Casualty Co., 222 F.3d 660 (9th Cir. 2000). Second, while Columbia Knolls relies heavily on Washington case law, Columbia Knoll has not demonstrated that the Oregon and Washington proximate cause rules are, in fact, “virtually indistinguishable.” See Resp. to Phil. 22. Rather, instead of argument or analysis, Columbia Knoll simply asks the Court to “compare” four cases discussing the different rules. See id. Finally, to the extent the cited cases remain persuasive, the Court sees only support for the undisputed proposition that, as a general matter, questions of proximate cause should be left for the jury when there are disputes of fact or diverging inferences to be drawn from those facts. See, e.g., Greenlake Condo. Ass‘n v. Allstate Ins. Co., No. C14-1860 BJR, 2015 WL 11988945 (W.D. Wash. Dec. 23, 2015) (applying Washington case law and finding, without further analysis, that “while there is agreement as to the range of possible [efficient proximate causes] of the loss, the actual EPC is disputed. To the extent that Plaintiff seeks summary judgment as to the proximate cause of damage, this question is a question of fact best left to a jury.”).
Here, with no disputes of fact, the Court remains persuaded by Judge Jelderks‘s reasoning in Point Triumph. Columbia Knoll‘s attempt to distinguish Point Triumph is unavailing. Columbia Knoll argues only that Judge Jelderks relied on Ninth Cirсuit cases applying California law. According to Columbia Knoll, California law differs from Oregon law in that, under Oregon law, there is no requirement that the multiple or distinct perils independently cause damage. The Court does not agree. Columbia Knoll offers no citation to Oregon law for this position. Although somewhat unclear, the Court also notes that the Naumes court wrote:
The efficient proximate cause of a loss is the active and efficient cause that sets in motion a train of events
which bring about a result without the intervention of any force, starting and working actively and efficiently from a new and independent source.
119 Or. App. at 82 (citations and quotation marks omitted) (emphasis added). The Court therefore sees no error in Judge Jelderks‘s reasoning or reliance on two Ninth Circuit cases applying California law.
In sum, like in Point Triumph, Columbia Knoll cites “no evidence in the record that would support the conclusion that the losses of which it complains were not the result . . . of problems with installation or maintenance that are subject to the ‘faulty, inadequate, or defective’ exclusion.” 2000 WL 34474454 at *5. There is no evidence of any particularly severe rainstorm or that any of the damage would have occurred in the absence of “faulty, inadequate or defective” construction. Id. Thus, the Court finds that here, like in Point Triumph, the rain cannot be characterized as the “dominant” or “most important” cause of loss. Accordingly, a trier of fact could not conclude that wind-driven rain constituted the efficient proximate cause.20 Summary judgment is therefore granted on this issue.
vii. Breach of Contract Counterclaim
Finally, GAIC argues it is entitled to summary judgment on Columbia Knoll‘s Breach of Contract counterclaim because Columbia Knoll‘s loss is not covered by GAIC policies for the reasons stated above, and because Columbia Knoll has not identified any expert who will testify to damages. GAIC provides no argument or citation to support its position that an expert is necessary to prove damages—i.e., the cost of repairs—here. To the extent summary judgment on this claim is consistent with the rulings set for the above, the motion is granted. To the extent it is not, the argument is insufficiently developed at this time.
c. Philadelphia‘s Motion for Summary Judgment
Philadelphia raises four primary arguments in its motion for summary judgment: (1) Columbia Knoll cannot show that a covered collapse “commenced” during the policy period at issue; (2) damage from long term water intrusion is not covered by the Philadelphia policies; (3) policy exclusions bar recovery for all damage, and (4) the known loss doctrine bars recovery for all damage.
i. Collapse
Philadelphia argues that Columbia Knoll cannot prove that a covered collapse commenced during a policy period. Like GAIC, Philadelphia defines collapse as “an abrupt falling down or caving in of a ‘building’ or any part of a ‘building’ with the result that thе ‘building’ or part of the ‘building’ cannot be occupied for its intended purpose.” Philadelphia Policy at 53. For the reasons stated above, Columbia Knoll has not identified any evidence of a covered collapse. To the extent Columbia Knoll‘s experts rely on Martin‘s definition of collapse, the testimony is excluded. Even with this testimony, Columbia Knoll has failed to identify any specific, identifiable instance of collapse, as defined by policy, that occurred during the Philadelphia policy period. Summary judgment is therefore warranted.
ii. Long-Term Water Intrusion
Philadelphia also argues that its policy does not cover non-collapse damages caused by “long term water intrusion.” Philadelphia Mot. for Summary Judgment
1. Policy Provisions
Philadelphia argues that its policy, construed as a whole, does not provide coverage for long-term water intrusion. Philadelphia does not identify any provision expressly excluding coverage for long-term water intrusion. Instead, Philadelphia appears to argue that two policy provisions, when read together, suggest that only water damage caused by specific, catastrophic events is covered. The first prоvision states that water damage, defined as the “accidental discharge or leakage of water or steam as the direct result of the breaking or cracking of any part of a system or appliance containing water or steam,” is a covered loss. Philadelphia Policy at 49. The second states that Philadelphia will not pay for loss to:
c. The interior of any “buildings”, or to personal property in “buildings”, caused by or resulting from rain, snow, sleet, ice, sand or dust, whether driven by wind or not, unless:
- The “buildings” first sustain damage by a Covered Cause of Loss to their roof or walls through which the rain, snow, sleet, ice, sand or dust enters; or
- The “loss” is caused by or results from thawing of snow, sleet or ice on the “buildings”.
Id. at 48.
Neither provision is relevant to the damage alleged here. The first provision does not speak to or exclude damage from rain. As to the second provision, Columbia Knoll does not claim damage to the interior of any building or to personal property within a building. Rather, the damages “concern decks, exterior walls, and framing.” Resp. to Phil. 19.
To the extent Philadelphia argues that, taken together, these provisions (as well as exclusions for “faulty workmanship, wear, tear, decay and deterioration, and the continuous seepage exclusion”) show that “the policies are not intended to cover long tеrm water intrusion,” Phil. Mot. 24, the Court is not persuaded that such broad inferences are appropriate. While Philadelphia may argue that specific damage is excluded under specific provisions and exclusions, as it has done below, the Court will not infer, as a general matter, that the insurer “intended” to exclude “long term water intrusion” when no such explicit provision exists. If Philadelphia had intended to include such an exclusion, it certainly could have done so. See N. Pac. Ins. Co. v. Hamilton, 332 Or. 20, 29 (2001) (“It is the insurer‘s burden to draft exclusions and limitations that are clear.”); Nw. Agr. Co-op. Ass‘n, Inc. v. Cont‘l Ins. Co., 95 Or. App. 285, 289 (1989) (refusing to read a “collision” exclusion into a policy that was not explicitly part of the policy, and holding that “[i]f defendant intended to exclude from its specified perils coverage losses caused by collision, it could have done so easily.”). This argument is therefore without merit.
2. All Risk Policies
Like GAIC, Philadelphia does not contest that its policy is an all-risk or open peril policy. Instead, relying on Vision One, it appears to argue that long-term exposure to rain and weather conditions is not a covered peril under all risk policies generally. See Vision One, 276 P.3d at 306 (“In insurance parlance, ‘perils’ . . . refers to fortuitous, active, physical forces such as lightening, wind, and explosion which bring about the loss.”).
The Court is not persuaded. As stated above, Philadelphia provides no evidenсe
iii. Exclusions
Philadelphia, like GAIC, argues that the exclusions here—faulty workmanship,21 wear and tear, deterioration and decay, and continuous water seepage—bar coverage. Columbia Knoll again argues there is a question of fact as to whether a covered peril (rain) or an excluded condition is the proximate cause of the loss. For the reasons stated above, no reasonable jury would conсlude that rain, rather than faulty workmanship, was the proximate cause of the damage at issue. Summary judgment is therefore granted.
iv. Known Loss Doctrine
Lastly, Philadelphia argues that, under the known loss doctrine, Columbia Knoll cannot recover for damages because “Columbia Knoll knew that the buildings were in a state of substantial decay prior to the issuance of the first Philadelphia policy on June 30, 2014.” Phil. Mot. 29. The “known loss” doctrine bars coverage “where the loss to be insured is in progress or substantially likely to occur when the insurance contract is issued.” Malbco, 629 F.Supp.2d at 1200-01 (quoting City of Corvallis v. Hartford Acc. & Indem. Co., 1991 WL 523876, *8 (D. Or. May 30, 1991)). It is unclear whether the known loss doctrine applies under Oregon law. If it does apply, both the Ninth Circuit and Malbco court suggest that “it is likely that Oregon courts would align themselves with those jurisdictions which only allow use of the ‘known loss’ doctrine to invalidate coverage where the insurer shows that the insured fraudulently misrepresented or concealed a material fact.” Id. at 1201; Generali-U.S. Branch v. Bank of Montreal, 46 F.3d 1141 (9th Cir. 1995) (Table). As discussed above, there is a question of fact as to whether Columbia Knoll knew of the loss when the policy was issued. Columbia Knoll submits evidence that it believed the damage identified in 2010 was successfully repaired. It also argues there is no evidence that it knew of the specific, hidden damage that occurred during the policy period at issue. Additionally, Philadelphia provides no evidence that Columbia Knoll fraudulently misrеpresented or concealed any material facts. Summary judgment on this issue is therefore denied.
CONCLUSION
For the reasons stated above, the motions for summary judgment [85][87] are
Dated: September 4, 2020
MARCO A. HERNÁNDEZ
United States District Judge
37 – OPINION & ORDER
Notes
c. Faulty, inadequate or defective:
- Planning, zoning, development, surveying, siting;
- Design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction;
- Materials used in repair, construction, renovation or remodeling; or
- Maintenance[.]
c. Faulty, inadequate or defective:
- Planning, zoning, development, surveying, siting;
- Design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction;
- Materials used in repair, construction, renovation or remodeling; or
- Maintenance[.]