Opinion
Civil Action No. 21-cv-02547-CMA-KLM
2023-07-21
5333 MATTRESS KING LLC, Plaintiff, v. The HANOVER INSURANCE COMPANY, Defendant.
Andrew Thomas Flynn, Vikrama Shiva Chandrashekar, Moye White LLP, Denver, CO, for Plaintiff. Amy M. Samberg, Clyde & Co. U.S. LLP, Phoenix, AZ, Evan M. Blonigen, Evan Bennett Stephenson, Spencer Fane LLP, Denver, CO, Jefferson D. Patten, Clyde & Co., LLP, Chicago, IL, for Defendant.
Andrew Thomas Flynn, Vikrama Shiva Chandrashekar, Moye White LLP, Denver, CO, for Plaintiff. Amy M. Samberg, Clyde & Co. U.S. LLP, Phoenix, AZ, Evan M. Blonigen, Evan Bennett Stephenson, Spencer Fane LLP, Denver, CO, Jefferson D. Patten, Clyde & Co., LLP, Chicago, IL, for Defendant.
ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT
CHRISTINE M. ARGUELLO, United States District Judge
This matter is before the Court on two motions for summary judgment: (1) Plaintiff 5333 Mattress King LLC's ("Mattress King") Motion for Summary Judgment on Defendant The Hanover Insurance Company's ("Hanover") counterclaims (Doc. # 91); and (2) Hanover's Motion for Summary Judgment on all of Mattress King's claims (Doc. # 92). Because the Court determines that the relevant insurance policy does not provide coverage for the loss in this case, the Court grants Hanover's motion and enters summary judgment in favor of Hanover and against Mattress King.
I. BACKGROUND
This is an insurance bad faith case arising from an incident in which a subcontractor drove a crane over and damaged a concrete floor slab during construction of Mattress King's warehouse. Unless otherwise indicated, the following material facts are undisputed.
A. THE POLICY
Mattress King is the owner of a warehouse located in Denver, Colorado ("Property"). (Doc. # 91 at 2.) Hanover insured Mattress King under a Commercial Marine/Commercial Lines insurance policy, number IH4-A986628 ("Policy") for a period from July 15, 2016, through July 15, 2017. (Doc. # 91-2.) The Policy included builders' risk coverage for a building under the course of construction, described in the Policy as "NEW CONSTRUCTION OF A 1 SOTRY [sic] MASONRY NON-COMBUSTIBLE COMMERCIAL BUILDING" at the Property's address. (Id. at 11.) The builders' risk insurance provides the following coverage:
A. COVERAGE
We will pay for direct physical "loss" to Covered Property caused by or resulting from any of the Covered Causes of Loss unless the loss is excluded or subject to limitations.
1. Covered Property
(Id. at 28.)a. "Buildings and structures" in the course of construction and described on the Builders' Risk Schedule of Coverages and located at the described construction site. We also cover foundations of "Buildings or Structures"; pipes and wiring above or beneath the surface of the ground; machinery and equipment; and related property provided such property is, or will become, a permanent part of the completed "building or structure";
b. Construction materials and supplies that will become a permanent part of the completed "Buildings and Structures" while located at the described construction site.
The Policy contains the following exclusion, which Mattress King refers to as the "Faulty Workmanship Exclusion" and which Hanover refers to as the "Construction Defect Exclusion":
3. We will not pay for loss caused by or resulting from any of the following. But if loss by a Covered Cause of Loss results, we will pay for the loss caused by that Covered Cause of Loss.
a. Wear and tear, depreciation or obsolescence.
b. Settling, cracking, shrinking or expanding.
c. Rust, corrosion, decay, deterioration, hidden or latent defect, inherent vice, or any quality or fault in the property that causes it to damage or destroy itself.
d. Faulty, inadequate or defective:
(Id. at 40-41.)1) Planning, zoning, surveying, siting or development;
2) Design, specifications, workmanship, repair, construction, renovation, remodeling, grading, or compaction;
3) Materials used in repair, construction, renovation or remodeling; or
4) Maintenance of all or part of any covered property at or off the construction site.
In the event of an alleged loss, the Policy requires Mattress King to give Hanover "prompt notice of the loss or damage." (Id. at 19.) The Policy also states:
C. Legal Action Against Us
(Id. at 20.)No one may bring a legal action against us under this Coverage Part unless:
1. There has been full compliance with all the terms of this Coverage Part; and
2. The action is brought within 2 years after you first have knowledge of the direct loss or damage.
B. CONSTRUCTION OF THE PROPERTY AND DAMAGE TO THE SLAB
Mattress King hired Madison Development Group ("MDG") to oversee the demolition and reconstruction of the Property. (Doc. # 92 at 5.) In addition, Mattress King hired Pennon Construction Company, Inc. ("Pennon") to serve as the general contractor. (Doc. # 91 at 4.) The warehouse portion of the Property was designed to include a concrete slab-on-grade floor of approximately 100,000 square feet ("Slab") and concrete tilt-up panel walls approximately two stories high. (Id.)
As part of developing the project, MDG hired Shutler Consulting Engineers, Inc. ("Shutler") to serve as the structural engineer of record. (Doc. # 92 at 6.) Shutler issued structural drawings and instructions for the warehouse construction, including the following instructions relevant to the Slab:
The slab on grade for this project is typical of other buildings with similar floor loading and soil conditions constructed in this area. The slab has not been designed for any specific live load . . . No construction loads have been included in the design of the floor slab.(Doc. # 92-5 at 1) (emphasis added). Pennon subcontracted with Thoutt Bros. Concrete Contractors ("Thoutt") for construction of the Slab, and Thoutt poured the Slab in October 2016. (Doc. # 91 at 5.) At the time it was completed, the Slab "appeared to be satisfactory per the contract documents." (Doc. # 91-6 at 3.)
The contractor . . . shall take the necessary measures to insure [sic] that the slab and soil below will not be affected or damaged by the construction loading. The contractor shall add additional reinforcing and upgrade joint detailing required for his loading.
For construction and installation of the tilt-up walls, Pennon hired Panel Masters, Inc. ("Panel Masters"). (Doc. # 92 at 6.) The contract between Pennon and Panel Masters provided that Panel Masters would furnish the tilt-up walls "in strict accordance with the plans, specifications, project documentation and industry best practices." (Doc. # 92-9 at 15.) Pennon's representative, Kyle Kinda, testified that the proximity of train tracks on the south side of the building meant that it would not be possible for a crane to operate on the south exterior of the warehouse to erect the tilt-up walls. (Doc. # 92-12 at 1-2.) Panel Masters's representative, Joel Grosshans, also testified that it was apparent at the outset of the project that Panel Masters would not be able to operate a crane from the south exterior of the warehouse. (Doc. # 99-2 at 2.) As such, prior to commencing construction, Panel Masters confirmed with Pennon that "the floor slab will be placed prior to casting panels." (Doc. # 92-8 at 2.) Pennon confirmed that the Slab would be poured first and instructed Panel Masters to drive the crane onto the Slab. (Id.; Doc. # 99-2 at 2.)
According to Panel Masters, Pennon could have planned a different construction sequence in which the crane would erect the panel walls and the final slab would be poured afterward. (Doc. # 99-2 at 3.) Panel Masters does similar sequencing on approximately 30 percent of its projects. (Id.) However, Mr. Kinda testified that "the way the project was bid" was to pour the slab first, then erect the panel walls, and that sequencing the final slab pour after the walls was "not the way the project was bid, because that was cost prohibitive." (Doc. # 100-1 at 2.) Mr. Grosshans also testified that Pennon "chose to take the risk with the crane on the slab" for cost reasons. (Doc. # 99-3 at 2.)
In December 2016, Panel Masters drove a crane over the Slab to tilt up the panel walls. (Doc. # 91 at 5.) There is no dispute that Panel Masters intentionally drove the crane onto the Slab with the full knowledge and approval of Pennon. (Doc. # 98-1 at 4.) Mr. Kinda further testified that he anticipated some damage to the Slab would occur at the entry point where the crane mounted the Slab, but he did not anticipate that the crane would cause severe damage to the Slab. (Id.; Doc. # 91-6 at 3.) It appears undisputed that Mattress King did not know that Panel Masters was going to drive the crane onto the Slab. (Doc. # 91 at 5; Doc. # 99 at 5.)
Pennon completed construction of the warehouse on May 28, 2017, and turned the building over to Mattress King's tenant the next day. (Doc. # 92-13 at 1.) In August 2017, Mattress King's owner, David Dolan, visited the Property and discovered severe cracking in the Slab. (Doc. # 91-1 at 4.) In a letter dated August 30, 2017, Pennon advised Mattress King:
The[ ] cracks seemed to be caused by the path of the crane used to set the wall panels. Pouring the wall panels on the permanent slab and then setting with a crane is a common economical way to avoid using a rat slab. Added stress from the weight of the crane is common and typically causes cracks that do not take away from the function or structural capability of the slab.(Doc. # 92-15 at 2.)
Mattress King and Pennon each retained concrete engineering experts to evaluate the damage to the Slab. (Doc. # 91 at 6.) Pennon's retained engineering firm, Wiss, Janney, Elstner Associates ("WJE"), performed a site investigation and determined that the damage to the Slab "correlated to the areas . . . where the crane erecting the tilt-up wall panels reportedly traveled." (Doc. # 91-8 at 4.) Mattress King's retained firm, North Starr Concrete Consulting, P.C. ("North Starr"), made a similar finding and created a crack map showing that the cracking correlated directly with the crane's path. (Doc. # 91-12 at 1.) North Starr's representative, Ronald Kozikowski, testified that almost all cracks in the Slab were caused by the crane and that the concrete directly in the crane's path had been "rubbilized." (Doc. # 91-13 at 2, 5.) For purposes of its Motion for Summary Judgment, Hanover does not dispute that all defects in the Slab necessitating repair or replacement of the concrete are due to the crane traversing it. (Doc. # 92 at 7.)
The parties dispute whether the tenant's use of forklifts also caused "some damage to the slab joints." Compare (Doc. # 92 at 8), with (Doc. # 98 at 3). The Court finds that this disputed fact is not material for resolving Hanover's summary judgment motion.
C. THE CLAIM
Hanover first received notice of the loss on March 28, 2019. (Doc. # 92-18 at 1.) In a letter dated April 15, 2019, Hanover acknowledged receipt of the claim and advised Mattress King of policy provisions that may limit or exclude coverage under the Policy, including the requirement that Mattress King give "prompt notice" of the loss. (Id. at 1-5.) Hanover reserved all of its rights under the Policy and stated, "In this case, you did not comply with the conditions of your policy. Your failure to comply with certain conditions may restrict, reduce, or exclude any coverage that may be applicable to your loss." (Id. at 4.)
Hanover's retained engineer, Kelly Huff, determined that the cause of the concrete cracks "come from several different issues," including possible lack of reinforcement of joints. (Doc. # 92-19 at 1.) She further concluded that the "unreinforced concrete slab was not designed for overloading during construction" and that the contractors "knew of the slab design deficiencies and potential damages the crane would cause prior to allowing the crane on the slab." (Id. at 1-2.) In a letter dated July 17, 2019, Hanover informed Mattress King that the Slab damage was not covered under the Policy and again reserved all of its rights under the Policy. (Id. at 1-4.) Hanover summarized Ms. Huff's conclusions and cited several reasons for denying the claim, including (1) the Policy excludes coverage for damages caused by faulty, inadequate or defective planning, workmanship, maintenance, and construction, (2) the damage was not "accidental" because the subcontractor and contractor intentionally drove the crane onto the Slab knowing the potential damage it would cause; and (3) the damage/cracks occurred after the policy period ended. See (id.)
D. PROCEDURAL HISTORY
Mattress King filed the instant lawsuit against Hanover on August 22, 2021. (Doc. # 5.) In its First Amended Complaint, Mattress King asserts three claims for relief: (1) unreasonable denial of insurance benefits pursuant to Colo. Rev. Stat. § 10-3-1115; (2) breach of good faith and fair dealing; and (3) common law bad faith. (Doc. # 77.) Hanover filed four counterclaims for declaratory judgment that Mattress King cannot recover under the Policy on the grounds that (1) all legal action for coverage under the Policy is time barred because Mattress King failed to bring an action within two years of having knowledge of the loss; (2) there was no "occurrence" under the Policy because the damage to the Slab manifested after coverage under the Policy had ended; (3) the damage to the Slab was caused by faulty construction and recovery is therefore precluded by the faulty construction exclusion in the Policy; and (4) Mattress King failed to provide prompt notice of the loss, thus breaching its duties under the Policy and making it so Hanover has no coverage obligation. (Doc. # 81 at 20; Doc. # 8 at 28-34.)
On July 18, 2019, Mattress King filed a demand for arbitration with the American Arbitration Association against Pennon. (Doc. # 92-20.) Mattress King entered into a settlement agreement with Pennon, Panel Masters, and one other subcontractor on October 10, 2019. (Doc. # 92-22.) As a result of this arbitration and settlement, Mattress King recovered $1,500,000. (Id. at 5.)
The parties filed cross motions for summary judgment on May 17, 2023. (Docs. ## 91, 92.) In its motion, Mattress King seeks summary judgment in its favor on all four of Hanover's counterclaims. (Doc. # 91 at 1-2.) For its part, Hanover moves for summary judgment on each of Mattress King's claims. (Doc. # 92 at 1.) Both motions are fully briefed and ripe for review. (Docs. ## 91, 92, 98, 99, 100, 102.)
II. LEGAL STANDARD
Summary judgment is warranted when "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). A fact is "material" if it is essential to the proper disposition of the claim under the relevant substantive law. Wright v. Abbott Labs., Inc., 259 F.3d 1226, 1231-32 (10th Cir. 2001). A dispute is "genuine" if the evidence is such that it might lead a reasonable jury to return a verdict for the nonmoving party. Allen v. Muskogee, Okla., 119 F.3d 837, 839 (10th Cir. 1997). When reviewing a motion for summary judgment, a court must view the evidence in the light most favorable to the non-moving party. See id. However, conclusory statements based merely on conjecture, speculation, or subjective belief do not constitute summary judgment evidence. Bones v. Honeywell Int'l, Inc., 366 F.3d 869, 875 (10th Cir. 2004).
The moving party bears the initial burden of demonstrating the absence of a genuine dispute of material fact and entitlement to judgment as a matter of law. Id. In attempting to meet this standard, a movant who does not bear the ultimate burden of persuasion at trial does not need to disprove the other party's claim; rather, the movant need simply point out to the Court a lack of evidence for the other party on an essential element of that party's claim. Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 671 (10th Cir. 1998) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)).
Once the movant has met its initial burden, the burden shifts to the nonmoving party to "set forth specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The nonmoving party may not simply rest upon its pleadings to satisfy its burden. Id. Rather, the nonmoving party must "set forth specific facts that would be admissible in evidence in the event of trial from which a rational trier of fact could find for the nonmovant." Adler, 144 F.3d at 671. Stated differently, the party must provide "significantly probative evidence" that would support a verdict in his favor. Jaramillo v. Adams Cnty. Sch. Dist. 14, 680 F.3d 1267, 1269 (10th Cir. 2012). "To accomplish this, the facts must be identified by reference to affidavits, deposition transcripts, or specific exhibits incorporated therein." Adler, 144 F.3d at 671.
III. DISCUSSION
A. HANOVER'S MOTION FOR SUMMARY JUDGMENT
Hanover contends that it is entitled to summary judgment as a matter of law for six reasons: (1) the damage to the Slab caused by the crane falls within the Policy's exclusion for damage caused by faulty, inadequate, or defective planning, design, specifications, workmanship, or construction; (2) damage to the Slab was not accidental because Panel Masters intentionally drove the crane on the Slab to erect the wall panels with Pennon's knowledge and with the expectation that some damage would result; (3) Mattress King violated the Policy's prompt notice provision by failing to report any claim to Hanover for over a year; (4) Hanover had a reasonable basis for its coverage declination; (5) Mattress King's breach of implied duty of good faith and fair dealing claim is time barred by the Policy; and (6) Mattress King lacks admissible evidence of a valuation of the covered damage based on December 2016 pricing and therefore cannot establish a "covered benefit." (Doc. # 92 at 2-3.) The Court will begin with the defective planning and construction exclusion, which the Court determines to be dispositive.
1. Defective Planning and Construction Exclusion
In a diversity case such as this, the Court applies Colorado law and interprets insurance policies as a Colorado court would. Leprino Foods Co. v. Factory Mut. Ins. Co., 453 F.3d 1281, 1286 (10th Cir. 2006). Under Colorado law, "[i]nsurance policies are subject to contract interpretation." Bailey v. Lincoln Gen. Ins. Co., 255 P.3d 1039, 1050 (Colo. 2011). In interpreting a contract, the Court must "give effect to the intent and reasonable expectations of the parties." Thompson v. Md. Cas. Co., 84 P.3d 496, 501 (Colo. 2004). As such, insurance policies "must be given effect according to the plain and ordinary meaning of their terms." Bailey, 255 P.3d at 1051 (quoting Terranova v. State Farm Mut. Auto. Ins. Co., 800 P.2d 58, 59 (Colo. 1990) (emphasis removed)). If a term in the contract is ambiguous, courts should construe the ambiguous provision against the insurer and in favor of providing coverage. Cyprus Amax Mins. Co. v. Lexington Ins. Co., 74 P.3d 294, 299 (Colo. 2003). "Terms used in a contract are ambiguous when they are susceptible to more than one reasonable interpretation." Hecla Mining Co. v. N.H. Ins. Co., 811 P.2d 1083, 1091 (Colo. 1991).
The insured bears the initial burden of demonstrating coverage under the policy. See Rodriguez ex rel. Rodriguez v. Safeco Ins. Co. of Am., 821 P.2d 849, 853 (Colo. App. 1991). The burden then shifts to the insurer to prove that a particular loss falls within an exclusion in the policy. Colo. Intergovernmental Risk Sharing Agency v. Northfield Ins. Co., 207 P.3d 839, 842 (Colo. App. 2008). If an insurer shows that an exclusion applies, the burden shifts back to the insured to prove the applicability of an exception to the exclusion. See Leprino Foods, 453 F.3d at 1287. "Any exclusion must be clear and specific to be enforceable." Id. (quoting Fire Ins. Exchange v. Bentley, 953 P.2d 1297, 1301 (Colo. App. 1998)).
The defective planning and construction exclusion in the Policy excludes coverage for loss caused by or resulting from:
d. Faulty, inadequate or defective:
(Doc. # 91-2 at 45-46) (emphases added).1) Planning, zoning, surveying, siting or development;
2) Design, specifications, workmanship, repair, construction, renovation, remodeling, grading, or compaction;
3) Materials used in repair, construction, renovation or remodeling; or
4) Maintenance of all or part of any covered property at or off the construction site.
The Court agrees with Hanover that the undisputed facts in this case show that the damage to the Slab was caused by faulty, inadequate, or defective planning and construction. Although train tracks on one side of the warehouse prevented a crane from being able to work from the south exterior side of the walls, Pennon informed Panel Masters that the Slab would be laid prior to erecting the tilt-up walls. The inevitable result of this deficient planning was that Panel Masters necessarily had to drive the crane over the Slab to erect the walls from the interior of the structure. Moreover, despite having plans from Shutler warning that the Slab could not hold a live construction road without additional reinforcement, Pennon and Panel Masters did not "take the necessary measures to insure [sic] that the slab . . . will not be affected or damaged by the construction loading." (Doc. # 92-5 at 1.) The Court agrees with Hanover that these undisputed facts, even viewed in the light most favorable to Mattress King, show that Mattress King's contractors planned to and did use the unreinforced Slab as an improper staging point to lift the exterior walls. It is clear that the damage to the Slab was therefore a result of poor planning and a deficient construction process.
Mattress King argues that the Policy does not exclude coverage because the Tenth Circuit has held that other "faulty workmanship" exclusions do not exclude coverage for damage caused by subcontractor negligence. (Doc. # 98 at 9-10.) In support, Mattress King points to Equitable Fire & Marine Insurance Co. v. Allied Steel Construction Co., 421 F.2d 512, 514 (10th Cir. 1970), in which the Tenth Circuit held that the term "workmanship" did not include errors in fitting pipes onto piers which caused a structural collapse. Rather, for the relevant faulty workmanship exclusion to apply, the court held that the insurer must show "loss caused by defects in the pipe or piers." Id. The Court finds Allied Steel to be inapposite because the Tenth Circuit was interpreting Oklahoma law and the policy language in Allied Steel is much narrower than the Policy at issue in the instant case. Significantly, the policy in Allied Steel excluded "loss, damage or expense caused by or resulting from error, omission or deficiency in design, specifications, workmanship or materials," but it said nothing of faulty or defective planning or construction. See id. at 513.
Similarly, the Court is unpersuaded by Mattress King's reliance on Texas Eastern Transmission Corp. v. Marine Office-Appleton & Cox Corp., 579 F.2d 561 (10th Cir. 1978). In Texas Eastern, the Tenth Circuit analyzed an all-risk policy with an exclusion for "loss, damage or expense caused by or resulting from error, omission, or deficiency in design, specifications, workmanship, or materials." Id. at 563. The court determined that the policy did not exclude coverage for damage caused by the collapse of an underground storage cavern resulting from workmen's error in the dimensions and spacing of the columns. Id. at 565. Texas Eastern is also distinguishable for several reasons, including that the Tenth Circuit was analyzing Oklahoma law, the relevant damage was an ensuing loss, and, most significantly, the policy did not exclude coverage for deficient planning or construction. Mattress King identifies no applicable Tenth Circuit or Colorado appellate cases addressing policy language similar to the defective planning or construction exclusion in this case.
In focusing on the term "faulty workmanship" in the exclusion, Mattress King asks the Court to follow a body of caselaw in which courts have held that "faulty workmanship" exclusions are directed at a flawed product, rather than a flawed process. (Doc. # 98 at 11); see, e.g., Allstate Ins. Co. v. Smith, 929 F.2d 447, 451 (9th Cir. 1991) (concluding that "faulty workmanship" means losses caused by defect in the product of workmanship rather than losses resulting from a flawed process of construction). In line with this reasoning, some courts have held that "faulty workmanship" exclusions "do not exclude claims for accidental damage to covered property caused by the builder's negligence during construction." Sustainable Modular Mgmt., Inc. v. Travelers Lloyds Ins. Co., No. 3:20-CV-1883-D, 2022 WL 2134022, at *9 (N.D. Tex. June 14, 2022) (collecting cases). However, courts are far from uniformly decided on whether "faulty workmanship" refers only to a flawed product. Rather, a careful review of the applicable law shows that several other courts have held that faulty workmanship exclusions apply to faulty processes, such as a worker's poor judgment or negligence in deficiently executing a job. See BSI Constructors, Inc. v. Hartford Fire Ins. Co., 705 F.3d 330, 333 (8th Cir. 2013) ("Because under an ordinary definition, 'workmanship' denotes both 'process' and 'product,' we think the exclusion includes both." (quotation marks and citation omitted)); James McHugh Constr. Co. v. Travelers Prop. Cas. Co. of Am., 223 F. Supp. 3d 462, 469 (D. Md. 2016) (rejecting the product/process distinction in Allstate and determining that " 'workmanship' covers both a process and a product unambiguously"); Kroll Constr. Co. v. Great Am. Ins. Co., 594 F. Supp. 304, 307-08 (N.D. Ga. 1984) ("The court rejects plaintiff's argument that the failure of workmen to exercise proper judgment in executing their skill or craft, or the negligent execution by workmen of their skill, does not constitute faulty or defective workmanship.").
In the instant case, the Court need not decide whether "faulty workmanship" means a flawed product or a flawed process (or both) because the language in the Policy also excludes coverage for deficient planning and construction. Thus, Mattress King's singular focus on the term "faulty workmanship" is something of a red herring. In an effort to sidestep the broader language of the Policy, Mattress King argues that it is "immaterial that the Faulty Workmanship Exclusion in the Policy excludes coverage for 'planning' and 'construction' along with 'workmanship.' " (Doc. # 98 at 11). The Court rejects this argument as plainly incorrect and contrary to law. Although Mattress King may wish otherwise, the Court is not at liberty to simply ignore terms in the Policy. See Pub. Serv. Co. of Colo. v. Wallis & Cos., 986 P.2d 924, 933 (Colo. 1999) (stating that one of the general principles of contract interpretation under Colorado law is that "a court should seek to give effect to all provisions so that none will be rendered meaningless"). Instead, the Court must consider the plain meaning of the terms "construction" and "planning" and interpret them within the context of the exclusion and the Policy as a whole so as to give effect to all provisions.
The Court agrees with other courts that have held that the term "construction" in a faulty workmanship exclusion "carries an unambiguous, process-oriented meaning." Engineered Structures, Inc. v. Travelers Prop. Cas. Co. of Am., 822 F. App'x 606, 609 (9th Cir. 2020) (unpublished) (noting that "the term 'construction' appears several times throughout the policy as referring to the process of completing the project rather than a defect in the final product being built"); Landmark Hosp., LLC v. Cont'l Cas., Co., Nos. SA CV 01-0823-GLT(MLGx), SA CV 01-0691-GLT(MLGx), 2002 WL 34404929, at *3 (C.D. Cal. July 2, 2002) ("Interpreting this policy as a whole, the terms 'workmanship' and 'construction' concern the building process."). The term "construction" as used in the exclusion and elsewhere in the Policy indicates that the Policy excludes coverage for damage caused by a faulty, inadequate or defective process of construction, rather than merely a faulty, inadequate, or defective constructed product. See Engineered Structures, 822 F. App'x at 609 (analyzing an exclusion for "faulty, inadequate or defective . . . [d]esign, specifications, workmanship, repair, construction, renovation, remodeling, grading, or compaction" and concluding that "construction" is "a term referring to the 'process' in completing the covered project"). Similarly, the term "planning" broadens the scope of the exclusion to preclude coverage for faulty or defective planning in the construction or building process. See Landmark Hosp., 2002 WL 34404929, at *3 (finding that the defendant's defense of "faulty or inadequate planning" pursuant to a similar exclusion was "proper" based on arguments that Plaintiff "allowed its contractor to complete the interior before the exterior and roofing was scheduled was done").
The Court also rejects Mattress King's suggestion that the Court should consider the project as a piecemeal collection of completed construction work for purposes of the exclusion. According to Mattress King, the faulty workmanship provision is inapplicable because the Slab was completed without defect by Thoutt before it was destroyed by Panel Masters's use of the crane. (Doc. # 98 at 10-11.) In other words, the damage to the Slab was not a result of "faulty workmanship" (by Thoutt) because the Slab had been satisfactorily completed. (Id.) Again, Mattress King attempts to focus on the product (the Slab) and evades the process-oriented language of the Policy excluding coverage for "faulty, inadequate or defective . . . planning . . . [or] construction." Further, the Court disagrees with Mattress King that it would be proper to consider the Slab as a completed project by one subcontractor that sustained property damage by another, disconnected from the "planning" and "construction" of the Property as a whole. To do so would be contrary to the plain language of the Policy, which does not limit "construction" or "planning" to self-contained steps of an overall construction project. See BSI Constructors, 705 F.3d at 333 ("[I]t is inconsequential that the subcontractors were working on tasks unrelated to the roof, because their negligent conduct was part and parcel of the construction process as a whole and thus falls within a process definition of 'workmanship.' ").
Because the Policy unambiguously excludes coverage for loss caused by "faulty, inadequate or defective . . . planning . . . [or] construction," the Court concludes that there is no coverage for damage caused to the Slab by the poorly planned and defective construction sequence in this case, which resulted in Panel Masters driving a massive crane over the unreinforced Slab in direct contravention of the plans and instructions provided by the engineer of record. Because there is no coverage under the Policy for the damage to the Slab in this case, and because all of Mattress King's damages relate to the denial of coverage for the damage to the Slab, Hanover is entitled to summary judgment on each of Mattress King's claims. See MarkWest Hydrocarbon, Inc. v. Liberty Mut. Ins. Co., 558 F.3d 1184, 1193 (10th Cir. 2009) ("It is settled law in Colorado that a bad faith claim must fail if, as is the case here, coverage was properly denied and the plaintiff's only claimed damages flowed from the denial of coverage."); Markel Ins. Co. v. Hollandsworth, 400 F. Supp. 3d 1155, 1160 (D. Colo. 2019) ("Given the Court's conclusion that Hollandsworth is not entitled to coverage as a matter of law, Hollandsworth's counterclaims—namely, breach of contract and statutory bad faith of insurance contract—also fail as a matter of law.").
Because the Court determines that coverage is excluded as faulty or defective planning and construction within the meaning of the exclusion, the Court does not address whether coverage would also be excluded as a loss resulting from "cracking."
2. Accidental Loss or Damage
As a separate ground for granting summary judgment to Hanover, the Court finds that the Policy also excludes coverage for the loss in this case because the damage to the Slab was not an "accident" within the meaning of the Policy.
The builders' risk coverage in the Policy provides coverage for "direct physical 'loss' to Covered Property." (Doc. # 92-1 at 28.) It defines "loss" as "accidental loss or damage." (Id. at 45.) The Policy does not define "accidental." However, Colorado courts have interpreted the word "accident" in a commercial general liability policy to mean "an unanticipated or unusual result flowing from a commonplace cause." Mountain States Mut. Cas. Co. v. Hauser, 221 P.3d 56, 59 (Colo. App. 2009) (quoting Union Ins. Co. v. Hottenstein, 83 P.3d 1196, 1201 (Colo. App. 2003)). In Hauser, the Colorado Court of Appeals also cited a dictionary definition of "accident" as "an event or condition occurring by chance" or "an unforeseen unplanned event or condition." Id. (quoting Webster's Third New International Dictionary 11 (2002)). The Colorado Supreme Court has held that "a voluntary act that causes an unforeseeable, unintended, or unexpected result can be considered an accident." Carroll v. CUNA Mut. Ins. Soc'y, 894 P.2d 746, 753 (Colo. 1995).
Because the term "accident" is not defined in the Policy, the Court must construe its meaning in favor of Mattress King as the insured. State Farm Mut. Auto. Ins. Co. v. McMillan, 925 P.2d 785, 793 (Colo. 1996) (adopting the view of "a majority of jurisdiction that the determination of whether an 'accident' has occurred should be viewed from the standpoint of the insured"). Mattress King asks the Court to follow Colorado caselaw stating that "it is the knowledge and intent of the insured that make injuries or damages expected or intended rather than accidental." Hoang v. Monterra Homes LLC, 129 P.3d 1028, 1034 (Colo. App. 2005) (internal quotations omitted) (emphasis added), rev'd on other grounds 149 P.3d 798 (Colo. 2007). However, the Court notes that Hoang relied on Hecla Mining, 811 P.2d at 1088, which addressed policy language providing that "an occurrence is an accident that is neither expected nor intended from the standpoint of the insured." There is no similar definition of "occurrence" or "accident" in the instant Policy. Thus, while Hoang and Hecla Mining may be instructive, the Court need not go so far as to find that Mattress King "knew that the damages would flow directly and immediately from its intentional act" for recovery to be barred, as in Hecla Mining, 811 P.2d at 1088. Instead, the Court must simply evaluate whether the damage was an accident from Mattress King's perspective. See McMillan, 925 P.2d at 793.
It is undisputed for purposes of Hanover's motion that Mattress King was not aware that Panel Masters and Pennon intended for Panel Masters to drive the crane onto the Slab after it was poured. (Doc. # 98 at 5.) However, several other undisputed facts support a finding that no reasonable juror could determine that the damage to the Slab was an "accident" from Mattress King's perspective. Significantly, Mattress King hired MDG, which acquired construction plans and specifications from Shutler as the engineer of record. Those plans and specifications made clear that the Slab was not designed to support any live construction load and that any contractor "shall add additional reinforcing and upgrade joint detailing" required for construction loading. (Doc. # 92 at 6.) It was also apparent from the outset that train tracks on the south exterior of the Property would prevent a crane from erecting the tilt-up walls from the exterior. Nonetheless, Mattress King's chosen construction bid from Pennon intended that the Slab would be laid prior to casting the wall panels, making it inevitable that the crane would be driven on top of the Slab to erect the wall panels from the interior. See (Doc. # 100-1 at 2.) It is undisputed that Pennon and Panel Masters intended to, and did, drive the crane onto the Slab to complete this work. It is also undisputed that Pennon and Panel Masters expected some damage to result to the Slab from the crane. To the extent that Mattress King argues that the severity of the damage was unexpected or unforeseen, the Court disagrees and notes that all contractors had access to Shutler's plans and agreed to perform their work in accordance with those plans.
Viewing the facts in the light most favorable to Mattress King, the Court concludes that a reasonable jury could not determine that the damage caused by the crane was "unforeseeable" or "unintended" by Mattress King. See Couch on Insurance Third Ed. § 126:27 (stating that harm is caused by accident "where it is brought about by an event that is unforeseeable and unexpected by the person who sustained the loss"). Contrary to Mattress King's arguments, the severe damage to the Slab was not "an unanticipated or unusual result flowing from a commonplace cause." Hauser, 221 P.3d at 59. Instead, the damage was the natural and probable result of Mattress King's chosen construction bid that sequenced events to intentionally place a large construction load on an unreinforced slab despite clear instructions to the contrary from the engineer of record.
The Court also notes that damage that is a result of faulty workmanship or deficient construction typically is not considered a "fortuitous event" triggering coverage. See Adair Grp., Inc. v. St. Paul Fire & Marine Ins. Co., 477 F.3d 1186, 1188 (10th Cir. 2007) (determining that "the deficient performance of Adair's subcontractors is not in itself an event triggering application of the insurance policy" and distinguishing cases where faulty workmanship led to ensuing losses covered by a policy); see also McGowan v. State Farm Fire & Cas. Co., 100 P.3d 521, 525 (Colo. App. 2004) ("Comprehensive general liability policies normally exclude coverage for faulty workmanship based on the rationale that poor workmanship is considered a business risk to be borne by the policyholder, rather than a 'fortuitous event' entitling the insured to coverage."). Considering the term "accident" along with the Policy's exclusion for faulty or deficient planning, workmanship, or construction, the Court concludes that property damage resulting from deficient construction cannot constitute a covered "accidental loss" within the meaning of the Policy. Hanover is entitled to summary judgment on this basis as well.
3. Reasonable Basis for Claim Denial
As a third ground for entering summary judgment in favor of Hanover on Mattress King's claims, the Court finds that Mattress King has failed to present a genuine dispute of material fact as to whether Hanover acted without a reasonable basis in denying Mattress King's claim for insurance benefits.
Under Colorado law, an insurer must deal in good faith with its insured because every contract contains an implied duty of good faith and fair dealing. See Goodson v. Am. Standard Ins. Co., 89 P.3d 409, 414 (Colo. 2004). An insurer's breach of this duty gives rise to a tort cause of action. Id. (citing Cary v. United of Omaha Life Ins. Co., 68 P.3d 462, 466 (Colo. 2003)). For an insured to prove that an insurer breached a contract in bad faith, the insured must establish: (1) "the insurer acted unreasonably under the circumstances," and (2) "the insurer either knowingly or recklessly disregarded the validity of the insured's claim." Id. Similarly, an insurer has a statutory duty to "not unreasonably delay or deny payment of a claim for benefits." Colo. Rev. Stat. § 10-3-1115(1)(a). An insurer's delay or denial is unreasonable "if the insurer delayed or denied authorizing payment of a covered benefit without a reasonable basis for that action." Colo. Rev. Stat. § 10-3-1115(2).
As a necessary element to prevail on its claims, Mattress King has the burden of proving that Hanover acted without a reasonable basis in handling the claim. See Bankr. Estate of Morris v. COPIC Ins. Co., 192 P.3d 519, 523 (Colo. App. 2008). The reasonableness of an insurer's conduct "must be determined objectively, based on proof of industry standards." Goodson, 89 P.3d at 415. To prove that an insurer acted unreasonably, an insured must come forward with evidence (typically from an expert) that the insurer's conduct violated industry standards. See id. What constitutes reasonableness under the circumstances is ordinarily a question of fact for the jury. Vaccaro v. Am. Fam. Ins. Grp., 275 P.3d 750, 759 (Colo. App. 2012). "However, in appropriate circumstances, as when there are no genuine issues of material fact, reasonableness may be decided as a matter of law." Id.
In the instant case, the Court finds that Hanover has met its initial burden of demonstrating the absence of a genuine dispute of material fact as to the reasonableness of its denial of Mattress King's claim. Hanover presented evidence that its claim decision was supported by the report of its retained engineer, Kelly Huff, who determined that the cause of the concrete cracks "come from several issues" related to the Slab's construction and design. (Doc. # 92-19 at 1.) She further concluded based on the documentation provided that the "unreinforced concrete slab was not designed for overloading during construction" and that the contractors "knew of the slab design deficiencies and potential damages the crane would cause prior to allowing the crane on the slab." (Id. at 1-2.) Although Ms. Huff also identified other potential issues with the Slab (e.g., lack of reinforcement of the joints), her conclusions regarding the contractors knowingly and intentionally overloading the Slab are not inconsistent with the conclusion by Mattress King's concrete expert at North Starr that the Slab was damaged by overloading from the crane. Compare (Doc. # 98-9 at 3-7) (North Starr Report describing crack mapping and concluding that "[t]he crane overloading has consumed the fatigue life of the concrete slab"), with (Doc. # 92-19 at 4) (denial letter explaining that Ms. Huff concluded that "contributing to the damage was the faulty planning, workmanship, construction and maintenance by the subcontractor and general contractor who knowingly [sic] and understood the crane would damage the concrete but still allowed the crane to traverse the slab while constructing the tilt-up wall panels"). Hanover also notes that even if it had relied exclusively on Mattress King's North Starr report, rather than retaining its own engineer for an additional opinion, the result would have been the same: denial based on the faulty or deficient workmanship and construction exclusion. (Doc. # 92 at 20.)
In an effort to establish a genuine dispute of material fact as to the reasonableness of Hanover's conduct, Mattress King points to the deposition testimony of its retained insurance industry expert, Zachary Warzel. (Doc. # 98 at 21-22.) Mr. Warzel testified that Hanover "did not comport with industry standards" by denying coverage based on the faulty workmanship/construction defect exclusion because the damage caused by the crane "does not fall within the ambit of [faulty workmanship] exclusions." (Id. at 3-4.) Like Mattress King, Mr. Warzel focused on the "faulty product" line of faulty workmanship exclusion cases and repeatedly testified that the caselaw shows that damage caused by subcontractors does not fall within the exclusion. See, e.g., (id. at 5) ("[C]ourts have gone and looked at [similar exclusions] and said, no, . . . this is limited to the quality of the work done itself."). Mr. Warzel's testimony offering legal conclusions as to the applicability of the faulty workmanship exclusion does not create a genuine dispute of material fact as to the reasonableness of Hanover's conduct. Moreover, Mattress King's circular argument—that Mr. Warzel testified that the exclusion is inapplicable, so Hanover's decision to deny the claim based on the exclusion was unreasonable—is unpersuasive given this Court's determination that the damage to the Slab in this case unambiguously falls within the construction defect exclusion.
The Court has carefully reviewed the excerpts of Mr. Warzel's testimony cited to by Mattress King. Upon reviewing this testimony, the Court finds that Mattress King has failed to set forth specific facts showing that there is a genuine issue for trial as to the reasonableness of Hanover's decision to deny the claim based on the construction defect exclusion. See (Doc. # 98-17.)
Mattress King also argues that Hanover acted unreasonably by (1) denying the claim based on "finishing issues" and (2) asserting that damage occurred after the Policy Period. (Doc. # 98 at 21-22.) Even if the Court were to agree with Mattress King that these matters present genuine disputes of material fact, Mattress King's claims would not survive summary judgment because Hanover had a reasonable basis to deny the claim based on the construction defect exclusion.
Lastly, Mattress King asserts that Hanover acted unreasonably "by prejudging the Claim." (Doc. # 98 at 22.) Mattress King points to a May 24, 2019 conversation between Mattress King's attorney and Eric Clontz from Hanover, in which Mr. Clontz reportedly "said his knee jerk reaction is that there is no coverage as they 'don't pay for stupid.' " (Doc. # 98-14.) Mattress King also argues that Mr. Clontz testified that it would be unreasonable to make a coverage decision without "all the documentation" and that, as of May 24, 2019, Hanover did not have all the necessary information to make a coverage decision. (Doc. # 98 at 22-23.) Based on these facts, Mattress King contends that a reasonable jury could determine that Hanover "acted unreasonably be prejudging the Claim as not covered without all the information it needed, and only sought information to meet Mr. Clontz's knee jerk reaction." (Doc. # 98 at 23.) The Court disagrees. Mattress King points to no authority supporting its argument that an insurer may be liable for acting unreasonably for purportedly "prejudging a claim." Moreover, despite Mattress King's implications, the evidence in this case shows that Hanover did not make a coverage decision until July 17, 2019, after it had reviewed all the documentation, engaged its own engineering expert, and thoroughly reviewed the case. (Doc. # 92-19.) Hanover's denial letter sets forth a reasonable basis for denying the claim based on the construction defect exclusion. Absent any evidence from Mattress King creating a genuine dispute of material fact as to the reasonableness of Hanover's decision to deny the claim based on this exclusion, the Court must grant summary judgment in favor of Hanover.
Having determined that Hanover is entitled to summary judgment on the basis of (1) the construction defect exclusion; (2) the damage not constituting "accidental loss or damage" within the meaning of the Policy; and (3) Hanover having a reasonable basis for its declination of coverage, the Court declines to address the remaining grounds for summary judgment raised in Hanover's Motion. (Doc. # 92.)
B. REMAINING MOTIONS
Because the Court determines that Hanover is entitled to summary judgment on Mattress King's claims for several reasons, the Court need not discuss the parallel issues raised in Mattress King's Motion for Summary Judgment on Hanover's counterclaims for declaratory judgment. (Doc. # 91). The Court therefore denies Mattress King's Motion. The Court also denies the pending Rule 702 motions as moot.
IV. CONCLUSION
For the foregoing reasons, it is ORDERED as follows:
• Hanover's Motion for Summary Judgment (Doc. # 92) is GRANTED. The Clerk of Court is directed to enter summary judgment in this case in favor of Defendant The Hanover Insurance Company and against Plaintiff 5333 Mattress King, LLC. • Mattress King's Motion for Summary Judgment (Doc. # 91) is DENIED. • Mattress King's Motion to Exclude Expert Opinions of Peter S. Evans (Doc. # 67) and Hanover's Motion to Exclude Opinions of Robert Pratt (Doc. # 93) are DENIED AS MOOT. • The Final Trial Preparation Conference set for November 1, 2023, and the Jury Trial set to commence on November 13, 2023, are VACATED.