Opinion
Civil No. 3:02-CV-1409-K
January 13, 2004
FINDINGS OF FACT AND CONCLUSIONS OF LAW
This case involves an insurance coverage dispute between C.D. Henderson, Inc. and Commercial Union Insurance Company. C.D. Henderson made a claim for rain damage related to a construction project known as "Mockingbird Station", located in Dallas, Texas. Commercial Union Insurance Company denied C.D. Henderson's claim for rain damage. This matter came before the Court for a one-day bench trial on September 22, 2003. The Court, having received and considered the evidence presented, and having heard the testimony of witnesses and the argument of counsel, hereby renders the following Findings of Fact and Conclusions of Law. As permitted by Federal Rule of Civil Procedure 52(a), this Court sets out its findings and conclusions as follows:
I. Findings of Fact
1. This insurance dispute concerns a claim for rain damage that occurred on or prior to June 20, 2000, during the construction of a building project in Dallas, Texas, commonly referred to as "Mockingbird Station." The plaintiff, C.D. Henderson, Inc. ("CDH"), acted as general contractor for the project.
2. During the course of construction, and before the windows had been installed in the upper floors, rain water entered the building and caused damage to some of the interior sheet rock and other materials.
3. CDH alleges that certain costs resulted from a need to repair the water infiltration damage, and is attempting to recover those claimed amounts under a property insurance contract issued by the defendant, Commercial Union Insurance Company.
4. Since the owner of the property is not a party to this action and has asserted no claim, any damages awarded to CDH must be limited to repair costs that were incurred solely by CDH and that were not charged or passed along to the owner under the "cost plus" construction contract.
5. In regard to property damage resulting from rain, the insurance agreement specified that the insurer would not pay for loss caused by or resulting from
"Rain . . . (whether driven by wind or not), to covered property, unless located within a fully enclosed structure and then only for such loss or damage caused by rain . . . entering through an opening caused by windstorm or hail. . . ."
6. Since the alleged damages are both claimed and admitted to be a result of rain, CDH carries the burden of proving that the rainwater infiltration entered from "an opening caused by windstorm or hail," to also establish that the building was a "fully enclosed structure" at that time, and then to establish the amount of loss resulting "only" from the rain that entered through such an opening.
7. The evidence is disputed as to both when and how the rain water had entered the structure, as well as the degree to which the structure was enclosed. CDH claims that the water entered though unfinished window openings, but only after they had been protected with a temporary "poly sheet plastic material." CDH alleged that a "severe storm caused openings in the poly sheet material, allowing rain to enter the openings and causing extensive damage to the interior of the structure including the sheetrock, elevator, wood and cabinets, acoustical ceilings, the poly sheet plastic itself and the electrical system." Thus, before reaching any other issues, CDH must establish the time frames in which the damage occurred, in relation to the installation of the "poly sheet material" that CDH relies upon in attempting to establish that an opening was caused by "windstorm or hail" and that the building was a "fully enclosed structure" at that time.
8. There is a spoliation issue, related to the loss of the pertinent job records that would have most directly related to the disputed issues. Daily reports pertaining to the events and conditions at the job site were recorded by the CDH project superintendent in a bound log book known as the "green" book. If there was a problem with weather damage to the building, that would be recorded in the "green book" log. Daily weather conditions, including the exact amount of rainfall recorded in a rain gauge at the project site, was also recorded in the log book. The log book also reflected the work being performed that day, and was described as a "diary" or "bible" that was "just basically a log of everything that happens out there on the job site, in case there is a question down the line as far as when something happened." The log book would be one of the first places that the witnesses would look for the type of information at issue in the lawsuit, with no other equivalent source.
9. The loss of the log book has not been adequately explained. The evidence indicates that the last person to utilize the book was Paul Page, who was a vice president and company executive whose duties involved the gathering and presentation of records for use by the attorneys in connection with this claim. The evidence establishes that Paul Page obtained the log book from its regular custodian at a time when the attorneys were requesting pertinent job records and preparing the presentation of this claim.
10. At the time in question, the plaintiff's representatives, including Paul Page, knew or should have known that there was a substantial chance there would be litigation and that the log book would be material to it. The information in the log book was significant and its loss has not been adequately explained.
11. The plaintiff has also failed to provide an adequate explanation for the loss of pertinent job photos that were taken during the time frame in question. As with the log book, the plaintiff's representatives knew or should have known that the missing photos would be a material and important source of evidence to possible litigation.
12. It appears that much of the controversy involved in this litigation — including substantial expert witness and other litigation costs — would have been avoided if the missing evidence had been preserved.
13. Because CDH had a duty to preserve the photos and log book but failed to so, the Court is authorized to make such orders as may be appropriate under F.R.C.P. 37(b).
14. In the absence of the daily job reports, the sequence events at the job site must be reconstructed from other records. Those records confirm that the installation of temporary plastic was not performed, and certainly not completed, until after the interior water damage had already occurred.
15. The last photographs taken prior to the alleged events, on May 30 (Defendant's Exhibit 14) and on June 2, 2000 (Defendant's Exhibit 15), show clearly that the building was open to the elements with no "poly sheet material" in place.
16. The next available photographs, which were not taken until after the claim was reported (Defendant's Exhibit 16), also show that substantial parts of the structure were still open to the elements and that only a few minor window opening appear to have been taped over with some type of clear plastic.
17. CDH claims that its "poly sheet material" was installed, at least in part, by the drywall subcontractor, GMI. The job records from GMI (Defendant's Exhibit 55) show that work to "cover windows with plastic" was performed on June 14 through 16. Thus, it is clear that the Plaintiff's installation of poly sheet plastic could not have been completed or "fully" performed until the 16th of June, at the earliest.
18. The claimed damage is documented to have occurred prior to the installation of the temporary plastic done by GMI. On June 14, 2000, which is the same date on which GMI started its installation of plastic, the project architect prepared a walk-through report of conditions that were observed that morning in second floor apartment units on the south side of the building (Defendant's Exhibit 6). The architects reported that "there are numerous locations where water is standing on the floors and the ceilings are leaking from above." Mildewed gypsum board was observed in 14 of the 18 units.
19. The Court finds that the rain infiltration damage occurred prior to the claimed installation of the temporary plastic.
20. At the time in question, the condition of the building was such that ordinary rainfall would naturally find its way into the structure, and down into the floors below.
21. There is no indication that windstorm caused any opening in the building, and windstorms did not cause the openings through which the water entered the structure.
22. The building was not enclosed, and certainly not "fully" enclosed, at the time in question.
23. The claimed damages were caused by water that entered through the unenclosed portions of the building.
24. To the extent that rainfall entered the building through window openings, it would be incidental to other damage from water damage that occurred from other sources, including water infiltration that had occurred and already causing mildew damage to the sheet rock, prior to the time frame being claimed by CDH. The subcontractor costs presented by CDH are not sufficiently tied to the claimed damages and are not a reliable source on which to show what work and expenditures, if any, would be related to any problem with the later installation of temporary plastic sheets.
25. Plaintiff's expert witness, Chris Sorrells does not have sufficient information, either from personal knowledge or other permissible sources, upon which to opine or establish the extent or scope of damage being claimed. On the contrary, Sorrells has admitted to adopting the contentions advanced by his employer's counsel without the benefit of analysis.
26. In his first report, Sorrells adopted several costs and work orders as ostensible parts of the June rain claim, when cursory review shows that several of those costs and work items are unrelated to the June events, or had occurred many weeks before. Although the witness now proposes to eliminate some of those items, it appears to be his contention that items should remain in the Plaintiff's claim until the Defendant's witnesses have successfully challenged them.
27. It is the Plaintiff's burden to segregate and produce competent proof of its damages, and it has failed to carry that burden at trial. If rain had blown past an "opening" in plastic in the manner claimed by CDH, it would not be possible to separate that portion of the claimed damages from other water and sheetrock damage that was happening in the building.
28. CDH's claim also included many costs and claimed items that were clearly unrelated to the June rains, and it exaggerated its loss.
29. Because of the way that it managed and scheduled the construction, CDH should have expected that water would enter the uncompleted structure, including the second and third floor areas, and result in moisture-caused problems, including mildew.
30. CDH failed to adequately protect and preserve the property against continued water infiltration and to prevent further loss and damages, and CDH failed to mitigate its damages from water infiltration.
31. Portions of the claimed damages were caused by dampness of atmosphere, resulting from the high humidity conditions that resulted from CDH's construction methods and plans.
II. Conclusions of Law
32. CDH's claimed damages for "delay" in the project would not be compensable under the insurance agreement in any event, due to the exclusionary language for "consequential loss of any kind or description, including delay. . . ."
33. CDH's claim was not covered by the Commercial Union policy, and Commercial Union did not breach the insurance agreement and is not liable to the plaintiff.
34. The Court has jurisdiction of the parties and controversy.
35. Commercial Union is entitled to judgment that CDH take nothing.
36. Commercial Union is entitled to recover its costs of court.
37. Where spoliation issues are raised in a jury case, the courts are often called upon to instruct the jury as to inferences or presumptions that may be drawn from the loss of pertinent evidence. Since this is a bench trial, and in light of the Court's findings on the case in chief, the question of inferences or presumptions may be moot.
38. The Court finds, however, that the loss of the "green book" has occasioned additional costs and expenses in the litigation, and will be considering an award of those expenses to the defendant, as permitted by F.R.C.P. 37(b).
39. The Court will entertain a submission of those costs and expenses from the defendant, including expert witness costs and attorney's fees, for consideration by the Court.
III. Conclusion
As is stated in the above findings of fact and conclusions of law, the Court holds that Plaintiff C.D. Henderson has failed to establish coverage under the operative insurance policy for its losses, and therefore Plaintiff shall take nothing by its claims against Defendant. Judgment will be entered by separate document.