Opinion
Civil No. 01-514-HA.
March 17, 2005
Beth R. Skillern, Sheila H. Potter, Diane K. Dailey, Bullivant Houser Bailey, PC, Portland, Oregon, Jan K. Kitchel Robert H. Hamrick, Nancy M. Erfle, Schwabe Williamson Wyatt, PC Portland, Oregon, Attorneys for Plaintiffs.
Edwin C. Perry, Frank J. Weiss, Laura A. Liebman-Alperson, Tonkon Torp LLP, Portland, Oregon, James A. Riddle, Thelen Reid Priest, LLP, San Francisco, California, Attorneys for Defendant Stimson Lumber Company.
Michael A. Lehner, Lehner Mitchell Rodriguez Sears, Portland, Oregon, Attorney for American National Fire Insurance Company.
Lee Aronson, Schulter, Anderson, Downes, Aronson Bittner, P.C., Portland, Oregon, Stephen G. Skinner, Johnson Christie Andrews Skinner, KS, Seattle, Washington, Attorneys for National Union Fire Insurance Company of Pennsylvania and Insurance Company of the State of Pennsylvania.
OPINION AND ORDER
Nearly four years ago, plaintiffs The Home Insurance Company (The Home), Wausau Business Insurance Company, Wausau Underwriters Insurance Company, Employers Insurance of Wausau (collectively Wausau), and California Insurance Company (Coregis) brought this action against Stimson Lumber Company (Stimson) and several other insurance companies.
On March 14, 2005, the court heard oral arguments on: (1) National Union's Motion for Partial Summary Judgment re: Exhaustion of Primary Limits; (2) Plaintiff Insurers' Motion for Partial Summary Judgment re: Number of Occurrences; (3) Plaintiff Insurers' Motion for Partial Summary Judgment re: Allocation of Defense Costs; (4) Plaintiff Insurers' Motion for Partial Summary Judgment re: Gardner Class Action Fees; and (5) Stimson's Motion for Partial Summary Judgment re: Coverage for Settled and Non-settled Property Damage Claims.
STANDARDS
Summary judgment is appropriate when there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c). The initial burden is on the moving party to establish the absence of any genuine issue of material fact. Once this is satisfied, the burden shifts to the opponent to demonstrate through the production of probative evidence that there remains an issue of fact to be tried. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). On a motion for summary judgment, the evidence is viewed in the light most favorable to the non-moving party and all reasonable inferences are drawn in favor of the nonmovant. Margolis v. Ryan, 140 F.3d 850, 852 (9th Cir. 1998).
The non-moving party "must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). "The mere existence of a scintilla of evidence in support of the [non-moving party's] position would be insufficient." Anderson v. Liberty Lobby Inc., 477 U.S. 242, 252 (1986). Therefore, "[w]here the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (internal quotation and citation omitted).
Under Oregon law, the interpretation of a provision in an insurance policy is a question of law and the court's task is to interpret the intent of the parties. Red Lion Hotels, Inc. v. Commonwealth Ins. Co. of Am., 33 P.3d 358, 361 (Or.App. 2001) (citations omitted). The intent of the parties is gleaned from the terms and conditions of the insurance policy. Id. If a term is not defined in the policy, the court looks to the plain meaning of the term. Id. If there is more than one reasonable interpretation, the court analyzes each reasonable interpretation in light of the specific and broad contexts in which the term is used in the policy. Id. Finally, if more than one reasonable interpretation remains, the policy is construed against the drafter. Id. ANALYSIS
The factual history of this case is extensive and has been recited thoroughly in the court's previous rulings. Accordingly, the court will reference the facts only as they become necessary to the court's analysis of the pending motions.
a. Insurance Company of the State of Pennsylvania and National Union Fire Insurance Company of Pennsylvania's Motion for Partial Summary Judgment re: Exhaustion of Primary Limits
The Insurance Company of the State of Pennsylvania and National Union Fire Insurance Company of Pennsylvania (collectively National Union) seek partial summary judgment against Stimson Lumber Company (Stimson), asserting that: (1) National Union has no obligation under the umbrella liability policies it issued to Stimson to respond to the Forestex siding claims until such time as all primary insurance coverage, including the four primary insurance policies issued by The Home Indemnity Insurance Company (The Home) has been exhausted; (2) The Home's layer of coverage may only be exhausted through the payment of covered claims; and (3) any covered payments made by Stimson be allocated on a pro rata basis to any applicable The Home policy period. For the following reasons, National Union's motion is granted.
From 1990 through 1994, Stimson purchased primary liability insurance policies from The Home. These policies provided Stimson with limits of $1 million per occurrence/aggregate for comprehensive general liability coverage (CGL). National Union also issued to Stimson four umbrella insurance policies from 1990 through 1994. These policies provided Stimson coverage in excess of the amount recoverable under The Home policies or $25,000 ultimate net loss with respect to each occurrence that is not covered by The Home policies.
The National Union policies contain an endorsement that modifies the policy terms, including provisions relating to the Limit of Liability Declarations sheet. See Stimson's Response to National Union's Concise Statement of Material Facts, Ex. B (Stimson's Resp. to Nat'l Union's CSF). Specifically, "Limit of Liability — Retained Limit," provides:
(A) The company shall be liable only for that portion of the ultimate net loss, excess of the insured's retained limit defined as either:
(1) The total of the applicable limits of the underlying policies listed on the schedule of underlying insurance hereof and the applicable limits of any other underlying insurance providing coverage to the insured; or
(2) The amount stated in item 3 (A-2) of the declarations as the result of any one occurrence not covered by such underlying policies or insurance:
And then up to an amount not exceeding the amount as stated in 3 (A) of the declarations as the result of any one occurrence, subject to a limit as stated in item 3 (B) of the declarations in the aggregate for each annual period during the currency of this policy, applying separately to each underlying insurance coverage which carries an aggregate limit in the policy of underlying insurance.
(B) In the event of reduction or exhaustion of the aggregate limits of liability under said underlying insurance by reason of losses paid hereunder, this policy shall, subject to its terms and conditions and the limit of liability stated in items 3 (A) and 3 (B) of the declarations:
(1) in the event of reductions, pay the excess of the reduced underlying insurance, or
(2) in the event of exhaustion of the limits of liability, continue in force as underlying insurance.
(emphasis added) (hereinafter referred to as the "limit of liability" clause).
"Ultimate net loss" means "the amount payable in settlement of the liability of the insured after making deductions for all recoveries for other valid and collectible insurances, excepting however the policy(ies) of the primary insurer(s) and shall exclude all costs, which are paid by the company in addition to ultimate net loss. Id. The policy further reads that
[i]f other valid and collectible insurance with any other insurer is available to the Insured covering a loss also covered hereunder, this insurance shall be excess of, and shall not contribute with such other insurance. Excess insurance over the Limits of Liability expressed in this policy is permitted without prejudice to this insurance and the existence of such insurance shall not reduce any liability under this policy.Id. (hereinafter referred to as the "other insurance" clause).
In June 2003, The Home was placed in liquidation. Presently, it is unlikely that The Home will be able to fulfill its contractual coverage obligations owed to Stimson. Stimson has tendered to National Unions several Forestex siding claims, alleging that its payment of portions of the class action settlement in Gardner v. Stimson Lumber Co., King County Superior Court Case No. 00-2-17633-3SEA (Washington) (hereinafter referred to as Gardner), has exhausted one of The Home policy periods. See Declaration of Dan Sweeney (Sweeney Decl.), Stimson's Response to Plaintiff Insurers' Concise Statement of Material Facts re: Gardner, Ex. E, at 2 (Stimson's Resp. to Pl. Insurers' CSF re: Gardner) (Stimson has paid nearly $10 million dollars to third parties as a result of the class settlement). National Union has refused to indemnify Stimson, arguing that even if a policy period has been exhausted, Stimson has failed to show that all applicable insurance policies have been exhausted.
In the court's Opinion and Order dated May 26, 2004 (hereinafter referred to as the May 26, 2004 Order), the court ruled that National Union's coverage for Stimson's Forestex siding claims is excess to the policy limits of the primary insurance policies issued by The Home. To the extent that there is a gap in the coverage due to The Home's insolvency, National Union is not obligated to drop down to fill in the gap.
According to National Union, the phrase "and the applicable limits of any other underlying insurance providing coverage to the insured" as contained in the "limit of liability" clause, means that all other primary insurance purchased by Stimson, regardless of the policy year, must be exhausted before coverage under National Union's policies is triggered. In other words, Stimson must horizontally exhaust its primary coverage before the excess coverage afforded by the National Union policies would cover any Forestex siding claim. See Employers Ins. of Wausau v. Granite State Ins. Co., 330 F.3d 1214, 1221 (9th Cir. 2003) (applying California's rule of "horizontal exhaustion"); Mayor and City Council of Baltimore v. Utica Mut. Ins. Co., 802 A.3d 1070, 1102 (Md.App. 2002) (applying the concept of "horizontal exhaustion. . . . because it conforms with the realities of long term property damage . . . and the application of the injury in fact/continuous trigger of coverage"); Missouri Pac. R.R. Co. v. Int'l Ins. Co., 679 N.E.2d 801, 809 (Ill.App. 2 Dist. 1997) (reasoning that the horizontal exhaustion rule is appropriate because excess coverage carries a smaller premium than primary coverage due to the lesser risk insured).
To buttress its argument that horizontal exhaustion applies here, National Union points to the "other insurance" clause, which provides that "[i]f other valid and collectible insurance with any other insurer is available to the Insured covering a loss also covered hereunder, this insurance shall be excess of, and shall not contribute with such other insurance." Reading these two provisions together, National Union asserts that its coverage was designed to be excess over scheduled and unscheduled underlying insurance.
Stimson counters that National Union's interpretation ignores the plain meaning of the term "underlying," which it argues means "lying [directly] under or beneath something." Memorandum in Opposition to National Union's Motion for Partial Summary Judgment, at 5 (Mem. in Opp. to Nat'l Union's Mot. for Partial Summ. J). According to Stimson, the term "underlying" as used in the policies means that only vertical exhaustion is required and that this clause is limited to policies that were in effect during the same policy period as the National Union policy and does not relate to underlying policies issued in other policy years. If National Union had intended horizontal exhaustion only, Stimson argues that National Union could have drafted the phrase to state "all other primary policies, irrespective of policy year, whose coverages are implicated by the occurrence in question." Id.
The court finds Stimson's interpretation to be without merit. First, Stimson attempts to include in its definition of "underlying" a word — "directly" — that is not supported by the dictionary source to which it cites. In doing so, Stimson tries to read a time limitation into the policy that is not contained in the policy language. Second, the language of the policy is more expansive than Stimson acknowledges. The language of the provision expands the term "underlying policies" to include "the applicable limits of any other underlying insurance providing coverage to the insured." (emphasis added). Moreover, the "other insurance" clause does not contain any time limitation based on a policy year or an insurance layer.
The only reasonable interpretation of "underlying" as it is used in the policies refers to any insurance policy that is lower on the coverage chart. Accordingly, Stimson must exhaust all primary insurance policies before coverage under the National Union policies is triggered.
National Union next argues that because this court ruled in its May 26, 2004 Order that there was no coverage for claims of violations of consumer protection and unfair trade practice statutes, any payments made by Stimson toward the Gardner settlement would be for non-covered claims, thereby relinquishing any obligation of National Union to indemnify Stimson.
The sole claim against Stimson in Gardner was for violations of consumer protection statutes, which the court found was not covered by the primary policies.
The "limit of liability" clause provides that excess liability is triggered upon the "reduction or exhaustion of the aggregate limits of liability under said underlying insurances by reason of losses paid hereunder." This means that only payments of claims covered by the underlying policies operate to reduce the underlying policy limits. Only when such limits are exhausted through the payment of a loss, or a covered claim, and that claim is otherwise covered by the National Union policy, is the excess coverage provided by the National Union policy triggered. To find otherwise would essentially convert the excess policies to primary policies. The excess policies reflect an intent to provide coverage to an insured only when there is primary insurance in place and that insurance has been exhausted.
Stimson asserts that irrespective of whether there has been payment of claims covered by the underlying policies, National Union has coverage obligations that are independent of any underlying coverage. Because the National Union policies provide coverage of $25,000 ultimate net loss with respect to each occurrence that is not covered by The Home policies, Stimson must first show that any such claim is not covered by the underlying insurance policy, but is otherwise covered by the National Union policy. Stimson has failed to show that payments made due to the Gardner lawsuit are not covered by The Home policies but are otherwise covered by the National Union policies. To the contrary, Stimson contends that the payments it has made to date are covered under the primary insurers' policies.
To the extent that Stimson's payments reflect monies paid for covered claims, such as continuing property damage, National Union asserts that these payments are to be allocated on a pro rata basis. See Lamb-Weston, Inc. v. Oregon Auto Ins. Co., 346 P.2d 643, 647 (Or. 1959) (recognizing the general rule that regardless of whether there is a provision in the policies about proportionate insurance, each insurer is liable for its proportionate amount); Forest Indus. Ins. Exch. v. Viking Ins. Co., 728 P.2d 943, 944-45 (Or.App. 1986).
In the court's May 26, 2004 Order, the court ruled that National Union is not obligated to fill any gaps in coverage left as a result of The Home's insolvency, and that Stimson is responsible for filling those gaps in coverage. Stimson essentially stands in the shoes of The Home, its primary insurer. The court further ordered that to the extent Stimson is unable to link property damage to a specific policy period, liability should be apportioned on a pro rata bases amongst all primary insurers. May 26, 2004 Order at 26-28. Accordingly, National Union's motion is granted.
b. Plaintiff Insurers' Motion for Partial Summary Judgment re: Allocation of Defense Costs
As noted above, the court has ruled that to trigger coverage under the primary insurers' policies (Wausau and Coregis), Stimson must prove that covered property damage occurred during a specific policy period. If Stimson is able to prove that some covered property damage occurred during each policy period, but is unable to link the damage to a particular policy period, then each insurer that covered Stimson during the time in question is liable for its proportionate share of the damage. The court further ruled that plaintiff insurers were not liable for damages that occurred outside their policy period and within the policy period of The Home. As a result, Stimson is responsible for property damage that occurred when The Home's policies were in effect.
Plaintiff insurers now seek a declaration that Stimson has an obligation to pay The Home's share of fees and costs incurred in defending Stimson against the Forestex siding claims (hereinafter referred to as "defense costs"). Plaintiff insurers assert that if The Home had a duty to defend claims against Stimson that were covered by The Home policies, then Stimson, being essentially self-insured for the policy periods that The Home was on the risk, has a duty to defend and should share in its own cost of defense. For the following reasons, the court grants plaintiff insurers' motion.
An insurer has a duty to defend if allegations made against the insured could, without amendment, impose liability for conduct covered by the insured's policy. Abrams v. Gen. Star Indem. Co., 67 P.3d 931, 935 (Or. 2003). "[T]he costs of defense should be governed by the same rule as the rest of the loss and should be prorated." Burnett v. W. Pac. Ins. Co., 469 P.2d 602, 606 (Or. 1970) (citation omitted). In Burnett, the court found that two insurers had a duty to defend the same occurrence — a car accident. One insurer refused to pay for costs. The other insurer paid for all of the defense costs, and then sued the other carrier for contribution. The court found that "defense costs are to be prorated in accordance with the proportion that each insurer's coverage bears to the total coverage" and remanded the case for a determination of the amount, if any, the recalcitrant insurer was obligated to pay. Id. at 607.
The question presented is who is to bear the brunt of the defense costs. As explained above, The Home contracted to pay, or indemnify, for injury that occurred during its policy years and to pay for the associated defense costs. Due to The Home's insolvency, Stimson is now responsible for The Home's pro rata share of the indemnity. It follows that Stimson is also responsible for The Home's pro rata share of the defense costs. Accordingly, plaintiff insurers' motion regarding defense costs is granted.
c. Plaintiff Insurers' Motion for Partial Summary Judgment re: Number of Occurrences
Plaintiff insurers seek a declaration that the claims arising out of Stimson's manufacture and sale of Forestex siding constitute one "occurrence" under the policies, and that, therefore, the applicable limit of liability for each policy period is $1 million per occurrence. See Plaintiff Insurers' Concise Statement of Material Facts in Support of Motion for Partial Summary Judgment re: Occurrences, Ex. A at 1 (Pl. Insurers' CSF in Supp. of Mot. for Partial Summ. J. Re: Occurrences) (setting forth the $1 million limit of liability for each occurrence). For the following reasons, plaintiff insurers' motion is granted.
Wausau issued insurance policies to Stimson, which were in effect from March 1, 1987, to March 1, 1990, and from March 1, 1997 to March 1, 1999. Coregis issued similar insurance policies to Stimson, which were in effect from March 1, 1994, to March 1, 1995. The policies provide that the primary insurers "will pay those sums that the insured becomes legally obligated to pay as damages because of `bodily injury' or `property damage' to which this insurance applies. The `bodily injury' or `property damage' must be caused by an `occurrence.'" May 26, 2004 Order at 7. An "occurrence" is "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Pl. Insurers' CSF in Supp. of Mot. for Partial Summ. J. re: Occurrences, Ex. B at 4.
Oregon appellate courts have yet to determine what constitutes an "occurrence" under facts similar to those presented here. However, in Interstate Fire Casualty Company v. Archdiocese of Portland in Oregon, 35 F.3d 1325, 1329 (9th Cir. 1994), the Ninth Circuit found that under Oregon law, a negligently supervised priest's series of molestations constituted one "occurrence" per policy period. It was the victim's exposure to the negligently supervised priest, not the Archdiocese's negligent supervision of the priest, that constituted an "occurrence" under the policy. Id.
The plaintiffs in the cases filed against Stimson (the claimants) claim repeated exposure of their property to the Forestex siding. The "occurrence" in this case is the continuous exposure to the Forestex siding manufactured and sold by Stimson, which allegedly resulted in similar kinds of property damage to their homes and buildings. See also Chemstar, Inc. v. Liberty Mut. Ins. Co., 41 F.3d 429, 433 (9th Cir. 1994) (applying California law, the court held that all claims for plaster pitting caused by interior use of the insured manufacturer's lime arose from one occurrence caused by the insured's failure to warn of the unsuitability of its product for interior use) (emphasis added); Colonial Gas Co. v. Aetna Cas. Sur. Co., 823 F. Supp. 975, 983 (D. Mass. 1993) (finding that the number of occurrences turns on the underlying cause of the property damage, to wit, the use of toxic material in insulation that resulted in property damage is a single occurrence); Associated Indem. Co. v. Dow Chem. Co., 814 F. Supp. 613 (E.D. Mich. 1993) (finding that "[i]f the continuous production and sale of an intrinsically harmful product results in similar kinds of property damage, then all such property damage results from a common occurrence.").
The claimants in the underlying lawsuits allege that premature failure of the Forestex siding caused damage to their property. The court finds that the repeated exposure of the claimants' property to Stimson's allegedly defective Forestex siding constitutes one occurrence per policy period. Accordingly, plaintiff insurers' motion is granted.
d. Plaintiff Insurers' Motion for Partial Summary Judgment re: Gardner Class Action Fees
Plaintiff insurers seek a declaration that the fees and expenses Stimson paid as part of the Gardner settlement are not covered by the plaintiff insurers' policies. For the following reasons, plaintiff insurers' motion is granted.
In June 2004, the claimants and Stimson entered into a settlement agreement that would compensate the claimants for the cost of removal and replacement of the defective siding, including cost for labor and materials. The agreement also provided that "Stimson shall pay the reasonable attorneys' fees" of the class counsel through the date of the final approval hearing, including fees associated with the claims administration process. Stimson's Resp. to Pl. Insurers' CSF re: Gardner, Ex. D at 1. The parties entered arbitration regarding the amount of attorney fees and an order was rendered in August 2004, granting to plaintiffs' counsel attorney fees and expenses in the amount of $12,858.875. Plaintiff Insurers' Concise Statement of Material Facts in Support of Motion for Partial Summary Judgment re: Gardner, Ex. E (Pl. Insurers' CSF in Supp. of Mot. for Partial Summ. J. re: Gardner).
As noted earlier, the duty to defend and the duty to indemnify are exclusive obligations. The duty to defend is triggered by the allegations in a complaint, whereas the duty to indemnify is triggered by proof of actual facts demonstrating a right to coverage. W. Equities, Inc. v. St. Paul Fire Marine Ins. Co., 56 P.3d 431, 435 (Or.App. 2002) (citing Northwest Pump Equip. Co. v. Am. States Ins. Co., 925 P.2d 1241, 1243 (Or.App. 1996) (finding that there is no duty to indemnify unless the underlying claim is covered)).
Plaintiff insurers are required to "pay those sums that the insured becomes legally obligated to pay as damages because of `bodily injury' or `property damage' to which this insurance applies." May 26, 2004 Order at 7. This requirement relates to the primary insurers' obligation to indemnify, not to defend. Both Wausau and Coregis sent letters to Stimson indicating that they would defend Stimson subject to a reservation of rights. Plaintiff insurers reserved their rights because there was a question whether the allegations were covered under the policies.
In the May 26, 2004 Order, the court ruled that absent a showing that physical damage was caused to a claimant's property as a result of Stimson's defective siding, Stimson was unable to recover the labor costs associated with repairing or replacing the siding. May 26, 2004 Order at 16. Stimson's settlement agreement to compensate the claimants for the removal and repair of the siding is not covered under the policies unless Stimson is able to show that there was damage to other property caused by the siding. Stimson has failed to make such a showing. Compensation to the claimants under the Gardner settlement agreement rests instead on proof that the siding itself was damaged and that it was repaired or replaced, which is damage excluded under the policies. See Reply to Stimson's Response to Concise Statement of Facts in Support of Plaintiff Insurers' Motion re: Gardner, Ex. F (Reply to Stimson's Resp. to CSF in Supp. of Pl. Insurers' Mot. re: Gardner) (coverage does not extend to damage to Stimson's product). The settlement agreement does not purport to require proof of, or compensation for, physical damage to the claimant's property caused by the siding.
Stimson asserts that the Supplementary Payments Provision of the policy, which provides that the insurers will pay for "[a]ll costs taxed against the insured in the `suit," covers the attorney fees and expenses. See Memorandum in Opposition to Plaintiff Insurers' Motion Re: Gardner, at 5 (Mem. in Opp. to Pl. Insurers' Mot. Re: Gardner). However, the attorney fees Stimson agreed to pay were not "costs taxed against" Stimson because Stimson agreed to pay the fees and expenses as part of the total settlement of the class action. Moreover, coverage for costs taxed against the insured turns on whether there is coverage for the underlying lawsuit. See, e.g., North Carolina Farm Bureau Mut. Ins. Co. v. Fowler, 589 S.E.2d 911, 914 (N.C.App. 2004). As noted above, Stimson's payments were not for conduct or property damage covered under the policies.
Stimson's assertion that the payments are covered as part of defense costs is similarly unavailing. The policies provide coverage for damages "to which this insurance applies." It follows that if the insured pays monies for conduct that is not covered by the policies, then it is not damages "to which this insurance applies."
Although Oregon appellate courts have yet to consider the issue, other courts have found that an insured's obligation to pay attorney fees and expenses is equivalent to damages for which the insured has become legally obligated to pay, and are not defense costs. In City of Ypsilanti v. Appalachian Insurance Company, 547 F. Supp. 823, 827 (E.D. Mich. 1982), the court found that the plain meaning of "costs" refers to the expense of defending a suit and does not extend to sums for which the insured becomes legally obligated to pay. Conversely, "damages" refers to all forms of civil liability, including attorney fees. Id. at 828. See also Hyatt Corp. v. Occidental Fire Cas. Co. of N.C., 801 S.W. 2d 382, 393 (Mo.Ct.App. 1990) (finding that an attorney fees award as part of a settlement agreement is indistinguishable from a damages award). The court finds the reasoning in these cases persuasive.
Accordingly, because costs of repair and replacement of the Forestex siding when there has been no showing that the siding caused damage to other property are not covered under the plaintiff insurers' policies, plaintiff insurers are not obligated to pay for any fees or expenses Stimson paid as a result of the Gardner settlement. These are payments that Stimson agreed to make under the settlement agreement and are not for conduct or property damage that is covered under the policies. As such, plaintiff insurers are not obliged to indemnify Stimson for amounts Stimson agreed to pay to the claimants' attorneys as fees and expenses. The attorney fees and expenses Stimson agreed to pay as part of the settlement agreement are damages and are not part of the defense costs incurred in defending the suit. Therefore, they were damages for conduct not covered by the policies and plaintiff insurers are not obligated to indemnify Stimson for them. Plaintiff insurers' motion is granted.
e. Stimson's Motion for Partial Summary Judgment re: Coverage for Settled and Non-Settled Property Damage Claims
Stimson seeks a declaration regarding the scope of coverage available under the primary insurers' policies and the umbrella insurers' (National Union and American National Fire Insurance Company (collectively the excess insurers)) policies. Specifically, Stimson argues that the costs and expenses incurred in connection with the settled and non-settled claims that relate to damage to wrap paper, flashing, waste, overlap, painting, and trim, are covered by the policies. For the following reasons, Stimson's motion is denied.
As noted previously, plaintiff insurers issued to Stimson CGL policies that provide that the insurers "will pay those sums that the insured becomes legally obligated to pay as damages because of . . . `property damage' to which this insurance applies." "Property damage" is defined as `physical injury to tangible property, including all resulting loss of use of that property . . . or [l]oss of use of tangible property that is not physically injured." Declaration of Edwin C. Perry in Support of Stimson's Motion for Partial Summary Judgment, Ex. A (Perry Decl.). In the May 26, 2004 Order, the court ruled that the policies' definition of property damage does not include diminution in value.
Over the course of the last ten years, several suits have been filed against Stimson regarding the defective Forestex siding. The claimants in these cases claim relief on a variety of legal theories, including breach of warranty, strict products liability, and negligence. See Anderson v. Stimson Lumber Co. (Ada County, Idaho, No. 96061560); Carr v. Stimson Lumber Co. (Alameda County, California, No. 814472-6); Blangeres v. Stimson Lumber Co. (King County, Washington, No. 00-2-02122-4SEA); Dockins v. Stimson Lumber Co. (Alameda County, California, Unnumbered).
In June 2004, Stimson and many of the claimants in the aforementioned cases reached a proposed class settlement. In November 2004, a Washington state court approved a global class settlement that resulted in a release of all claims for property damage asserted by claimants in Carr, Dockins, and Gardner, as well as a formal dismissal of all three cases. The settlement included replacement costs, including the costs of "labor and materials for the removal and replacement of the siding materials including an appropriate adjustment for wrap paper, flashing, waste, overlap, painting . . . disposal and replacement of trim. . . ." Perry Decl., Ex. J at 4.
To date, the primary and excess insurers have refused to reimburse Stimson for costs and expenses incurred in connection with the settlement of these cases, contending that their policies do not provide coverage for them.
As explained in the court's previous Order, the cost for repair or replacement of the Forestex siding is not covered by the policies. This includes damages incurred as a result of removing the defective siding, such as damages to wrap paper, flashing, overlap, and trim. This is so because the nature of the repairs cannot create coverage where none exists. New Hampshire Ins. Co. v. Vieira, 930 F.2d 696, 701 (9th Cir. 1991). "Diminution in value and cost of repair are not two separate harms — they are two different ways of measuring the same harm." Id. Here, Stimson seeks coverage for the cost of removing and replacing the defective siding. This is damage that is not covered under the policies, such as the cost of removing other parts of the buildings that are damaged by the siding, or removing other parts of the buildings to get to the siding.
Furthermore, the policies cover damages because of "property damage," which include "loss of use of tangible property that is not physically injured." However, the policies specifically exclude coverage for "property damage" that arises out of "a defect, deficiency, inadequacy or dangerous condition in `your product' or `your work'" or a "delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms." Perry Decl., Ex. B. Damages paid for the cost of removal and replacement of the defective Forestex siding, which is the measure of damages as set forth in the settlement agreement, are not damages for the "loss of use" of property. CONCLUSION
For the reasons provided above, the court rules as follows: (1) National Union's Motion for Partial Summary Judgment re: Exhaustion of Primary Limits (Doc. #289) is GRANTED; (2) Plaintiff Insurers' Motion for Partial Summary Judgment re: Allocation of Defense Costs (Doc. #296) is GRANTED; (3) Plaintiff Insurers' Motion for Partial Summary Judgment re: Number of Occurrences (Doc. #293) is GRANTED; (4) Plaintiff Insurers' Motion for Partial Summary Judgment re: Gardner class action fees (Doc #299) is GRANTED; and (5) Stimson's Motion for Partial Summary Judgment re: Coverage for Settled and Non-Settled Class Action Fees (Doc. #302) is DENIED.
The parties are ordered to submit a Joint Status Report no later than March 28, 2005, addressing the issues that remain for trial and proposing a trial management order.
IT IS SO ORDERED.