Opinion
Civ. 2:19-cv-02060-SU
05-17-2021
INTEGRATED BIOMASS RESOURCES, LLC, Plaintiff, v. AIX SPECIALTY INSURANCE COMPANY, Defendant.
FINDINGS & RECOMMENDATION
Patricia Sullivan, United States Magistrate Judge
This insurance coverage case comes before the Court on a Motion for Summary Judgment filed by Plaintiff Integrated Biomass Resources, LLC, ECF No. 35, and a Motion for Summary Judgment filed by Defendant AIX Specialty Insurance Company, ECF No. 37. The Court heard oral argument on March 10, 2021. For the reasons set forth below, Defendants' Motion should be DENIED and Plaintiff's Motion should be GRANTED.
LEGAL STANDARD
Summary judgment is appropriate if the pleadings, depositions, answers to interrogatories, affidavits, and admissions on file, if any, show “that there is no genuine dispute as to any material fact and the [moving party] is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). Substantive law on an issue determines the materiality of a fact. T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987). Whether the evidence is such that a reasonable jury could return a verdict for the nonmoving party determines the authenticity of the dispute. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
The moving party has the burden of establishing the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the moving party shows the absence of a genuine issue of material fact, the nonmoving party must go beyond the pleadings and identify facts which show a genuine issue for trial. Id. at 324.
Special rules of construction apply when evaluating a summary judgment motion: (1) all reasonable doubts as to the existence of genuine issues of material fact should be resolved against the moving party; and (2) all inferences to be drawn from the underlying facts must be viewed in the light most favorable to the nonmoving party. T.W. Elec., 809 F.2d at 630-31.
BACKGROUND
Plaintiff Integrated Biomass Resources LLC is a “renewable energy company that converts underutilized woody biomass sourced from forest-health and fire mitigation projects, as well as waste from traditional forest harvesting, into useful products like heat logs, campfire wood, poles, and clean electricity.” Schmidt Decl. ¶ 2. ECF No. 36. Plaintiff operates a facility in Wallowa, Oregon (“the Facility.”). Id. at ¶ 3.
Product at the Facility is kept “flowing continuously from one machine center to another until it is either packaged in its final form or consumed for energy.” Schmidt Decl. ¶ 4. “Because of the interconnected nature of the Facility, damage to one part of the manufacturing process can take the entire Facility out of service.” Id.
In March 2019, Plaintiff purchased an insurance policy from Defendant AIX Specialty Insurance Company under policy number F1D D831912 00 (“the Policy.”). Schmidt Decl. ¶ 5. The Policy period ran from March 22, 2019 to March 22, 2020. Id. Defendant drafted the Policy. Id. at ¶ 7. Plaintiff paid all premiums required under the Policy. Id. at ¶ 6.
I. The Policy
The Policy provides coverage for “direct physical loss or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.” Schmidt Decl. Ex. 1, at 30. The Policy also provides coverage for lost business income. Id. at 46. In relevant part, the Policy provides:
We will pay for the actual loss of Business Income you sustain due to the necessary “suspension” of your “operations” during the “period of restoration.” The “suspension” must be caused by direct physical loss of or damage to property at premises which are described in the Declarations and for which a Business Income Limit Of Insurance is shown in the Declarations. The loss or damage must be caused by or result from a Covered Cause of Loss. With respect to loss of or damage to personal property in the open or personal property in a vehicle, the described premises include the area within 100 feet of such premises.Schmidt Decl. Ex. 1, at 46.
The Declarations describe seven covered buildings, identified as Buildings 1-1 through 1-7 and Building 2 and assigns coverages and limits of insurance for each of them. Schmidt Decl. Ex. 1, at 3. As relevant to this case, the coverages and limits of insurance are (1) building, business income, and personal property coverage for Building 1-2; (2) building, business income, and personal property coverage for Building 1-4; (3) building and business income coverage for Building 1-5; and (4) stock and “other personal property” coverage for Building 1-7. Id.
The Policy defines a “building” as “the building or structure described in the Declarations, ” including completed additions; “fixtures, including outdoor fixtures, ”; permanently installed machinery and equipment; and “personal property owned by you that is used to maintain or service the building or structure or its premises.” Schmidt Decl. Ex. 1, at 30.
A “building” also includes “[a]dditions under construction, alterations and repairs to the building or structure;” and “[m]aterials, equipment, supplies and temporary structures on or within 100 feet of the described premises used for making additions, alterations or repairs to the building or structure, ” but only “if not covered by other insurance.” Id.
The Policy defines “business personal property” as “property properly located in or on the building or structure described in the Declarations or in the open (or in a vehicle) within 100 feet of the building or structure or within 100 feet of the premises described in the Declarations, which ever distance is greater, ” including, inter alia, furniture and fixtures, machinery and equipment, stock, “all personal property owned by you and used in your business.” Schmidt Decl. Ex. 1, at 30.
II. The Loss Incident
On May 12, 2019, the Facility was damaged by a fire. Schmidt Decl. ¶ 8. The entire Facility was taken offline by the fire. Id. The fire-damaged property was all machinery and equipment located in the open, outside and not within a building; all of it was permanently attached to Buildings 1-2, 1-4, and 1-5, and nearly all of it was located within 100 feet of Buildings 1-4 and 1-5. Id. at ¶¶ 9-27. This included the components of a firewood processor, Id. at ¶¶ 10-12; various conveyors, Id. at ¶¶ 13-15; components of the hammer mill, Id. at ¶¶ 16-18; components of the chip screen, Id. at ¶¶ 19-21; and components of the disc screen, Id. at ¶¶ 22-24. Much of the electrical wiring was damaged by the heat and had to be replaced. Id. at ¶ 25. The pre-drying kiln was also damaged in the fire. Id. at ¶¶ 26-27.
As soon as the fire occurred, Plaintiff notified Defendant of its claim for loss. Schmidt Decl. ¶ 29. On July 8, 2019, Defendant informed Plaintiff that the Policy does not provide business income and extra expense coverage for the loss. Id. at ¶ 30. This action followed.
DISCUSSION
I. Relevant Law Regarding Interpretation of Insurance Policies
A federal court, sitting in diversity, applies state law in interpreting an insurance policy. Travelers Prop. Cas. Co. of Am. v. ConocoPhillips Co., 546 F.3d 1142, 1145 (9th Cir. 2008). In Oregon, interpretation of an insurance policy is a question of law. Cain Petroleum Inc. v. Zurich Am. Ins. Co., 224 Or.App. 235, 241 (2008).
“The task in determining the meaning of a policy is to ascertain the intent of the parties, based on the wording of the policy itself.” Cain Petroleum Inc., 224 Or.App. at 241 (internal citation omitted). “Issues of contractual intent are determined by the objective manifestations of the parties based on the terms that they use and not on what they subjectively believe that the terms mean.” Employers Ins. of Wausau v. Tektronix, Inc., 211 Or.App. 485, 503 (2007).
In determining the parties' intent under Oregon law, courts follow the analytical framework set out in Hoffman Const. Co. of Alaska v. Fred S. James & Co. of Oregon, 313 Or. 464, 470-71 (1992). The Hoffman framework first requires the court to determine whether the insurance policy defines the provision, term, or phrase at issue. Id. at 469. If expressly defined, the court must apply the provided definition. Holloway v. Republic Indem. Co. of Am., 341 Or. 642, 650 (2006).
When a policy does not define the phrase, the court must look to its plain meaning; a phrase has a plain meaning if it is susceptible to only one plausible interpretation. Holloway, 341 Or. at 650. If the court determines that there are two or more plausible interpretations of the phrase, the court must determine whether the interpretations “withstand scrutiny.” Id. A phrase withstands scrutiny if it continues to be reasonable after the interpretations are examined in light of, inter alia, the particular context in which the phrase is used in the policy and the broader context of the policy as a whole. Id. The court must “construe the text of the policy as a whole, rather than view particular parts of the policy in isolation.” Bresee Homes Inc. v. Farmers Ins. Exch., 353 Or. 112, 122 (2012).
If a single interpretation withstands scrutiny, the court must apply that interpretation. Hoffman, 313 Or. at 472-73. Where more than one interpretation withstands scrutiny, the court must conclude that the phrase is ambiguous. Cain Petroleum, Inc., 224 Or.App. at 242 (explaining that “‘ambiguity' is a term of art . . . refer[ring] to multiple, reasonable interpretations of the policy wording in light of the context in which the disputed provisions are employed and in the context of the policy as a whole.” (emphasis in original)). If the court concludes that a term or phrase is ambiguous under this framework, “the ambiguity cannot be permitted to survive, ” and the phrase must be construed against the drafter. Hoffman, 313 Or. 470-71.
II. The Record on Summary Judgment
Both parties urge the Court to consider material beyond the four corners of the Policy itself and so the Court must clarify the scope of material under consideration. “In all events, the interpretation of an insurance policy is a question of law that is confined to the four corners of the policy without regard to extrinsic evidence.” Rhiner v. Red Shield Ins. Co., 228 Or.App. 588, 593 (2009); see also Alterra Am. Ins. Co. v. James W. Fowler Co., 347 F.Supp.3d 604, 612 (D. Or. 2018) (“Oregon courts do not consider extrinsic evidence when interpreting insurance policy language.”). Consistent with this limitation, the Court declines to consider materials outside of the Policy itself.
III. Scope of Coverage
Plaintiff contends that it is entitled to business income coverage under the Policy for the business interruption it experienced following the fire because (1) the damage constitutes direct physical loss to Buildings 1-2, 1-4, or 1-5 because the fire-damaged property is machinery or equipment permanently installed to one of those buildings; or (2) the damage constitutes direct physical loss to personal property located in the open within 100 feet of Buildings 1-2, 1-4, or 1-5. Defendant contends that the loss is not covered by the Policy because the fire-damaged property constitutes Building 1-7, which does not carry business income coverage under the Policy. Defendant also contends that Plaintiff seeks to transform the Policy to provide blanket business income coverage.
As previously discussed, the Policy defines “building” to include the structure itself, as well as permanently installed machinery and equipment. Schmidt Decl. Ex. 1, at 30. For business income coverage, “[w]ith respect to loss of or damage to personal property in the open or personal property in a vehicle, the describes premises include the area within 100 feet of such premises.” Id. at 46. In the Declarations, there is business income coverage for Buildings 1-2, 1-4, and 1-5. Id. at 3. The Court finds no ambiguity in the terms of the Policy-business income coverage is provided for losses to those buildings, which includes permanently installed machinery and equipment, and to personal property located within 100 feet of the buildings.
There is no dispute that the fire-damaged property is permanently attached to Buildings 1-2, 1-4, and 1-5, nor is there any dispute that nearly all fire-damaged property is located in the open and within 100 feet of Buildings 1-4 and 1-5. Schmidt Decl. ¶¶ 8-27. Plaintiff is entitled to business income coverage for the fire-damaged property, not under any coverage for Building 1-7, as the parties agree that no such coverage exists, but under the business-income coverage for Buildings 1-2, 1-4, and 1-5. Summary judgment should be granted in favor of Plaintiff.
CONCLUSION
Plaintiff's Motion for Summary Judgment should be GRANTED. Defendant's Motion for Summary Judgment should be DENIED.
SCHEDULING ORDER
The Findings and Recommendation will be referred to a district judge. Objections, if any, are due fourteen (14) days from service of the Findings and Recommendation. If no objections are filed, then the Findings and Recommendation will go under advisement on that date.
A party's failure to timely file objections to any of these findings will be considered a waiver of that party's right to de novo consideration of the factual issues addressed herein and will constitute a waiver of the party's right to review of the findings of fact in any order or judgment entered by a district judge. These Findings and Recommendation are not immediately appealable to the Ninth Circuit Court of Appeals. Any notice of appeal pursuant to Rule 4(a)(1) of the Federal Rules of Appellate Procedure should not be filed until entry of judgment.
It is so ORDERED.