Alaska Village Electric Cooperative, Inc. v. Zurich American Insurance

FILED
NOT FOR PUBLICATION JAN 17 2014
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
ALASKA VILLAGE ELECTRIC No. 12-35920
COOPERATIVE, INC., an Alaska
corporation, D.C. No. 2:11-cv-01375-RAJ
Plaintiff - Appellant,
MEMORANDUM*
v.
ZURICH AMERICAN INSURANCE
COMPANY, a New York corporation; et
al.,
Defendants - Appellees.
Appeal from the United States District Court
for the Western District of Washington
Richard A. Jones, District Judge, Presiding
Argued and Submitted November 4, 2013
Seattle, Washington
Before: SCHROEDER, PAEZ, and BERZON, Circuit Judges.
Alaska Village Electric Cooperative (“AVEC”) appeals the district court’s
grant of summary judgment in favor of Zurich American Insurance Company and
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
other underwriters (“Zurich”), rejecting AVEC’s claim that an all-risks insurance
policy issued by Zurich covered the cost to repair a shipbuilder’s faulty welding
during construction of new barges. We have jurisdiction pursuant to 28 U.S.C. §
1291, and we reverse.
Under Washington law, if an insurance policy clause is ambiguous, courts
look to “extrinsic evidence of the intent of the parties to resolve the ambiguity.”
Quadrant Corp. v. Am. States Ins. Co., 110 P.3d 733, 737 (Wash. 2005). Such
extrinsic evidence serves the purpose of “elucidating the meaning of the words
employed,” but should not be used to “import[] into a writing an intention not
expressed therein.” Berg v. Hudesman, 801 P.2d 222, 229 (Wash. 1990) (internal
citations and quotations omitted). Further, where the parties have actually
negotiated for specific terms, Washington law requires that courts consider
extrinsic evidence to determine the policy’s meaning. See Spratt v. Crusader Ins.
Co., 37 P.3d 1269, 1272 (Wash. Ct. App. 2002).
The plain meaning of the relevant policy provision—“[t]his Policy [i]nsures
against all risks of physical loss of or damage to the Vessel occurring during the
currency of this Policy . . .”—does not make clear whether the policy covers the
repair of faulty workmanship itself or only losses due to accidents that occur as a
consequence of such faulty workmanship. Although the Washington Court of
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Appeals ruled in one instance that the same all-risks policy language did not cover
faulty workmanship, that ruling was specific to the case and facts before the court.
See Wolstein v. Yorkshire Ins. Co., 985 P.2d 400 (Wash. Ct. App. 1999). Here,
AVEC presented evidence that, when viewed in a light most favorable to it,
demonstrates that it specifically negotiated for coverage of faulty workmanship.
Wolstein relied principally upon the Fifth Circuit’s opinion in Trinity
Industries, Inc. v. Insurance Company of North America, 916 F.2d 267 (5th Cir.
1990). There, the court ruled that virtually identical all-risks language did not
cover faulty workmanship only after engaging in an analysis of the intent of the
parties and the “circumstances surrounding the policy.” 916 F.2d at 269-71.
Neither Wolstein nor Trinity dictate that the all-risks policy language at issue here
can have only one meaning. In fact, another Washington appellate court has
explained that “all risk builder’s risk policies vary considerably,” and that “not
every all risk builder’s risk policy contains a ‘faulty workmanship’ exclusion.”
Frank Coluccio Constr. Co., Inc. v. King Cnty., 150 P.3d 1147, 1159 (Wash. Ct.
App. 2007). We must therefore look to the available extrinsic evidence to
determine if there is a genuine issue of material fact as to whether the all-risks
policy in this case covers the faulty welding at issue.
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Viewing the extrinsic evidence and surrounding circumstances in a light
most favorable to AVEC, see Corns v. Laborers Int’l Union of N. Am., 709 F.3d
901, 907 (9th Cir. 2013), there is a genuine factual dispute as to the parties’ intent
and, ultimately, the meaning of the all-risks policy. The circumstances
surrounding the genesis of the policy can be understood to indicate that AVEC’s
agents sought coverage that specifically included faulty workmanship, and that the
insurers so understood.
For example, AVEC’s agents demanded that insurers underwrite the policy
without “Addendum No. 2.” Addendum No. 2 provides in relevant part,
“[u]nderwriters shall not pay for any loss, damage, or expense caused by or arising
in consequence of (a) faulty workmanship, or the installation or use of improper or
defective materials, unless resulting in destruction, deformation, breaking, tearing,
bursting, holing, or cracking of the Vessel, or any other like condition . . . .” This
language makes explicit that faulty workmanship is excluded from coverage, but
not most consequential damages due to faulty workmanship, indicating that the
concern in excluding Addendum No. 2 was faulty workmanship coverage. Further,
there is evidence indicating that the norm in the marine insurance industry is that
all-risks policies, particularly without Addendum No. 2, cover faulty workmanship.
This industry norm appears to be rooted in the history of Addendum No. 2, which,
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AVEC contends, was added to the standard 1979 American Institute Builders Risk
Clauses in 1981 for the purpose of excluding coverage for faulty workmanship. In
light of this history and industry norm, it could be reasonably inferred that insurers
would have understood that, because AVEC’s agents sought a policy without
Addendum No. 2, they desired coverage for faulty workmanship. In addition, there
is some evidence in the record that AVEC’s agents specifically told insurers that
they were demanding a policy without the Addendum No. 2 exclusion so that the
policy would cover faulty workmanship.
These facts, viewed in AVEC’s favor, create a genuine issue of material fact
as to the meaning of the all-risks policy in this case. We therefore reverse and
remand for further proceedings.
REVERSED and REMANDED.
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