Seattle Tunnel Partners, Et Ano., Pet V. Great Lakes Reinsurance (uk) Plc, Resps

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
SEATTLE TUNNEL PARTNERS, a
Washington joint venture, No. 78691-1-I
(consolidated with No. 79060-9-I
Petitioner, and No. 80260-7-I)
WASHINGTON STATE DEPARTMENT DIVISION ONE
OF TRANSPORTATION,
Appellant-Petitioner, PUBLISHED OPINION
HITACHI ZOSEN U.S.A. Ltd.,
Intervenor-Petitioner,
v.
GREAT LAKES REINSURANCE (UK)
PLC, a foreign insurance company;
ZURICH AMERICAN INSURANCE PLC,
a New York insurance company; STARR
SURPLUS LINES INSURANCE
COMPANY; a Illinois insurance company;
INDIAN HARBOR INSURANCE
COMPANY, a Connecticut insurance
company; ALLIANZ GLOBAL
CORPORATE & SPECIALTY SE, a
foreign insurance company; TORUS
INSURANCE (UK) LIMITED, a foreign
insurance company; PARTNER RE
IRELAND INSURANCE LIMITED, a
foreign insurance company; Does 1-100,
individual and/or corporate members of
SYNDICATE 382 at LLOYD’S, LONDON;
and Does 101-200, individual and/or
corporate members of SYNDICATE 1882
at LLOYD’S, LONDON,
Respondents.
No. 78691-1-I/2
CHUN, J. — In 2011, Seattle Tunnel Partners (STP) contracted with the
Washington State Department of Transportation (WSDOT) to construct a tunnel
to replace the Alaskan Way Viaduct in Seattle. As part of the agreement, STP
procured builder’s risk insurance coverage (Policy). Section 1 of the Policy
concerns the tunneling works and Section 2 concerns the tunnel boring machine
(TBM) nicknamed “Bertha.” The Policy names STP and WSDOT as insureds.
Various insurers (Insurers) underwrote the Policy.
In 2013, the TBM ceased functioning and STP and WSDOT tendered
claims under the Policy. The Insurers disputed coverage and STP and WSDOT
sued, alleging wrongful denial of their claims. Hitachi Zosen U.S.A., which
designed and manufactured the TBM, joined as an intervenor-plaintiff. The
dispute raised questions relating to the interpretation of the Policy. The parties
filed a series of cross motions for partial summary judgment, and the trial court
granted the Insurers’ motions and denied STP’s, WSDOT’s, and Hitachi’s
(Petitioners’1) motions.
STP and WSDOT petitioned for discretionary review. A commissioner of
this court granted such review on whether the trial court erred in determining as a
matter of law that (1) the Policy’s Section 2 mechanical breakdown exclusion
(MBE) excludes coverage for design defects, and (2) the claimed damages
resulted from a single occurrence. The commissioner reserved for the panel
whether to grant discretionary review on (1) whether STP and WSDOT can
1
We use the term “Petitioners” when referring to all three of STP, WSDOT, and
Hitachi.
2
No. 78691-1-I/3
recover under Section 1 of the Policy, (2) the meaning of the term “any item” in
the Policy’s Section 2 MBE, and (3) whether the Policy provides coverage for
delay costs. The commissioner allowed the parties to brief these issues.
After the commissioner granted discretionary review, at the trial court
level, the Insurers moved for summary judgment on WSDOT’s remaining
damages claims and its claim for declaratory judgment. The trial court granted
summary judgment, entered partial final judgment, and WSDOT appealed the
ruling. This court consolidated WSDOT’s appeal with the grant of discretionary
review. Hitachi moves to join the consolidated matter under RAP 5.3(i).
We grant Hitachi’s motion to join this matter as a petitioner and grant
review on the issues reserved by the commissioner. We reverse in part and
affirm in part as follows: in the Petitioners’ favor, we reverse the partial summary
judgment rulings that a single occurrence caused the TBM damage and that “any
item” in the Section 2 MBE means the entire TBM; and we reverse the summary
judgment ruling that none of WSDOT’s claimed damages relates to TBM repairs
and dismissing WSDOT’s claim for declaratory judgment. And in the Insurers’
favor, we affirm the partial summary judgment rulings that STP and WSDOT
cannot recover under Section 1 or for delay costs and that the Section 2 MBE
bars recovery for damage caused by design defects.
I. BACKGROUND
A. The Policy
In 2011, STP contracted with WSDOT to construct a tunnel to replace the
Alaskan Way Viaduct. The contract required STP to procure builder’s risk
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insurance coverage for the tunneling works and the TBM, and STP acquired this
coverage. The Policy names STP and WSDOT as insureds. STP obtained the
TBM from Hitachi, which designed and manufactured it.
The Policy’s Insuring Clause provides in pertinent part, “The Insurers will
indemnify the Insured in respect of direct physical loss, damage or destruction
(hereinafter referred to as ‘Damage’) not specifically excluded herein . . .
happening to the Interest Insured.” (Emphasis added.)
The Interest Insured under Section 1 of the Policy is:
The permanent and/or temporary works executed and in the course
of execution materials supplies equipment and other goods
(excluding Contractors Plant and Equipment) including Employers
supplied items / free issue materials or any other property including
temporary buildings and their contents for which the Insured is
responsible or for which they hold themselves responsible or any of
the Insured has agreed to insure or have instructions to insure which
are used or intended for use in connection with the Project.
The Interest Insured under Section 2 of the Policy is the TBM.
The Policy covers damage to the TBM for a sublimit of up to $85 million
for each “occurrence.” The Policy defines “occurrence” as “one event or series of
events consequent on or attributable to one source instance or cause, which
results in Damage to or the destruction of Interest Insured.”
Section 2 of the Policy includes the MBE, which excludes compensation
for “Loss of or Damage in respect any item by its own explosion mechanical or
electrical breakdown, failure breakage or derangement. This exclusion does not
apply to resultant Damage to the property.”
4
No. 78691-1-I/5
B. The Coverage Dispute
The TBM began mining in July 2013. In October 2013, the rotating part of
the center pipe of the TBM cracked. In December 2013, the TBM ceased
functioning.2 The TBM did not resume mining until December 2015.
WSDOT and STP tendered insurance claims based on the TBM damage,
losses from the delay in mining, and construction of an access shaft built to
repair the TBM. The Insurers denied these claims. STP sued the Insurers,
claiming breach of contract, violation of unfair claims settlement practices
regulations, Consumer Protection Act3 violations, Insurance Fair Conduct Act4
violations, and breach of the implied covenant of good faith. They also sought
declaratory relief. WSDOT was joined as a necessary party by STP’s First
Amended Complaint. WSDOT filed a complaint, requesting declaratory relief.
Hitachi joined the action as an intervenor-plaintiff.
STP and the Insurers cross-moved for partial summary judgment. Hitachi
joined STP’s motion and opposed the Insurers’ motion. WSDOT said that STP’s
motion should be granted in part and denied in part, and that the Insurers’ motion
should be denied in full. The motions raised various issues relating to the
interpretation of the Policy. The trial court granted the Insurers’ motion,
concluding that the Section 2 MBE “excludes coverage for property damage to
2
STP and WSDOT assert different causes for the TBM stoppage. STP says it
stopped because of an encounter with a well’s casing, and WSDOT says it stopped
because of operator error or design defects.
3
Ch.19.86 RCW.
4
RCW 48.30.101–.015.
5
No. 78691-1-I/6
the TBM caused by any alleged design defects.” The court denied STP’s motion,
in which they argued to the contrary.
Petitioners STP and WSDOT then both moved for partial summary
judgment, saying that the term “any item” as used in the Section 2 MBE refers to
a component part of the TBM. The trial court denied these motions.
The Insurers then moved for partial summary judgment, which motion the
trial court granted, concluding that: (1) the damages claimed stemmed from a
single occurrence, and that “[n]o theory was presented to support a
determination that more than one series of events caused separate damage
[and] [f]actual disputes over the precise cause of the damage within the one
chain of events are not material to this issue”; (2) “[t]he property insured under
Section 1 did not sustain the requisite physical damage to trigger coverage under
Section 1, and neither STP nor WSDOT incurred any costs to repair any alleged
‘damage’ to the permanent or temporary works sufficient to trigger coverage
under Section 1”; and (3) “[t]he Policy does not afford Delay In Startup coverage
or losses otherwise due to project delays.”
STP and WSDOT petitioned for discretionary review of these rulings. A
commissioner of this court granted such review on whether the Section 2 MBE
excludes damages caused by design defects and whether the TBM damages
stemmed from a single occurrence. The commissioner left for this panel to
decide whether to grant review on (1) whether the tunnel sustained damage that
would trigger Section 1 coverage; (2) the meaning of the term “any item” in
Section 2; and (3) whether the Policy allows recovery for delay costs. After the
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No. 78691-1-I/7
commissioner granted discretionary review, at the trial court level, the Insurers
moved for summary judgment on WSDOT’s declaratory judgment and damages
claims. The trial court granted the motion, stating, “The delay elements claimed
are delay costs, and costs arising from WSDOT’s obligations to other [sic] were
not necessary for the TBM repair.” The trial court entered partial final judgment
following this ruling, which WSDOT appealed. This court consolidated the
appeal with the grant of discretionary review.
Hitachi filed a motion under RAP 5.3(i) to join this matter as a petitioner so
that it could file briefing. The commissioner granted Hitachi’s motion “to the
extent that it [may] file briefs on the legal issues on which review [was] granted.”
The commissioner stated that “[t]he panel that considers the appeals on the
merits will be in a better position to determine the extent to which it will consider
Hitachi’s arguments, as well as the extent to which Hitachi may be entitled to
relief.”5
II. ANALYSIS
We review de novo a summary judgment ruling. Messenger v.
Whitemarsh, 13 Wn. App. 2d 206, 210, 462 P.3d 861 (2020). “‘Summary
judgment is appropriate when there is no genuine issue as to any material fact
5
Hitachi joins STP and WSDOT’s claims that (1) the Section 2 MBE does not
exclude coverage for damage caused by alleged design defects, (2) the TBM damage
did not result from a single occurrence, and (3) the term “any item” does not mean the
entire TBM. It takes no position on whether STP and WSDOT can recover under
Section 1 or whether the Policy provides coverage for delay losses.
Hitachi does not join any portion of STP’s or WSDOT’s briefing that denies that
the encounter with the well casing played a role in TBM damage or that suggests that
any part of the TBM failed on its own.
7
No. 78691-1-I/8
and the moving party is entitled to a judgment as a matter of law.’” Id. (quoting
Strauss v. Premera Blue Cross, 194 Wn.2d 296, 300, 449 P.3d 640 (2014)). In
ruling on a summary judgment motion, “we consider all facts and make all
reasonable factual inferences in the light most favorable to the nonmoving party.”
Scrivener v. Clark College, 181 Wn.2d 439, 444, 334 P.3d 541 (2014). “‘A
genuine issue of material fact exists when reasonable minds could differ on the
facts controlling the outcome of the litigation.’” Id. (quoting Dowler v. Clover Park
Sch. Dist. No. 400, 172 Wn.2d 471, 484, 258 P.3d 676 (2011)).
“[I]nterpretation of an insurance policy is a question of law, and summary
judgment is appropriate if the contract has only one reasonable meaning when
viewed in the light of the parties’ objective manifestations.” Port of Seattle v.
Lexington Ins. Co., 111 Wn. App. 901, 907, 48 P.3d 334 (2002). A court must
construe insurance policies as a whole and give effect to each clause. Id. at
907–08.
A. Hitachi Joinder
Hitachi says we should grant its motion to join this matter as a petitioner.
The Insurers objected when Hitachi moved to join before the commissioner, but
apparently no longer object.
RAP 5.3(i) allows joinder if:
[t]here are multiple parties on a side of a case and fewer than all of
the parties on that side of the case timely file a notice of appeal or
notice for discretionary review, the appellate court will grant relief
only (1) to a party who has timely filed a notice, (2) to a party who
has been joined as provided in this section or (3) to a party if
demanded by the necessities of the case. The appellate court will
permit the joinder on review of a party who did not give notice only if
8
No. 78691-1-I/9
the party’s rights or duties are derived through the rights or duties of
a party who timely filed a notice or if the party’s rights or duties are
dependent upon the appellate court determination of the rights or
duties of a party who timely filed notice.
The commissioner made the following ruling based on Hitachi’s motion to
join this matter:
Subsection (1) is inapplicable; Hitachi did not file a notice seeking
review. Although unclear, it appears that the strict requirements of
subsection (3) are not met. But at this point it appears that Hitachi’s
rights may be dependent on this court’s determination of the
insurance policy exclusion issues raised in WSDOT’s and STP’s
appeals. See subsection (2).
I will grant Hitachi’s motion to the extent that it will be permitted to file
briefs on the legal issues on which review has been granted. The
panel that considers the appeals on the merits will be in a better
position to determine the extent to which it will consider Hitachi’s
arguments, as well as the extent to which Hitachi may be entitled to
relief.
Presumably, our rulings on whether the Section 2 MBE excludes coverage for
damages due to design defects will affect Hitachi’s rights and duties as the
designer and manufacturer of the TBM. It appears the Insurers no longer oppose
Hitachi’s joinder, and in their brief to the commissioner on this issue they
acknowledged that “this Court’s ruling on the Machinery Breakdown Exclusion
may ultimately impact Hitachi’s ability to recover insurance proceeds.” We grant
Hitachi’s motion to join.
B. Section 2 - Machinery Breakdown Exclusion
The Section 2 MBE excludes coverage for “[l]oss of or [d]amage in respect
any item by its own explosion mechanical or electrical breakdown, failure
breakage or derangement. This exclusion does not apply to resultant Damage to
the property.” (Emphasis added.) The Petitioners say that the trial court erred in
9
No. 78691-1-I/10
concluding that the term “any item” in the MBE refers to the entire TBM, and in
determining that the MBE excludes coverage for alleged design defects. 6 We
conclude that the trial court erred in ruling that the term “any item” refers to the
entire TBM, but properly ruled that the MBE excludes coverage for alleged
design defects.
1. “Any item”
The trial court determined as a matter of law that the term “any item” in the
Section 2 MBE means the TBM. The Petitioners say that “any item”
unambiguously refers to a part of the TBM, instead of the entire TBM. We agree
and conclude that the trial court erred in denying their partial summary judgment
motion on this issue.7
The Policy does not define “any item.” “Courts interpret insurance
contracts as an average insurance purchaser would understand them and give
undefined terms in these contracts their ‘plain, ordinary, and popular’ meaning.”
Kish v. Ins. Co. of N. Am., 125 Wn.2d 164, 170, 883 P.2d 308 (1994) (quoting
Boeing Co. v. Aetna Cas. & Sur. Co., 113 Wn.2d 869, 877, 881, 784 P.2d 507(1990)). Washington courts will often turn to the dictionary definition of an
undefined term to determine its meaning. See, e.g., id. at 171; Lui v. Essex Ins.
6
This issue is consequential with respect to the MBE’s “resultant [d]amage”
clause. For example, if “any item” means a part of the TBM, then the MBE would not
exclude damage to the TBM caused by a defective part.
7
The commissioner left for us to decide whether to consider this issue. The
parties have fully developed and briefed it, and the Insurers do not say we should not
consider it. We consider this issue in the interest of judicial economy. See In re
Dependency of A.S., 101 Wn. App. 60, 72, 6 P.3d 11 (2000) (noting that appellate courts
have the authority, under RAP 12.2, to affirm, modify, or reverse a trial court order
without further proceedings “when doing so would be a useless act or a waste of judicial
resources”).
10
No. 78691-1-I/11
Co., 185 Wn.2d 703, 713–14, 375 P.3d 596 (2016). An insurance clause is
ambiguous when, on its face, it is susceptible to two reasonable interpretations.
Am. Nat. Fire. Ins. Co. v. B&L Trucking & Const. Co., Inc., 134 Wn.2d 413, 428,
951 P.2d 250 (1998).
An “item” is defined as “something that forms a contributory or component
part or section of something specified.” W EBSTER’S THIRD NEW INTERNATIONAL
DICTIONARY 1203 (2002).8 The term “any” precedes “item.” “Any” is defined as
“one indifferently out of more than two.” W EBSTER’S THIRD NEW INTERNATIONAL
DICTIONARY 97 (2002).9 And Washington courts construe the word “any” to mean
“every” and “all.” NOVA Contracting, Inc. v. City of Olympia, 191 Wn.2d 854,
866, 426 P.3d 685 (2018). These definitions of “any” and “item” imply numerosity
and unambiguously indicate that the Section 2 MBE excludes coverage for
breakdown of a single part of the TBM, not the entire TBM.
8
As the Insurers note in their briefing, Webster’s also defines “item” as “an object
of attention, concern or interest.” W EBSTER’S THIRD NEW INTERNATIONAL DICTIONARY
1203 (2002). They say that since the TBM is the object of attention or concern in the
Policy, “item” means the TBM.
The Insurers omit the rest of the definition in their briefing: “an object of attention
or concern or interest to a specified degree or in a specified field or to a specified
individual.” W EBSTER’S THIRD NEW INTERNATIONAL DICTIONARY 1203 (2002) (emphasis
added). The usage examples make clear that the omitted portion helps in understanding
this definition of “item.” Such examples include “an item of great importance,” and “an
essential item for every home.” W EBSTER’S THIRD NEW INTERNATIONAL DICTIONARY 1203
(2002) (emphasis added). The usage examples cut against the Insurers’ argument that
“item” means “an object of attention” in a vacuum; instead, it is an object of attention in
some degree or subject matter. The Section 2 MBE does not use “item” like the usage
examples provided for this definition, which shows that we should not interpret “item”
merely as “an object of attention or concern.”
9
Webster’s also defines “any” as “one, some, or all indiscriminately of whatever
quantity.” W EBSTER’S THIRD NEW INTERNATIONAL DICTIONARY 97 (2002) (emphasis
added). The Insurers say that “any item” can mean “one item.” But this interpretation
disregards the italicized portion of the definition; more accurately under this definition,
“any item” is one of some quantity of items.
11
No. 78691-1-I/12
At oral argument, the Petitioners and Insurers agreed that the term
“property,” as used in the resultant damage clause of the MBE, refers to the TBM
as a whole. Wash. Court of Appeals oral argument, Seattle Tunnel Partners v.
Great Lakes Reinsurance (UK) PLC, No. 78691-1-I (Feb. 23, 2021), at 8 min., 0
sec.; 34 min., 40 sec., video recording by TVW, Washington State’s Public Affairs
Network, https://www.tvw.org/watch/?eventID=2021021324. It would make little
sense for “property” to mean the TBM if “item” also means the TBM. And we
must strictly construe exclusionary clauses against the Insurers. Port of Seattle,
111 Wn. App. at 908.
We conclude that the trial court erred in determining that “any item” means
the entire TBM, rather than its component parts.10
2. Design defect exclusion
The trial court determined on partial summary judgment that the Section 2
MBE “excludes coverage for property damage to the TBM caused by any alleged
design defects.” The Petitioners say that the MBE does not unequivocally
exclude coverage for design defects, so the trial court erred. We disagree.
10
The Insurers point to Section 2’s depreciation clause, in which the term “item”
is used for the entire TBM. The TBM depreciation clause in Section 2 states, in pertinent
part:
(i) Where damage to an insured [TBM] can be repaired the Insurers shall
pay expenses necessarily incurred to restore the damaged item to its
former state.
...
(ii) Where a [TBM] is destroyed the Insurers shall pay the Actual Value of
the item immediately before the occurrence of the loss . . .
(Emphasis added.) The Petitioners rightly counter that in the depreciation clause,
“[TBM]” is an antecedent to “the item,” and no such antecedent exists in the Section 2
MBE. This other usage of “item” in the Policy does not alter the conclusion that, in the
MBE, an “item” is a part of the TBM.
12
No. 78691-1-I/13
As noted by the Petitioners, the Section 2 MBE does not expressly
exclude coverage for design defects. And “in an all-risk policy, ‘any peril that is
not specifically excluded in the policy is an insured peril.’” Vision One, LLC v.
Philadelphia Indem. Ins. Co., 174 Wn.2d 501, 513, 276 P.3d 300 (2012) (quoting
Findlay v. United Pac. Ins. Co., 129 Wn.2d 368, 378, 917 P.2d 116 (1996)). The
Petitioners say that because Section 1 includes a design defect exclusion and
Section 2 does not, the trial court should have interpreted Section 2 not to
exclude coverage for design defects.11 Indeed, no design defect exclusion
expressly appears in Section 2. But a Section 2 design defect exclusion would
be superfluous with the MBE, since, as we address below, the MBE as written
excludes coverage for damage from design defects. The absence of an explicit
design defect exclusion in the Section 2 MBE does not necessitate the
conclusion that it covers damage arising from design defects.
11
The Section 1 design defect exclusion states:
The Insurers shall not indemnify the Insured for:
1. Defects of material workmanship design plan or specification
(LEG2/96)
All costs rendered necessary by defects of material workmanship design
plan or specification and should Damage occur to any portion of the Interest
Insured containing any of the said defects the cost of replacement or
rectification which is hereby excluded is that cost which would have been
incurred if replacement or rectification of the Interest Insured had been put
in hand immediately prior to the said Damage.
For the purpose of this Policy and not merely this exclusion it is understood
and agreed that any portion of the Interest Insured shall not be regarded
as damaged solely by virtue of the existence of any defect of material
workmanship design plan or specification.
13
No. 78691-1-I/14
Out-of-state decisions help guide our analysis of whether the Section 2
MBE excludes coverage for design defects. Based on these cases, we conclude
that it does.
a. Section 2 MBE prevents recovery for internal causes of damage
Various courts have interpreted mechanical breakdown exclusions as
preventing recovery for harm caused by internal causes, rather than external
causes. The parties agree that this MBE prevents recovery for internal causes,
and applicable law appears consistent with their position. See, e.g., Connie’s
Constr. Co. v. Cont’l W. Ins. Co., 227 N.W.2d 204, 207 (Iowa 1975) (holding that
a mechanical breakdown is a functional defect in machinery, and that an MBE
did not exclude coverage because the breakdown of a crane was an effect of
user error, not the cause of the plaintiff’s loss); Caldwell v. Transp. Ins. Co., 234
Va. 639, 644, 364 S.E.2d 1 (1988) (holding that an MBE “is restricted to losses
arising from internal or inherent deficiency or defect, rather than from any
external cause.”); see also James W. Fowler Co. v. QBE Ins. Corp., 474 F. Supp.
3d 1149, 1160–61 (D. Or. 2020) (adopting Caldwell’s reasoning).
In addition, the MBE excludes “Loss of or Damage in respect any item by
its own explosion mechanical or electrical breakdown, failure breakage or
derangement.” (Emphasis added.) The inclusion of “by its own” likewise
indicates that the MBE excludes coverage for internal causes of damage.
Relying on the joint concession of the parties, the above decisional
interpretations of similar MBEs, and the text of the MBE, we conclude that the
Section 2 MBE excludes coverage for internal causes of damage.
14
No. 78691-1-I/15
b. A design defect is an internal cause of damage
We also adopt the reasoning that, as the Insurers say, a design defect is
an internal cause, since design defects are inherent to the insured subject
matter.
In GTE Corp. v. Allendale Mutual Insurance Co., GTE sued its all-risk
insurers seeking to recover the costs it incurred in remediating its computer
system to avoid “Y2K” date-recognition problems. 372 F.3d 598, 601 (3d Cir.
2004). The Third Circuit analyzed a design defect exclusion in the policy to
decide whether, as the claimants argued, a design defect is “external.” Id. at
611–12. The Third Circuit rejected GTE’s argument and held that the design
defect causing the Y2K threat was “internal,” reasoning:
We disagree with the suggestion that the Y2K threat is “external”
merely because GTE’s systems interacted with other systems or
read data from outside sources. Such a conception of external would
essentially allow all defective designs and inherent vices to be
characterized as external problems. For example, if a car is
defectively designed so that the tires come off when the car is driven
at 10 miles per hour, the threat is not external merely because the
“external” event of the road contacting the tire caused the tires to fly
off. The road contacting the tire is an entirely predictable event that
is inherent to the very function and purpose of the automobile—there
is no problem independent of the automotive design. To take
another example, if a dam whose very purpose is to hold water falls
apart when the water rises to an entirely predictable level, the rising
of the water is not an “external” problem—the problem is that the
dam was not properly designed to allow it to perform precisely the
function it was intended to perform, the holding of water.
Id. at 612.
And in Acme Galvanizing Co. v. Fireman’s Fund Insurance Co., the court
held that “where defective construction, design, or fabrication of property results
15
No. 78691-1-I/16
in the property’s failure or deterioration before its normal life, and the defect is not
apparent upon reasonable inspection but only after a post-failure examination by
an expert, then the resulting loss is caused by a ‘latent defect.’” 221 Cal. App. 3d
170, 178, 270 Cal. Rptr. 405, 410 (1990).12
These decisions offer a convincing rationale as to why we should view a
design defect as an internal cause of damage; a product’s design is something
inherent to it and inseparable from it.13 Even given that we must strictly construe
12
“Latent defect,” “inherent defect,” and internal cause have been used
interchangeably. See, e.g., 11 STEVEN PLITT ET AL., COUCH ON INSURANCE § 153:77 (3d
ed. & Supp. 2020); Connie’s Constr., 227 N.W.2d at 207 (“‘Latent defect’ also
presupposes that the loss was caused by an internal defect in the machine.”); Caldwell,
234 Va. at 644 (“we hold that the effect of its exclusion of losses caused by structural or
mechanical breakdown or failure is restricted to losses arising from internal or inherent
deficiency or defect, rather than from any external cause.”).
13
The Petitioners cite two decisions concluding that a design defect is an
external cause of damage. Neither persuades us that the Section 2 MBE does not
exclude recovery for design defects here.
In N-Ren Corp. v. American Home Assurance Co., the Eighth Circuit followed a
different line of reasoning, concluding that “the requirement of an ‘external cause’ is
intended to exclude from coverage three types of losses: (1) losses resulting from
negligent acts of the owner or master, (2) losses resulting from normal wear and tear,
and (3) losses resulting from internal decomposition or deterioration of the insured
property.” 619 F.2d 784, 787–88 (8th Cir. 1980) (citing Contractors Realty Co. v. Ins.
Co. of N. Am., 469 F. Supp. 1287 (S.D.N.Y. 1979)). Reasoning that a design defect did
not fall into any of those three categories, it concluded that design defects are external.
Id. at 788. But this categorization—which appears to be an outlier—is unpersuasive
given the conception of a product’s design as inherent to it. And unlike the MBE here,
the provision at issue in N-Ren did not include the phrase “by its own.” Id. at 785.
In Standard Structural Steel v. Bethlehem Steel Corp., the court said that a
design defect is not an inherent vice, but there, the stated “design defect” was the
insureds’ failure to follow engineering specifications for an object they constructed. 597
F. Supp. 164, 195 (D. Conn. 1984). As applied to these facts, the term “design defect,”
as used in Standard Structural Steel, would more resemble a failure by STP or WSDOT
to assemble the TBM as specified by Hitachi; but here, Hitachi designed and
manufactured the TBM. Also, in Standard Structural Steel, the court stated that “[a]
cause is external if damage which arises from it does not result wholly ‘from an inherent
defect in the subject matter or from the inherent deficient qualities, nature and properties
of the subject matter.’” Id. at 193 (quoting Compagnie des Bauxites de Guinee v. Ins.
Co. of N. Am., 566 F. Supp. 258, 261 (W.D. Pa.1983)). This statement tracks our
16
No. 78691-1-I/17
exclusionary clauses against the Insurers, the MBE excludes coverage for design
defects.14
C. Single Occurrence
The Petitioners say that the trial court erred in determining as a matter of
law that the damages to the TBM stem from a single occurrence covered by
Section 2, which would cap their recovery at $85 million. The Insurers respond
that the trial court did not err because the damage to the TBM occurred as the
result of a single series of events. We agree with the Petitioners.
The Policy covers damage to the TBM for a sublimit of up to $85 million
for each “occurrence.” The Policy defines an “occurrence” as “one event or
series of events consequent on or attributable to one source instance or cause,
which results in Damage to or the destruction of Interest insured.”
In moving for summary judgment, the Insurers claimed that coverage
under Section 2 of the Policy is limited to the $85 million sublimit since there was
only one “occurrence” triggering the policy. In its opposition to the motion,
WSDOT said that there are genuine issues of material fact as to whether the
conclusion that a design defect as claimed by the Petitioners is something inherent to
the TBM, and would thus be excluded as an internal cause of harm.
14
The Petitioners, assuming that the Policy covers damage for design defects
and that design defects caused the ensuing damage to the TBM, say that the MBE
should not exclude coverage for damage to the TBM because the efficient proximate
cause of the harm was a covered design defect. The efficient proximate cause doctrine
provides coverage if a “‘covered peril sets in motion a causal chain, the last link of which
is an uncovered peril.’” Xia v. ProBuilders Specialty Ins. Co., 188 Wn.2d 171, 182–83,
400 P.3d 1234 (2017) (quoting Key Tronic Corp., Inc. v. Aetna (CIGNA) Fire
Underwriters Ins. Co., 124 Wn.2d 618, 625, 881 P.2d 201 (1994)) (internal brackets
omitted). But since we conclude that the Section 2 MBE excludes coverage for design
defects, and thus “design defects” are not covered perils, the efficient proximate cause
doctrine does not lead to coverage for the Petitioners.
17
No. 78691-1-I/18
TBM was damaged by more than one occurrence. WSDOT asserted that “it
remains to be decided what were the ‘source[s] instance[s] or cause[s]’ of the
TBM’s damage,” and that “[t]he damage may have resulted from design defects,
operator errors, or, as STP alleges, [encounter with the well casing].” (Most
alterations in original.) STP and Hitachi made similar assertions.
The trial court ruled that a single occurrence caused the claimed
damages: “No theory was presented to support a determination that more than
one series of events caused separate damage. Factual disputes over the
precise cause of the damage within the one chain of events are not material to
this issue.”
The Petitioners say the trial court erred because collectively, they
presented evidence of three potential separate and independent causes of the
TBM’s stoppage and damage: design defect, operator error, and encounter with
the well casing. The Insurers say that because the dictionary defines “instance”
as “a situation viewed as part of a process or series of events,” there was only
one occurrence. (Emphasis added.) We agree with the Petitioners.
Under Washington law, the number of occurrences “depends on the
number of causes underlying the alleged damage and resulting liability.”
Transcon. Ins. Co. v. Wash. Pub. Utils. Dists.’ Util. Sys., 111 Wn.2d 452, 467,
760 P.2d 337 (1988). Washington follows the majority rule, which establishes
that “the number of occurrences should be determined by identifying the cause of
the injury rather than the effect, that is, the injuries themselves.” 35 DAVID K.
DEW OLF & MATTHEW C. ALBRECHT, W ASHINGTON PRACTICE: W ASHINGTON
18
No. 78691-1-I/19
INSURANCE LAW AND LITIGATION § 22.8 (2020–21 ed.). By contrast, “the minority
view adopts the effects test and determines the number of occurrences by
looking at the injury from the point of view of the person whose property is
damaged.” Id.
In Transcontinental, bondholders raised insurance claims arising out of a
bond default. 111 Wn.2d at 454. The insured said its liability was limited
because all damages flowed from one occurrence. Id. at 466. Reviewing a
decision by the trial court on summary judgment, our Supreme Court disagreed,
recognizing that the bondholders’ allegations involved several injuries flowing
from multiple events: “[a]lthough [the cause identified by insurers] may have been
a cause for some damages alleged, other alleged causes potentially exist.” Id.The court effectively held that the insured presented evidence suggesting that
each of the alleged causes of damage could constitute an “occurrence.” Id. at
454, 466–67.
As in Transcontinental, the Petitioners submitted evidence of multiple
independent potential sources of damage to the TBM: they submitted internal
Hitachi e-mails, deposition testimony, and an expert report suggesting that a
design defect caused the damage; interrogatory answers, internal Hitachi
e-mails, an insurance claim, an expert report, and deposition testimony
suggesting that operator error caused the damage; and an e-mail from a WSDOT
consultant, notes from an Insurer meeting, and an internal Hitachi e-mail
suggesting that the encounter with the well casing caused the damage. Under
Transcontinental, each could constitute a separate occurrence.
19
No. 78691-1-I/20
Although the Insurers say the alleged causes of harm were a “series of
events,” they do not rebut the assertion that each of the claimed causes was
enough to cause TBM damage. And if there are multiple sufficient causes of the
damage, then there are multiple “occurrences.” Even though the MBE bars
recovery for damage caused by design defects, the evidence, when viewed in
the light most favorable to the Petitioners, shows a genuine issue of material fact
that either operator error or encounter with the well casing could have caused the
damage, constituting two “occurrences.” We conclude that the Petitioners raised
a genuine issue of material fact that more than one cause could have led to the
TBM damage, and that trial court erred by ruling on partial summary judgment
that only one series of events caused damage to the TBM.
The Petitioners also say that another occurrence of harm was the
deformation and cracking of the TBM’s center pipe in October 2013. The
Insurers respond that since the Petitioners did not raise this claim below, they
cannot now. The Petitioners counter, without citing applicable law, that the law
did not require them to allege when the TBM suffered damage. The Petitioners
do not show where they made a claim for damage occurring to the TBM in
October 2013. No such claim appeared in WSDOT’s, STP’s, or Hitachi’s
opposition to the Insurers’ motion for partial summary judgment. And “[o]n
review of an order granting or denying a motion for summary judgment the
appellate court will consider only evidence and issues called to the attention of
the trial court.” RAP 9.12. Thus, the trial court did not err by failing to recognize
the deformation of the TBM’s center pipe as another “occurrence.”
20
No. 78691-1-I/21
D. Section 1 Coverage
STP and WSDOT say that the trial court erred in ruling that Section 1 does
not provide coverage for (1) loss of use of the tunnel while the TBM was not
mining due to repairs, or (2) damage to the tunnel envelope resulting from
construction of the access shaft. Since whether the trial court properly dismissed
WSDOT’s declaratory judgment claim—which WSDOT appealed as of right—
depends in part on resolution of this issue,15 we address it. We disagree with
STP and WSDOT’s assertions.
The Insuring Clause states, in pertinent part: “[t]he Insurers will indemnify
the Insured in respect of direct physical loss, damage or destruction (hereinafter
referred to as “Damage”) not specifically excluded herein . . . happening to the
Interest Insured.” (Emphasis added.) The Interest Insured under Section 1 is
“[t]he permanent and/or temporary works executed and in the course of
execution materials supplies equipment and other goods (excluding Contractors
Plant and Equipment).” The parties agree that the interest insured under
Section 1 includes the tunnel. And the “temporary works,” as defined by the
Policy, are “all structures and their materials which are not intended to form part
of the permanent works but which are intended to provide working access to the
Site or to the permanent works or which are intended to provide temporary
support to the permanent works under construction.”
15
If Section 1 provides coverage for loss of use or damage resulting from
construction of the access shaft, then the trial court improperly reasoned that WSDOT
cannot sustain a declaratory judgment action because it can recover only under
Section 2.
21
No. 78691-1-I/22
The trial court ruled that “[t]he property insured under Section 1 did not
sustain the requisite physical damage to trigger coverage under Section 1, and
neither STP nor WSDOT incurred any costs to repair any alleged ‘damage’ to the
permanent or temporary works sufficient to trigger coverage under Section 1.”
1. Loss of use
The plain language of the Policy does not provide coverage for loss of use
of the tunnel. And if a policy’s “language is clear and unambiguous, we must
enforce it as written and not modify the insurance contract or create ambiguity
where none exists.” Quellos Grp. LLC v. Fed. Ins. Co., 177 Wn. App. 620, 634,
312 P.3d 734 (2013).
STP and WSDOT cite out-of-state decisions to support their claim that
loss of use of the tunnel is a type of “physical loss, damage or destruction” and is
covered by Section 1. But Washington case law shows that if a policy provides
coverage for “physical” loss, it does not provide coverage for loss of use unless
that loss of use arises out of or as a result of the physical loss.
In Prudential Property and Casualty Insurance Co. v. Lawrence, an insurer
contended it had no duty to indemnify or to defend its insureds from a neighbor’s
claim that their newly constructed home obstructed their view. 45 Wn. App. 111,
112, 724 P.2d 418 (1986). The insureds contended the neighbor’s alleged
damages came within the definition of “property damage” under their
homeowner’s policy and their personal catastrophe policy. Id. at 114. This court
distinguished the homeowner’s policy, which provided coverage for “physical
injury to or destruction of tangible property, including loss of use of this property,”
22
No. 78691-1-I/23
from the catastrophe policy, which provided coverage for “damage to or
destruction of tangible property. Property damage also includes the loss of the
use of the damaged or destroyed property.” Id. at 115, 117 (emphasis and
internal quotation marks omitted). The homeowner’s policy explicitly required
physical damage, whereas the catastrophe policy did not. Id. at 115. The court
concluded the insurer had a duty to defend and indemnify its insureds from the
view obstruction claim under the catastrophe policy because language similar to
it “has been broadly construed to encompass damage diminution in the value of
property, even when no physical damage has otherwise occurred.” Id. at 117.
The court declined to determine whether the alleged diminution in value
constituted “property damage” under the homeowner policy, but strongly
suggested it would not unless it resulted from physical injury to the house itself.
Id. at 116-17.
Similarly, in Guelich v. American Protection Insurance Co., insureds sued
an insurer alleging that under their umbrella policy, the insurer had a duty to
defend and indemnify them from a neighbor’s claim that the construction of their
home denied the neighbor reasonable use of his view. 54 Wn. App. 117, 118,
772 P.2d 536 (1989). The policy covered property damage, defined as “physical
injury to tangible property. It include[d] loss of use of injured property.” Id. at 120
(emphasis and internal quotation marks omitted). Citing Prudential, the court
held that the loss of use of a view did not constitute property damage as defined
in the policy because the loss of use was not the result of physical injury to any
tangible property. Id. at 120–21; see also Walla Walla Coll. v. Ohio Cas. Ins.
23
No. 78691-1-I/24
Co., 149 Wn. App. 726, 735, 204 P.3d 961 (2009) (diminution of value of
ruptured underground storage tank not “property damage” under commercial
policy).
These decisions support the conclusion that since the Policy provision in
question covers only direct physical loss—and does not even cover loss of use
occasioned by direct physical loss—STP and WSDOT cannot recover under
Section 1 for loss of use of the tunnel while repairing the TBM.16
2. Claimed damage to the tunnel envelope
To repair the TBM, STP had to excavate an access shaft. Construction of
this shaft required alteration of the “tunnel envelope”—i.e., the property owned by
WSDOT surrounding the path of the planned tunnel. WSDOT claimed that the
access shaft, a large concrete structure, inhibited the future usefulness of the
earth surrounding the tunnel and obstructed potential future utility locations. STP
16
As to out-of-state decisions cited by STP and WSDOT, some might allow
recovery for loss of use based on a “direct physical injury” provision. See, e.g.,
TRAVCO Ins. Co. v. Ward, 715 F. Supp. 2d 699, 708–09 (E.D. Va. 2010) (construing
“direct physical loss” provision along with loss of use provision to allow recovery for
replacement of undamaged but defective drywall that released sulfuric gas into the
claimant’s home, where the property was rendered unusable by the gas emission);
Wakefern Food Corp. v. Liberty Mut. Fire Ins. Co., 406 N.J. Super. 524, 543–44, 968
A.2d 724 (Ct. App. Div. 2009) (allowing recovery under a “physical damage” provision for
loss of use of a supermarket chain’s refrigerators following a blackout). But others, as
noted by the Insurers, allow recovery when the loss of use occurred because of a
physical effect on the insured property. For instance, in Western Fire Insurance Co. v.
First Presbyterian Church, the Colorado Supreme Court considered whether a policy
providing direct physical loss coverage to an insured church would also provide loss of
use coverage for the church after gasoline accumulated around and under the church,
rendering use of the building highly dangerous. 165 Colo. 34, 38–39, 437 P.2d 52(1968). The court concluded that although the loss of use did not constitute a direct
physical loss, the accumulation of gasoline did and thus extended coverage. Id.; see
also Motorists Mut. Ins. Co. v. Hardinger, 131 F. App’x. 823, 825–27 (3d Cir. 2005)
(allowing recovery, under a policy requiring “direct physical loss or risk of a direct
physical loss,” for loss of use of a home where its well became infected with e-coli
bacteria).
24
No. 78691-1-I/25
claimed it incurred approximately $40 million in costs to construct this shaft and
to lift the TBM’s cutterhead to the surface. It also claimed about $1 million
related to relocation and restoration of utilities associated with access shaft
construction. WSDOT claimed it incurred around $1 million—mostly labor
costs—related to the construction of the access shaft. In its briefing, WSDOT
also says that it incurred costs related to refilling the access shaft, but the
associated citations to the record show no such costs.
STP and WSDOT say that Section 1 covers the tunnel envelope.17 They
also say that because they had to alter the tunnel envelope and its alignment,
direct physical loss occurred, triggering Section 1. While we agree that Section 1
would cover direct physical damage to the tunnel envelope, we conclude that
STP and WSDOT have not shown a genuine issue of material fact that any
damage triggering Section 1 occurred.
In a CR 30(b)(6) deposition of a WSDOT employee, the employee testified
that he believed WSDOT had not incurred any costs because of the adjustment
to the tunnel alignment. Regarding future usefulness of the tunnel, the employee
testified that the TBM stoppage inhibited WSDOT’s ability to “create utility in the
alignment . . . for a period of two years while the TBM was stopped.” Thus, its
17
The Insurers acknowledged below that the Interest Insured under Section 1
includes the property used or intended for use in the construction of the tunnel. The
Insurers now say Section 1 does not insure the tunnel envelope. But WSDOT owned
the land surrounding the tunnel and it used the land in its construction. And the Section
1 Interest Insured includes “any other property . . . which are used or intended for use in
connection with the Project.” Thus, Section 1 insures the tunnel envelope. Also, “[o]n
review of an order granting or denying a motion for summary judgment the appellate
court will consider only evidence and issues called to the attention of the trial court.”
RAP 9.12.
25
No. 78691-1-I/26
“future usefulness” claim constitutes an excluded delay cost. And STP and
WSDOT do not show whether the “damages” to the interest insured by Section 1
that they say arose from construction of the access shaft exceed or differ from
the costs of constructing the access shaft, which as we address below, are
recoverable under Section 2. The record as a whole shows no costs arising from
any claimed damage to the interest insured by Section 1.
Thus, we conclude that the trial court properly ruled that construction of the
access shaft and the resulting change to the tunnel envelope did not trigger
Section 1.18
E. Delay in Startup Coverage
The trial court ruled that “[t]he Policy does not afford Delay In Startup
coverage or losses otherwise due to project delays.” STP and WSDOT say that
18
While the parties do not brief this issue, we note that STP and WSDOT
apparently seek to recover costs that stem from decisions they made to access the
damaged TBM, and were not the result of any external event.
In Wolstein v. Yorkshire Insurance Co., this court adopted reasoning from the
Fifth Circuit that a physical loss or damage requirement “‘strongly implies that there was
an initial satisfactory state that was changed by some external event into an
unsatisfactory state.’” 97 Wn. App. 201, 213, 985 P.2d 400 (1999) (emphasis added)
(quoting Trinity Indus., Inc. v. Ins. Co. of N. Am., 916 F.2d 267, 270–71 (5th Cir. 1990)).
And in AFLAC Inc. v. Chubb & Sons, Inc., the court concluded a claimant could not
recover remediation costs related to the Y2K problem from its all-risk insurers because
no fortuitous event occurred, reasoning first that “[t]he word ‘direct’ as modifying the
word ‘physical’ means only that the change in the insured property occurred by the
action of the fortuitous event triggering coverage.” 260 Ga. App. 306, 308–09 n.5, 581
S.E.2d 317, 319 (2003) (citing Black’s Law Dictionary (6th ed.), p. 654) (“An event
happening by chance or accident. That which happens by a cause which cannot be
resisted. An unforeseen occurrence, not caused by either of the parties, nor such as
they could prevent.”). It also reasoned that “‘[D]irect physical loss or damage’ . . .
indicate[s] that [a policy] contemplates an actual change in insured property . . .
occasioned by accident or other fortuitous event.” AFLAC, 260 Ga. App. at 309.
It appears that the method of repair chosen by STP and WSDOT does not
constitute an external event causing damage, and thus direct physical loss, to the tunnel
envelope.
26
No. 78691-1-I/27
the trial court erred in so ruling because the Basis of Indemnity Clause in the
Policy allows coverage for costs related to delay. Since the propriety of
dismissing WSDOT’s declaratory judgment motion depends in part on whether
the Policy allows it to recover delay costs,19 we reach this issue on discretionary
review but reject STP and WSDOT’s claim.
The Basis of Indemnity Clause states:
In the event of Damage to the Interest Insured, the amount payable
by the Insurer shall be the full cost of reinstatement of such Interest
Insured.
For the purposes of calculating the full cost of reinstatement, the
following provisions shall apply:
A. Where Damage to Interest Insured can be repaired the cost of
reinstatement shall refer to the restoration of the damaged portion
of the Interest Insured to a condition substantially the same as
but not better or more extensive than its condition when new.
B. Where the Interest Insured is:
i) totally lost or destroyed or
ii) damaged and the cost of repairs equal, or exceed the value
of the damaged Interest Insured (whereby the Interest Insured
shall be deemed to be totally lost or destroyed)
the cost of reinstatement shall refer to the replacement thereof by
similar property in a condition equal to but not better or more
extensive than its condition when new less the value of any
salvage.
C. In all cases, the cost of reinstatement shall refer to the final cost
to the Insured after completion of the repair, reinstatement or
replacement work (including a reasonable margin for profit where
such work is carried out in whole or in part by the Insured).
STP and WSDOT say that costs associated with delay constitute a “cost
of reinstatement” under Paragraph C. The Insurers do not dispute, and appear
19
If the Policy allows for delay coverage, then the trial court improperly reasoned
that WSDOT cannot sustain a declaratory judgment action because it can recover only
for physical damage.
27
No. 78691-1-I/28
to endorse, STP and WSDOT’s characterization of the Policy as an “all-risk”
policy. And “in an all-risk policy, ‘any peril that is not specifically excluded in the
policy is an insured peril.’” Vision One, 174 Wn.2d at 513 (quoting Findlay, 129
Wn.2d at 378). Thus, STP and WSDOT say, since the Policy does not exclude
coverage for delay costs, it provides such coverage. We disagree.
In Vision One, our Supreme Court examined similar policy provisions and
decided that they did not cover delay costs. Id. at 522–23. There, while pouring
concrete for the first floor of a condominium project in Tacoma, shoring
underneath the concrete collapsed, causing the framing, rebar, and newly poured
concrete to crash down to the lower level parking area, where the wet concrete
hardened. Id. at 506. It took several weeks to clean up the debris, repair the
damage, and reconstruct the collapsed floor. Id. Vision One submitted a claim
to its insurer under its all-risk insurance policy. Id. It sought millions of dollars of
delay losses under the policy and claimed the trial court erred in limiting its
recovery to $1 million under an extra-expense endorsement. Id. at 522. This
endorsement allowed “$1 million in coverage for certain losses incurred as the
result of the project being delayed, when the delay is directly caused” by certain
enumerated causes of loss. Id. (internal quotation marks and brackets omitted).
The delay losses explicitly covered included construction loan interest, real
estate and property taxes, and legal and accounting fees. Id. The trial court
ruled that the general policy, which had a $12.5 million limit, covered only “direct
physical loss to Covered Property caused by a covered peril,” and did not cover
these “soft costs.” Id. (emphasis added). There, as here, the insured claimed
28
No. 78691-1-I/29
that the general policy covered the soft costs since it did not exclude them. Id. at
523. Our Supreme Court disagreed with the insured, holding that while the
general policy was all-risk, it extended coverage for only physical losses to
covered property: “Because the policy did not cover soft costs, there was no
need to exclude them.” Id. It affirmed the trial court’s ruling that Vision One was
limited to recovering $1 million in delay costs under the extra-expense
endorsement. Id.
Here, like in Vision One, the Insuring Clause provides coverage only for
“direct physical loss, damage or destruction.” The Policy does not provide
coverage for non-physical losses such as delay costs. Given the Policy’s limit of
coverage to direct physical loss, STP and WSDOT’s claim that the Basis of
Indemnity clause somehow broadens the coverage to non-physical loss is
unavailing.
F. WSDOT’s Claimed Costs
WSDOT’s complaint includes claims for 24 categories of costs linked to
stoppage of the TBM. After the trial court ruled that STP and WSDOT could not
recover under Section 1 or for delay costs, the Insurers moved for summary
judgment on these 24 claims, saying that none of the claimed costs were
recoverable under Section 2 since they did not constitute TBM repair costs or
were delay costs. The trial court granted summary judgment, concluding, “The
delay elements claimed are delay costs, and costs arising from WSDOT’s
obligations to other [sic] were not necessary for the TBM repair.”
29
No. 78691-1-I/30
WSDOT says that there are genuine issues of material fact as to whether
its claimed costs are related to the TBM repair. Specifically, WSDOT says that
the trial court erred in ruling that it could not recover under the Policy for claimed
elements 1, 7, 10a, 10b, 13, 15, 16, and 16a.20
We conclude that genuine issues of material fact exist as to whether
elements 1, 7, 10a, 13, 16 and 16a related to TBM repair costs. Thus, we
reverse the trial court’s grant of summary judgment as to these elements. But
WSDOT does not raise a genuine issue of material fact as to elements 10b
and 15, and we therefore affirm summary judgment as to them.
Section 2 allows recovery in the event of damage to the TBM for:
(1) “costs and expenses necessarily incurred by the Insured in the removal of
and disposal of the debris of [the TBM], detritus or materials brought on to the
Site as a consequence of Damage”; (2) “architects’, surveyors’, consulting
engineers’ and other professional fees reasonably and necessarily incurred by or
on behalf of any of the Insured incurred in the repair, reinstatement or
replacement”; and (3) where damage to the TBM can be repaired, “expenses
necessarily incurred to restore the [TBM] to its former state of serviceability.”
Courts liberally construe insurance policies to provide coverage whenever
possible. Feenix Parkside LLC v. Berkley N. Pac., 8 Wn. App. 2d 381, 394, 438
20
WSDOT also claims in its supplemental brief that elements 1a, 2, 3, 4, 6, 8, 17,
18, 19, 21, 22, 23, 24, and 25 “include[] many other costs that were necessarily spent in
connection with the TBM’s repair” or “were made necessary by the TBM repairs and
access shaft,” but does not support that claim with analysis and does not renew any
argument related to these elements in its reply briefing. We need not address claims
unsupported by argument. Cowiche Canyon Conservancy v. Bosley, 118 Wn.2d 801,
809, 828 P.2d 549 (1992).
30
No. 78691-1-I/31
P.3d 597 (2019). As to a motion for summary judgment, courts must construe all
facts and inferences in favor of the nonmoving party. Messenger, 13 Wn. App.
2d at 210. We review the evidence presented by WSDOT about each claimed
element in the light most favorable to it to determine whether there is a genuine
issue of material fact that the element relates to TBM repair.
1. Element 1
Element 1 relates mainly to WSDOT labor costs centered on tunnel
repairs, including engineering and design consultants for construction of the
access shaft. The Insurers say that these costs cannot constitute repair costs
because they were not for those who performed repair work, but for those who
supervised it. But the Policy allows recovery for “consulting engineers’ and other
professional fees reasonably and necessarily incurred by or on behalf of any of
the insured [parties] incurred in the repair, reinstatement or replacement” of the
TBM. And according to WSDOT and STP’s joint expert report and a declaration
by the WSDOT SR 99 Tunnel Director, at least some of these “supervisory” labor
costs were for the services of consulting engineers. The Basis of Indemnity
clause does not limit recovery costs for repairs only to physical repair work, and a
court must liberally construe a policy in favor of the insured party. Feenix
Parkside, 8 Wn. App. 2d at 394. The Insurers’ argument appears to have no
basis in law. There is a genuine issue of material fact on this element.
2. Element 7
Element 7 relates to costs associated with a city of Seattle project services
agreement, in which Seattle provided various support functions for WSDOT to
31
No. 78691-1-I/32
assist the TBM project. Some costs claimed under this element related only to
delay of the project. But some costs claimed under this element included design
review and construction inspection for the access shaft used to repair the TBM.
There is a genuine issue of fact on this element.
3. Element 10a
Element 10a relates to costs associated with extending leases with the
Port of Seattle. According to the SR 99 Tunnel Director, STP used at least one
of the warehouses leased from the Port of Seattle for storage of parts and tools
for the TBM repair, and used another to stage equipment for the repairs. There
is a genuine issue of fact on this element.
4. Element 10b
Element 10b relates to costs associated with extending Temporary
Construction Easements. The costs claimed under this element related not to
repairs but to delay costs.21 Even when viewing the evidence in the light most
favorable to WSDOT, there is no genuine issue of fact on this element.
5. Element 13
Element 13 relates to costs associated with WSDOT’s supervision of the
excavation of the access shaft. WSDOT’s Cost Tabulation report and WSDOT
and STP’s joint expert report account for these costs. Since the purpose of the
access shaft was repair of the TBM, there is a genuine issue of fact on this
21
“Element 10b (Temporary Construction Easements) includes the cost to
extend construction easements for the erection and maintenance of structural supports
on surrounding buildings during the construction of the access shaft.” (Emphasis
added.)
32
No. 78691-1-I/33
element. And as addressed above in element 1, the Insurers’ claim that these
costs cannot relate to repairs because they are supervisory costs is unavailing.
6. Element 15
Element 15 relates to costs associated with the replacement of a nearby
condominium building’s windows to mitigate noise from construction of the
access shaft. WSDOT’s Cost Tabulation report and WSDOT and STP’s joint
expert report account for these costs. But WSDOT submits no evidence showing
that these costs were necessary to repair the TBM. Even when viewing the
evidence in the light most favorable to WSDOT, there is no genuine issue of fact
on this element.
7. Element 16
Element 16 relates to costs associated with moving electrical utilities the
location of which conflicted with the location of the access shaft. WSDOT and
STP’s joint expert report accounts for these costs and a WSDOT employee
testified that they were necessary for construction of the access shaft. If this is
correct, they were necessary for repair of the TBM. There is a genuine issue of
material fact on this element.
8. Element 16a
Element 16a relates to STP Change Orders. WSDOT’s Cost Tabulation
report and WSDOT and STP’s joint expert report account for these costs. A
WSDOT consultant testified in a deposition that costs associated with these
change orders arose because of the construction of the access shaft that was
used to repair the TBM. There is a genuine issue of fact on this element.
33
No. 78691-1-I/34
In sum, we conclude that WSDOT raised genuine issues of material fact
as to whether elements 1, 7, 10a, 13, 16 and 16a related to repair of the TBM.
Thus, we reverse the trial court’s summary judgment dismissal of WSDOT’s
claim for these costs. And since we do so, we also reverse the trial court’s
dismissal on summary judgment of WSDOT’s declaratory judgment claim.
III. CONCLUSION
We grant Hitachi’s motion to join this matter and grant review on the
reserved issues. We reverse in part and affirm in part: we reverse the partial
summary judgment rulings that a single occurrence caused the TBM damage
and that “any item” in the Section 2 MBE means the entire TBM; we reverse the
summary judgment ruling that none of WSDOT’s claimed damages relates to
TBM repairs and the dismissal of WSDOT’s claim for declaratory judgment; and
we affirm the partial summary judgment rulings that STP and WSDOT cannot
recover under Section 1 or for delay costs and that the Section 2 MBE bars
recovery for damage caused by design defects.
WE CONCUR:
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