Corp. Lakes Prop. v. AmGUARD Ins. Co.

MEMORANDUM AND ORDER

KATHRYN H. VRATIL United States District Judge

Corporate Lakes Property, LLC filed suit against AmGuard Insurance Company and Raphael & Associates seeking declaratory relief on a contract for property insurance. This matter is before the Court on Defendants AmGuard Insurance Company And Raphael & Associates' Motion For Summary Judgment On Plaintiff Corporate Lakes Property, LLC's Claim For Declaratory Judgment (Doc. #22) and Plaintiff's Motion For Summary Judgment (Doc. #24), both filed August 30, 2022. For reasons stated below, the Court sustains defendants' motion for summary judgment and overrules plaintiff's motion for summary judgment.

Summary Judgment Standards

Summary judgment is appropriate if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986); Hill v. Allstate Ins. Co., 479 F.3d 735, 740 (10th Cir. 2007). A factual dispute is “material” only if it “might affect the outcome of the suit under the governing law.” Liberty Lobby, 477 U.S. at 248. A “genuine” factual dispute requires more than a mere scintilla of evidence in support of a party's position. Id. at 252.

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The moving party bears the initial burden of showing the absence of any genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); Nahno-Lopez v. Houser, 625 F.3d 1279, 1283 (10th Cir. 2010). Once the moving party meets this burden, the burden shifts to the nonmoving party to demonstrate that genuine issues remain for trial as to those dispositive matters for which the nonmoving party carries the burden of proof. Applied Genetics Int'l, Inc. v. First Affiliated Sec., Inc., 912 F.2d 1238, 1241 (10th Cir. 1990); see also Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986). To carry this burden, the nonmoving party may not rest on the pleadings but must instead set forth specific facts supported by competent evidence. Nahno-Lopez, 625 F.3d at 1283.

In applying these standards, the Court views the factual record in the light most favorable to the party opposing the motion for summary judgment. Dewitt v. Sw. Bell Tel. Co., 845 F.3d 1299, 1306 (10th Cir. 2018). The Court may grant summary judgment if the nonmoving party's evidence is merely colorable or not significantly probative. Liberty Lobby, 477 U.S. at 250-51. Essentially, the inquiry is “whether the evidence presents a sufficient disagreement to require submission to the jury or whether it is so one-sided that one party must prevail as a matter of law.” Id. at 251-52.

Factual Background

The following material facts are stipulated or undisputed.

Effective April 19, 2020 through April 19, 2021, AmGuard Insurance insured Corporate Lakes under Businessowners Policy No. COBP108129. The Policy includes coverage for the Corporate Lakes building at 6710 West 121st Street in Leawood, Kansas. On October 25, 2020, water in a window well entered the building and damaged it (“the Loss”).

The Loss resulted from an accidental discharge of water when an underground pipe

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ruptured outside the building. The pipe carried non-potable water to the fire protection and water sprinkler system in the building. The water from the line was not drinkable or intended for everyday use and was only used if the sprinkler system was activated. A failure of the underground pipe on the premises but outside of the building perimeter allowed water to escape from the pipe below the surface of the ground, rise to the ground surface and flow over the ground surface into a basement window well. The water then pressed on a basement window and flowed or seeped into the building through the window, causing physical damage to the building premises.

The Policy provides that AmGuard “will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.” Exhibit A (Doc. #23-2) at 72 (Section I - Property, Part A. Coverage).

“Covered Property” includes “Buildings as described under Paragraph a. below, Business Personal Property as described under Paragraph b. below, or both, depending on whether a Limit of Insurance is shown in the Declarations for that type of property. Regardless of whether coverage is shown in the Declarations for Buildings, Business Personal Property, or both, there is no coverage for property described under Paragraph 2. Property Not Covered.” Id. at 7 (Section I -Property Coverages And Limits Of Insurance). The Policy states that “Covered Property” does not include “Land (including land on which the property is located), water, growing crops or lawns.” Exhibit A (Doc. #23-2) at 73.

“Covered Causes Of Loss” include “[r]isks of direct physical loss unless the loss” is excluded under the policy. Id. at 73 (Section I - Property, Part A. Coverage). The Policy contains an exclusion for water as follows:

1. We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss These exclusions apply

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whether or not the loss event results in widespread damage or affects a substantial area

g. Water

(1) Flood, surface water, waves (including tidal wave and tsunami), tides, tidal water, overflow of any body of water or spray from any of these, all whether or not driven by wind (including storm surge)

(2) Mudslide or mudflow;

(3) Water that backs up or overflows or is otherwise discharged from a sewer, drain, sump, sump pump or related equipment;

(4) Water under the ground surface pressing on, or flowing or seeping through:

(a) Foundations, walls, floors or paved surfaces;

(b) Basements, whether paved or not; or

(c) Doors, windows or other openings; or

(5) Waterborne material carried or otherwise moved by any of the water referred to in Paragraph (1) (3) or (4), or material carried or otherwise moved by mudslide or mudflow.

This exclusion applies regardless of whether any of the above, in Paragraphs (1) through (5), is caused by an act of nature or is otherwise caused. An example of a situation to which this exclusion applies is the situation where a dam, levee, seawall or other boundary or containment system fails in whole or in part, for any reason, to contain the water.

But if any of the above, in Paragraphs (1) through (5), results in fire, explosion or sprinkler leakage, we will pay for the loss or damage caused by that fire, explosion or sprinkler leakage.

Id. at 85-86 (Section I - Property, Part B. Exclusions).

Corporate Lakes timely submitted to Raphael & Associates, the third party claim administrator for AmGuard, a claim for coverage for the Loss. On behalf of AmGuard, Raphael & Associates declined coverage, noting in part that “[o]ur investigation reveals the water

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infiltration into the building was caused by a failed window. The window failed due to pressure from water escaping from under the ground surface.” Exhibit B (Doc. #23-3) at 3. After Corporate Lakes asked Raphael & Associates to reconsider its coverage position, it again declined coverage, noting in part as follows:

Our redetermination confirms coverage does not apply to this loss. The water infiltration into the building was caused by a failed window which failed due to pressure from water escaping from under the ground surface. The affected line was located outside. Our investigation previously confirmed this water loss resulted from a failed underground main water line which supplied the sprinkler system for the building. The leaking sprinkler supply line is located outside the front elevation of the building, approximately 3-4 feet underground. Water from the supply line escaped through to the ground then across the ground to the window well which then filled up by several feet, causing the window to fail. The water then entered the basement of the building resulting in water damage to the entire lower level.

Exhibit C (Doc. #23-4) at 3.

On March 30, 2022, in the District Court of Johnson County, Kansas, Corporate Lakes filed this suit against AmGuard and Raphael & Associates. Corporate Lakes asserts a claim for breach of contract against both defendants and seeks a declaration that the damage to the building is covered under the Policy. Corporate Lakes also claims that Raphael & Associates negligently misrepresented that the damage to the building was covered under the Policy and the corresponding scope of allowable repairs. On April 29, 2022, defendants removed the case to federal court.

Analysis

Both parties seek summary judgment on the issue of coverage, which involves interpretation of the Policy. Defendants assert that the loss to the building is excluded under the Policy because the water that damaged the building was (1) “surface water” and/or (2) “[w]ater under the ground surface pressing on, flowing or seeping through . . . [d]oors, windows or other

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openings.” Section I - Property, Part B. Exclusions, Section g(1) and (4). Corporate Lakes argues that (1) the water was not “surface water” because it did not originate from a naturally occurring source and (2) the exclusion for water seeping through doors and windows only applies to water that is below the surface of the ground at the time it enters the covered building.

The parties agree that Kansas law applies. The...