HB Constr., Inc. v. Travelers Prop. Cas. Co. of Am.

HB CONSTRUCTION, INC., Plaintiff, v. TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA, Defendant.

1:17-cv-01132-WJ-SMV

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW MEXICO

August 1, 2019

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF'S PARTIAL MOTION FOR SUMMARY JUDGMENT AND GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

THIS MATTER is before the Court upon Plaintiff's Motion for Partial Summary Judgment, filed October 3, 2018 (Doc. 34), and Defendant's Motion for Summary Judgment, filed on November 2, 2018 (Doc. 38). Having reviewed the parties' pleadings and applicable law, the Court finds that Plaintiff's motion is not well-taken and therefore, is DENIED. The Court further finds that Defendant's motion is well-taken and therefore, is GRANTED.

BACKGROUND

This is an insurance case about whether certain amounts claimed as losses by HB Construction, Inc. ("Plaintiff"), and denied by Travelers Property Casualty Company of America ("Defendant"), fall within the scope of coverage. Plaintiff contracted with Defendant to insure a luxury condominium building it was constructing, the Carlisle. As the building was nearing completion, David Hickman burned it down and set a number of other buildings in Albuquerque on fire. David Hickman was convicted and sentenced in this district court for arson.

Plaintiff was reimbursed approximately $5,772,484.36. At issue is $567,828.00 in expenses claimed by Plaintiff but denied in part by Travelers (the "denied amount"). Although Defendant paid $100,000 under the "soft cost" coverage extension, it denied more than $400,000. It reasoned that the denied amounts either (1) were soft costs exceeding the soft costs sublimit, or (2) did not fall under the coverage provisions of the Builder's Risk policy because they accrued before the fire. See Doc. 38-5, p. 4 ("the majority of those costs were incurred prior to the date of loss and thus those costs would be considered as part of the original project budget.")

The parties cross-moved for summary judgment on the breach of contract claim, focusing primarily on whether the denied amounts fall under coverage provisions or are otherwise excluded as soft costs. Defendant also moved for summary judgment on the remaining claims, arguing that they must fail as a matter of law if there was no breach of the policy.

LEGAL STANDARD

A motion for summary judgment may be granted only when "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). Summary judgment is appropriate if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact. Munoz v. St. Mary Kirwan Hosp., 221 F.3d 1160, 1164 (10th Cir. 2000). When applying this standard, the court examines the record and makes all reasonable inferences in the light most favorable to the non-moving party. Id. The movant bears the initial burden of establishing that no genuine issue exists as to any material fact. See Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970). Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial.Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (quoting First Nat'l Bank of Arizona v. Cities Serv. Co., 391 U.S. 253, 289 (1968)).

UNDISPUTED FACTS

The parties stipulated to the majority of the facts below. Defendant also asserted additional facts, which Plaintiff did not dispute.

Defendant issued Policy Number QT-66-3E977885-TIL-16 to Plaintiff with policy period 11/18/2016 to 02/28/2017 ("the Policy"). Plaintiff was the general contractor for a condominium complex known as the Carlisle at 3600 Central Boulevard SE, Albuquerque, New Mexico 87113. A fire occurred at the Carlisle on November 23, 2016. Plaintiff submitted a claim to Defendant for the loss on November 23, 2016. The Policy's insuring agreement provides:

A. COVERAGE

We will pay for direct physical loss of or damage to Covered Property caused by or resulting from a Covered Cause of Loss.

1. Covered Property

Covered Property, as used in this Coverage Form, means the following types of property you own or for which you are legally liable, the value of which is included in the estimated "total project value" shown in the Declarations:

a. Permanent Works

Materials, equipment, machinery, supplies and property of a similar nature that will become a permanent part of the project described in the Declarations during completion of such project or that will be used or expended in the completion of such project.

Completion of the project includes site preparation (including demolition of existing buildings or structures), fabrication, assembly, installation, erection, alteration, renovation and similar construction activities.

b. Temporary Works

Cofferdams, construction forms, cribbing, falsework, hoarding, scaffolds, fencing, signs, office trailers (and their "contents") and similar temporary buildings or structures incidental to completion of the project described in the Declarations.

The Policy specifically excludes "soft costs" beyond the Limits of Insurance shown on the Policy's Declaration page:

B. EXCLUSIONS

2. We will not pay for loss or damage caused by or resulting from any of the following:

a. Consequential Loss

(1) Delay, loss of use, or loss of market; or

(2) Loss of income, soft costs or extra expenses except as specifically provided in this coverage part.

Limited coverage for "soft costs" is provided by the Coverage Extensions in Section A(4)(d) of the Policy:

4. Coverage Extensions

d. Soft Costs

We will pay your "Soft Costs" during the "period of delay in completion". Such "soft costs" must result from direct physical loss of or damage to Covered Property caused by or resulting from a Covered Cause of Loss which delays the completion of the applicable project described in the "Declarations" beyond the "planned completion date".

The Soft Costs Limit of Insurance is the most we will pay in any one occurrence under this Coverage Extension.

The Policy Declarations specifies a limit of $100,000.00 for soft costs. The Policy defines "soft costs" as follows:

F. DEFINITIONS

10. "Soft Costs" means your actual and necessary business costs in excess of your budgeted amount for the project consisting only of:

a. Advertising and promotional expenses.

b. Architect, engineer, designer and consultant fees.

c. Costs resulting from the renegotiation of your sales contract, leases or construction loans.

d. General overhead and administrative expenses, other than legal, accounting and professional fees.

e. Insurance premiums.f. Interest on money borrowed to finance construction.

g. Legal and accounting fees and other costs to renegotiate and prepare revised contracts and other documents.

h. Permit and Inspection Fees.

i. Realty taxes and realty assessments.

In the same section, the Policy provides the following definitions of the Policy terms "period of delay in completion" and "planned completion date":

6. "Period of delay in completion" means the period of time that:

a. Begins with the "planned completion date" or after any applicable Soft Costs Waiting Period shown in the Declarations from the "planned completion date", whichever is later; and

b. Ends on the date when Covered Property should be completed using reasonable speed and similar quality.

7. "Planned completion date" means the date the applicable project described in the Declarations would be put into operation or use for its intended purpose in the normal course of construction if loss of or damage to Covered Property from any of the Covered Causes of Loss had not occurred.

Plaintiff demanded payment of $567,828.00, on or about February 9, 2017. Defendant retained Madsen Kneppers & Associates to assist with damage determination and the projected costs to rebuild the project.

On March 3, 2017, Defendant provided a copy of Madsen Kneppers' repair estimate analysis. The Madsen Kneppers' repair spreadsheet attached to Defendant's March 3, 2017 email identified 12 categories of claimed expenses, across 13 line items, that Defendant identified as "soft costs." (Id.) These costs are located at lines 140-152 of the Madsen Kneppers' estimate and include: (1) management fees; (2) design and architecture fees; (3) land planning and surveying costs; (4) marketing expenses; (5) appraisal expenses; (6) interest costs on HB Construction's first mortgage; (7) interest costs on HB Construction's second mortgage; (8) accounting and bookkeeping expenses; (9) legal expenses; (10) bank charges; (11) building permit expenses; and (12) property taxes.

Defendant's March 3, 2017 email explained "Your policy includes as part of the core coverage a 'Soft Cost' coverage extension with a limit of $100,000. . . .As your total incurred 'Soft Costs' are in excess of the $100,000 limit I have included that limit as part of the Builders Risk loss adjustment as listed on the attached Statement of Loss." And, on March 3, 2017, Defendant, through its agent Dean Aliberti, denied payment of $567,828.00.

Plaintiff responded to Defendant in a letter dated April 25, 2017. Plaintiff contended that the soft costs were costs incurred within the budgeted amount for the project and were therefore not included within the Policy's definition of soft costs.

Defendant responded via a letter dated May 3, 2017 and reaffirmed its decision to advance the $100,000 sublimit for the claimed soft costs. Defendant asserted in the letter that the Policy excludes coverage for soft costs outside of the coverage extension. Defendant further explained its position that the disputed costs were largely incurred before the November 23, 2016 loss or were part of the original project budget, but that it anticipated Plaintiff incurring soft costs exceeding the sublimit and therefore tendered $100,000 on March 6, 2017.

Defendant issued payment to Plaintiff in...