Whitaker Constr. Co. v. Cincinnati Ins. Co.

689 F.Supp.3d 897

WHITAKER CONSTRUCTION CO., INC., Plaintiff, v. The CINCINNATI INSURANCE COMPANY, Defendant.

Case No. 1:22-cv-00336-BLW

United States District Court, D. Idaho

Signed September 1, 2023

Paul P. Burghardt, GC Associates, North Salt Lake, UT, for Plaintiff.

Gregory Soderberg, Litchfield Cavo LLP, Salt Lake City, UT, for Defendant.

MEMORANDUM DECISION AND ORDER

B. Lynn Winmill, United States District Court Judge

INTRODUCTION

Before the Court is Defendant Cincinnati Insurance Company's second motion to dismiss (Dkt. 27). Having thoroughly considered the parties briefing and the relevant record, the Court finds oral argument unnecessary. For the reasons explained below, the Court will deny Cincinnati's motion to dismiss.

BACKGROUND

This case involves an insurance dispute between Cincinnati and its insured, Plaintiff Whitaker Construction Company, following the repeated denial of a claim relating to loss allegedly resulting from an unexpected and sudden malfunction of certain equipment. In late January of 2021, Whitaker, a Utah-based construction company, entered into a contract with the City of Boise to complete work on the HP Trunk Sewer Rehab Project (the "Project"). As alleged, the purpose of the Project was to install a cured-in-place liner (the "liner") to rehabilitate an existing sewer line within city limits. See Am. Compl. ¶ 7, Dkt. 25. A project manual was incorporated into the contract between Whitaker and the City, which required Whitaker to "secure, pay for, and maintain all-risk or special form builders risk insurance covering risks of physical loss or damage to the Facility." Id., ¶¶ 3-4.

After signing the contract, Whitaker engaged its insurance brokerage, McGriff, Seibels & Williams, to procure a builder's risk insurance policy that met the project manual's specifications. Id., ¶¶ 11-12. Eventually, Cincinnati issued a Builders Risk Inland Marine Policy (the "BR Policy"), which became effective on April 19, 2021.¹

On October 21, 2021, while completing work on the Project, Whitaker alleges that the machinery used to cure the liner—called a light train—"suddenly and unexpectedly" malfunctioned, causing damage. Id., ¶¶ 9, 15, and 51. Due to the damage, Whitaker alleges that it was required to remove and replace the liner, resulting in substantial costs. Id., ¶¶ 10-11.

Following the damage to the liner, Whitaker submitted a claim to Cincinnati under its BR Policy to cover the loss it incurred by removing and replacing the liner (the "loss"). On February 22, 2022, Cincinnati denied Whitaker's claim, explaining that the liner was not Covered Property under the BR Policy. Cincinnati then sent a second amended denial that provided additional grounds for denying Whitaker's claim, including that the loss fell within an exclusion to coverage. In total, Cincinnati denied coverage for the loss four separate times.

Eventually, Whitaker commenced this action in Idaho's Fourth District Court for Ada County on June 20, 2022. See Dkt. 1. Cincinnati then timely removed this suit to federal court under its diversity jurisdiction. Id. Following removal, Cincinnati filed a motion to dismiss, or alternatively, to transfer venue. During oral argument, this Court denied that motion. See Dkt. 21.

On March 21, 2023, Whitaker amended its complaint. See Am. Compl., Dkt. 25. Whitaker's now operative complaint alleges two causes of action: (1) a claim for an illusory insurance policy, and (2) a cause of action seeking a declaratory judgment finding coverage under the BR Policy. Id.

Shortly after Whitaker filed its amended complaint, Cincinnati filed a second motion to dismiss. See Def.'s Br., Dkt. 27. Cincinnati's current motion only seeks to dismiss Whitaker's cause of action for declaratory relief under Federal Rule of Civil Procedure 12(b)(6). Id. Generally, Cincinnati claims that the damage to the liner is not covered because the liner does not qualify as "Covered Property"² and, even if it does, the loss is subject to unambiguous exclusions. See id. Whitaker opposes the motion, claiming that the loss is covered, and none of the cited exclusions are applicable in this case. See Plf.'s Resp., Dkt. 34.

LEGAL STANDARD

Federal Rule of Civil Procedure 8(a)(2) requires only "a short and plain statement of the claim showing that the pleader is entitled to relief," in order to "give the defendant fair notice of what the . . . claim is and the grounds upon which it rests." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). While a complaint attacked by a Rule 12(b)(6) motion to dismiss "does not need detailed factual allegations," it must set forth "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. at 555, 127 S.Ct. 1955. To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face." Id. at 570, 127 S.Ct. 1955. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id. at 556, 127 S.Ct. 1955. The plausibility standard is not akin to a "probability requirement," but it asks for more than a sheer possibility that a defendant has acted unlawfully. Id. Where a complaint pleads facts that are "merely consistent with" a defendant's liability, it "stops short of the line between possibility and plausibility of 'entitlement to relief.' " Id. at 557, 127 S.Ct. 1955.

The Court identified two "working principles" that underlie Twombly in Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). First, the court need not accept as true, legal conclusions couched as factual allegations. Id. Rule 8 does not "unlock the doors of discovery for a plaintiff armed with nothing more than conclusions." Id. at 678-79, 129 S.Ct. 1937. Second, to survive a motion to dismiss, a complaint must state a plausible claim for relief. Id. at 679, 129 S.Ct. 1937. "Determining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id.

DISCUSSION

As mentioned, Cincinnati only seeks dismissal of Whitaker's declaratory relief cause of action. See Def.'s Br. at 1, Dkt. 27. Generally, Cincinnati claims that even accepting Whitaker's allegations as true, the damage to the liner is not covered under the BR Policy's limitations and exclusions. Id. at 8. Although it is not entirely clear, Cincinnati's two primary arguments appear to be that the loss to the liner is not covered because (1) it is not "Covered Property," and (2) even if the liner qualifies as Covered Property, the loss falls under the defects, errors, and omissions exclusion. See Def.'s Reply at 5, Dkt. 35. The Court will address each argument in turn.

1. Idaho Law Governing Contracts3³

In Idaho, a court interpreting an insurance policy "applies the general rules of contract law subject to certain special canons of construction." Arreguin v. Farmers Ins. Co. of Idaho, 145 Idaho 459, 180 P.3d 498, 500 (2008) (quoting Clark v. Prudential Prop. & Cas. Ins. Co., 138 Idaho 538, 66 P.3d 242, 244 (2003)). Courts first look to the plain meaning of the words to determine if there are any ambiguities, which is a question of law. Cascade Auto Glass, Inc. v. Idaho Farm Bureau Ins. Co., 141 Idaho 660, 115 P.3d 751, 753 (2005) (citing Clark, 66 P.3d at 244).

Generally, "where the policy language is clear and unambiguous, coverage must be determined, as a matter of law, according to the plain meaning of the words used." Id. at 753 (citing Clark, 66 P.3d at 245). However, where a policy provision is ambiguous—that is, it is reasonably subject to conflicting interpretations—it must be construed against the insurer. Id. (citing Farmers Ins. Co. of Idaho v. Talbot, 133 Idaho 428, 987 P.2d 1043, 1050 (1999)). In determining whether ambiguities exist, a court must construe the policy as a whole, not by an isolated phrase." Id. at 754 (quoting Selkirk Seed Co. v. State Ins. Fund, 135 Idaho 434, 18 P.3d 956, 959 (2000)).

Courts are to construe "insurance contracts in a light most favorable to the insured and in a manner which will provide full coverage for the indicated risks rather than to narrow its protection." Id. (quoting Smith v. O/P Transp., 128 Idaho 697, 918 P.2d 281, 284 (1996)). Similarly, "a provision that seeks to exclude the insurer's coverage must be strictly construed in favor of the insured." Arreguin, 180 P.3d at 500 (citing Moss v. Mid-America Fire & Marine Ins. Co., 103 Idaho 298, 647 P.2d 754, 756 (1982)). It is the insurer's burden "to use clear and precise language if it wishes to restrict the scope of its coverage."⁴ Id.

2. Covered Property

Cincinnati first claims that the liner Whitaker was installing into the sewer is not "Covered Property" under the plain language of the BR Policy. See Def.'s Br. at 13, Dkt. 27. In its argument, Cincinnati does not contest whether the sewer is an existing structure described on the declarations page. Instead, in a single sentence, it claims that "[b]ecause the sewer pipe was an existing structure that was being altered it is not 'Covered Property' " Id. at 12. Cincinnati then appears to extrapolate its argument to the liner by implying that if the sewer is not Covered Property, the liner also does not qualify. See id. at 13 (without further explanation, Cincinnati later claims that "here, the liner being installed into the sewer piping is not 'covered property' under the plain language of the policy.")

Conversely, Whitaker claims that Covered Property is broadly defined to include "Buildings and Structures[,]" and that the BR Policy covers "direct physical loss caused by a Covered Cause of Loss to buildings and structures described on the 'declarations' while in the course of construction,...