B.S.C. HOLDING, INC., and LYONS SALT COMPANY, Plaintiffs,
LEXINGTON INSURANCE COMPANY, Defendant.
MEMORANDUM AND ORDER
ERIC F. MELGREN, UNITED STATES DISTRICT JUDGE
Plaintiffs B.S.C. Holding, Inc., and Lyons Salt Company assert this action against Defendant Lexington Insurance Company seeking a declaratory judgment and damages regarding an alleged breach of an insurance contract. This case comes before the Court on Defendant’s motion for summary judgment (Doc.138). For the reasons articulated below, the Court grants Defendant’s motion.
I. Factual and Procedural Background
Plaintiff Lyons Salt Company (“Lyons Salt”) is a Kansas corporation that owns and operates the Lyons Salt Mine and Plant (“Lyons Mine”), which mines for salt at a depth of approximately 1, 000 feet below the surface in Lyons, Kansas. Plaintiff B.S.C. Holding, Inc. (“BSC”) is a Kansas corporation and is the sole shareholder of Lyons Salt. Defendant Lexington Insurance Company (“Lexington”) is an insurance company organized under the laws of the State of Delaware and has its principal place of business in Boston, Massachusetts.
A. The Insurance Policies
From 2002 to 2010, Lexington issued eight consecutive policies of commercial property insurance to Plaintiffs, which named both BSC and Lyons Salt as insured parties under each policy. Plaintiffs claim that Lexington breached six of these annual policies, with the first policy beginning on May 1, 2004, and the last policy terminating on April 1, 2010 (“the Policies”). The parties stipulate that the relevant terms of each policy are identical for the purposes of this motion, and therefore, the Court shall refer to the language contained in the most recent policy, number 021437911, with a policy period of April 1, 2009 to April 1, 2010.
The Policies at issue constitute “all risk” insurance policies, which provide:
Subject to the terms, conditions and exclusions hereafter contained, this Policy insures: 1. All real and personal property (including improvements and betterments) and contractors equipment of this Insured or similar property in the Insured’s care, custody or control for which the Insured may be held liable against all risks of direct physical loss or damage occurring during the period of this policy as stated in the Schedule and/or Declarations attaching to and forming part of this policy.
Under a section entitled, “Property Excluded, ” the Policies exclude coverage of “Water, land or land values” and “Property while Offshore or situated underground unless otherwise endorsed.”The Policies also contain the following under a section entitled, “Exclusions”:
This policy does not insure against: . . . .
5. Loss or damage caused by or resulting from moth, vermin, termites or other insects, inherent vice, latent defect, wear, tear or gradual deterioration, contamination, rust, wet or dry rot, mold or dampness of atmosphere, smog or changes in temperature (but not including damage resulting from frozen plumbing and sprinkler system); or loss or damage by settling, shrinkage, cracking, bulging or expansion in building or foundation.
6. Loss or damage caused by backing up of sewers or drains or seepage below ground level but this exclusion shall not apply if the loss to this policy does not exceed $25, 000.00 in any one occurrence.
Additionally, the Policies contain the following under a section entitled, “Conditions”:
9. Sue and Labor. In case of an actual or imminent loss or damage, it shall be lawful and necessary for the Insured . . . to sue, labor and travel for, in and about the defense, safeguard and recovery of the property Insured hereunder . . . . The expenses so incurred shall be borne by the Insured and the Company proportionately to the extent of their respective interests. . . . .
12. Suit. No suit, action or proceeding for the recovery of any claim under this policy shall be sustainable in any court of law or equity unless the same be commenced within twelve (12) months next after discovery by the insured of the occurrence which gives rise to the claim, provided, however, that if by the law of the State within which this policy is issued such limitation is invalid, then any such claims shall be void unless commenced within the shortest limit of time permitted by the laws of such state.
The Policies limited Lexington’s liability to $7, 500, 000.00 per “occurrence, ” which is defined as “any one loss, disaster, casualty, or series of losses, disasters, or casualties, arising out of one event . . . .” When the last insurance policy that Lexington issued to Plaintiffs terminated on April 1, 2010, Plaintiffs then obtained coverage from a different insurer.
B. Abnormally High Closure Rates Discovered at the Lyons Mine
Gary Petersen served as a mining consultant to Lyons Salt from 1995 to present. Petersen is not a licensed or registered engineer, but Lyons Salt relied upon his judgment with respect to designing and reviewing portions of the Lyons Mine. On October 7, 2004, Petersen identified higher than expected closure rates, indicating that the mine floor and ceiling were coming closer together. Petersen observed these high closure rates at the intersection of Panel 1 and Panel 2B of the Lyons Mine.
Six months later, on April 14, 2005, Petersen again identified abnormally high closure measurements in the same area. This observation concerned Petersen, who then informed Lyons Salt that the closure rates were higher than expected and that the rates were significantly increasing. Petersen would have expected to see closure rates around two and one-half inches per year, but his April 2005 measurements revealed closure rates of approximately twenty inches per year, nearly ten times higher than expected.
Several months later, on August 31, 2005, Petersen again identified abnormally high closure rates in the Lyons Mine. During this inspection, Petersen was accompanied by Peter Powell, owner of the Lyons Mine. In September 2005, Petersen advised Lyons Salt of the possibility that these abnormal closure rates could cause water to enter the Lyons Mine. At this time, Petersen characterized water inflow as a worst case scenario that “could be a huge problem.” Petersen recommended that the Lyons Mine develop a contingency plan for the possibility of water inflow. As a result, the Lyons Mine performed backfilling in the area and began discussing the idea of building a bulkhead to prevent water inflow.
C. Plaintiffs Discover Water Inflow in the Lyons Mine
On January 17, 2008, Lyons Salt personnel detected an inflow of water near Panels 1 and 2B, the same area where Petersen had repeatedly observed abnormally high closure rates. Since this time, the rate of water inflow has averaged approximately twenty-two gallons per minute, or 31, 680 gallons per day. When they discovered the water intrusion, Plaintiffs were not yet certain of its specific cause, duration, or the ultimate damage it may cause.
Plaintiffs immediately identified and retained a team of mining experts and engineers to investigate the problem and to devise a solution. In July 2008, Lyons Salt attempted a method of grouting to stop or control the water inflow. Dr. Samuel Gowan, one of Plaintiffs’ retained experts and a consultant for the Lyons Mine, described the method as injecting thousands of gallons of grout into rock strata above the mine, but this measure ultimately failed to stop the water inflow. By August 2009, personnel at the Lyons Mine were considering several options to resolve the problem, including additional grouting, bulkhead installation, brine injection, de-watering, and freezing.
Generally, underground water inflows can have numerous causes, benign and otherwise, and can stop as rapidly as they start. Plaintiffs considered this water inflow a problem that needed to be fixed, and Petersen was concerned about a total loss of the mine due to catastrophic flooding. In March 2009, there was a possibility of a water inflow large enough to flood the mine, and Petersen knew that a catastrophic event was going to occur at the Lyons Mine at some time in the future. Also in ...