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Black & Veatch Corp. v. Aspen Insurance (UK) Ltd.

United States District Court, D. Kansas

March 29, 2019

BLACK & VEATCH CORPORATION, Plaintiff,
v.
ASPEN INSURANCE (UK) LTD., et al., Defendants.

          MEMORANDUM AND ORDER

          Sam A. Crow, U.S. District Senior Judge.

         This insurance dispute over coverage and amount of recovery comes before the court on a second wave of summary judgment motions following the Tenth Circuit's order (ECF# 329) vacating and remanding this court's prior summary judgment order and the United States Supreme Court's denial of the defendants' petition for certiorari (ECF# 349), Black & Veatch Corp. v. Aspen Insurance (Uk) Ltd, 882 F.3d 952 (10th Cir.), cert. denied, 139 S.Ct. 151 (2018). The plaintiff Black & Veatch Corporation (“B&V”) has filed a motion for partial summary judgment (ECF# 337) and a motion to amend the pretrial order (ECF# 339). The defendants Aspen Insurance (UK) Ltd. and Lloyd's Syndicate 2003 (collectively “Aspen” or “Excess Insurers”) have filed a motion for summary judgment. ECF# 340. The motions are fully briefed and ripe for decision. For the sake of brevity and convenience, the court will incorporate by reference from its prior order the summary judgment standards (ECF# 230, pp. 2-3) and general New York law governing interpretation of insurance contracts and the respective burdens of establishing coverage, exclusions and exceptions (ECF# 230, pp. 11-17).

         FACTUAL BACKGROUND

         The plaintiff B&V is suing the defendants who are first layer excess umbrella liability insurers under a manuscript commercial general liability (“CGL”) policy for coverage of B&V's claimed liability for damages to seven Jet Bubble Reactors (“JBRs”). B&V contracted with American Electric Power (“AEP”) “to engineer, procure and construct [“EPC”] wet flue gas desulfurization systems (JBRs) for eight installations.” ECF# 294, ¶ 1, PTO). “Under an EPC contract, B&V delivers services under a single contract. It supervises the project and typically subcontracts most-if not all-of the actual procurement and construction work.” 882 F.3d at 954.

         B&V procured CGL policies to cover its JBR work. Zurich American Insurance Company (“Zurich”) provided the primary layer of coverage having the following limits: $2, 000, 000 per occurrence and $4, 000, 000 for general and products-completed operations aggregate limits. Aspen provided the first layer of excess/umbrella liability coverage with per occurrence and aggregate limits of $25, 000, 000.

         As for the property damage claim made against B&V, the Tenth Circuit summarizes it in these terms:

For at least seven of these JBRs, which were located at four different power plants in Ohio and Indiana, B&V subcontracted the engineering and construction of the internal components to Midwest Towers, Inc. (“MTI”). Deficiencies in the components procured by MTI and constructed by MTI's subcontractors caused internal components of the JBRs to deform, crack, and sometimes collapse.
After work on three of the JBRs was completed, and while construction of four others was ongoing, AEP alerted B&V to the property damage arising from MTI's negligent construction. AEP and B&V entered into settlement agreements resolving their disputes relating to the JBRs at issue here. Under the agreements, B&V was obligated to pay more than $225 million in costs associated with repairing and replacing the internal components of the seven JBRs.

882 F.3d at 954. The parties also stipulate in the pretrial order to the following facts that are relevant to these motion proceedings:

11. After Black & Veatch completed construction of the Cardinal 1 and 2 and Conesville JBRs, the Owners alleged deficiencies in the work.
12. Cardinal 1 was completed and began operating in March 2008. Deficiencies in the JBR components were discovered as early as August 2008, and Cardinal 1 had to be shut down and repaired.
13. Cardinal 2 was completed and began operating in December 2007. Deficiencies in the JBR components were discovered as early as May 2008, and Cardinal 2 had to be shut down and repaired.
14. Conesville was completed and began operating in January 2009. In the fall of 2009, it was determined that the gas risers installed at Conesville, as well as the gas risers installed at each of the other six JBRs, were deficient and required removal.
15. Because of defective gas risers and other deficiencies in the JBRs, the Owners demanded that Black & Veatch make repairs.
16. At the time the Owners made their demands on Black & Veatch, the Cardinal 1 and 2 projects, and the Conesville project were completed operations.
17. During the summer of 2010, Black & Veatch and the Owners of the JBRs, entered into settlement agreements resolving their disputes relating to eight JBRs, including the seven at issue here.
18. As part of the settlements, Black & Veatch agreed, among other things, to replace most internal components of the JBRs.
19. In replacing the internal components, Black & Veatch has obtained contribution from various parties responsible for the costs incurred.

(Dk. 294, pp. 4-5).

         As it did in the prior summary judgment order, the court sets out the general nature of the plaintiff's claims deferring to its characterization. The plaintiff is claiming coverage for property damage resulting directly from the work of the subcontractors on behalf of B&V and from B&V's failure to deliver professional services both of which resulted in the installation of defective risers. For the three completed and operating JBRs, Cardinal 1 and 2 and Conesville, B&V's claim is for the property damage resulting from alleged deficiencies with the installation and errors with the design and supervision of the risers that “resulted in excessive mineral deposits accumulating on the decks and other internal components of the JBRs, the weight of which in turn caused those components to deform, crack, and, in some cases, collapse entirely.” ECF# 294, Pretrial Order, p. 7. Cardinal 1 and 2 JBRs were so badly damaged that the owners no longer considered them viable. Id. at p. 8. The owners demanded complete replacement of the badly damaged internal components. Id. Thus, B&V is making a coverage claim for its liability incurred to repair or replace the property damaged from the occurrence of the continual, ongoing and unforeseen buildup of deposits in the JBRs. ECF #297-3, Wood Dep. pp. 14-17. For the uncompleted JBRs, B&V's claim is for property damage to other non-defective internal components that resulted from work done to access, remove and replace the installed defective gas risers. Thus, B&V is making a coverage claim for its liability for the damage done to non-defective internal components from being removed based on the occurrence of the defective gas risers being installed and then needing to be torn out. Id. at 297-3, pp. 29-30; ECF# 297-8, Miller Dep. p. 157-158.

         ASPEN'S MOTION FOR SUMMARY JUDGMENT (ECF# 340)

         Aspen advances numerous arguments, and the court will follow the order used by Aspen in its original memorandum. At the outset, some of Aspen's arguments trigger deciding whether these matters were resolved by the Tenth Circuit on appeal and are subject to the law of the case doctrine or the mandate rule. The law of the case doctrine recognizes that, “‘[w]hen a court decides upon a rule of law, that decision should continue to govern the same issues in subsequent stages in the same case.'” Mason v. Texaco, Inc., 948 F.2d 1546, 1553 (10th Cir.1991) (quoting Arizona v. California, 460 U.S. 605, 618, 103 S.Ct. 1382, 1391, 75 L.Ed.2d 318 (1983)), cert. denied, 504 U.S. 910 (1992). “[W]hen a case is appealed and remanded, the decision of the appellate court establishes the law of the case and ordinarily will be followed by both the trial court on remand and the appellate court in any subsequent appeal.” Rohrbaugh v. Celotex Corp., 53 F.3d 1181, 1183 (10th Cir. 1995) (citation omitted). The doctrine “applies to all issues previously decided, either explicitly or by necessary implication.” Rohrbaugh, 53 F.3d at 1183 (internal quotation marks and citation omitted). “The law of the case doctrine is intended to prevent ‘continued re-argument of issues already decided,' Gage v. Gen. Motors Corp., 796 F.2d 345, 349 (10th Cir. 1986), and to preserve scarce court resources-to avoid ‘in short, Dickens's Jarndyce v. Jarndyce syndrome,' McIlravy v. Kerr-McGee Coal Corp., 204 F.3d 1031, 1035 (10th Cir. 2000).” Huffman v. Saul Holdings Ltd. Partn., 262 F.3d 1128, 1132 (10th Cir. 2001).

         “An ‘important corollary' to the law of the case doctrine, ‘known as the “mandate rule, ” provides that a district court must comply strictly with the mandate rendered by the reviewing court.'” Id. (quoting Ute Indian Tribe v. Utah, 114 F.3d 1513, 1520-21 (10th Cir. 1997)). Put another way, the law of the case doctrine “requires a trial court to follow an appellate court's previous ruling on an issue in the same case . . . . This is the so-called ‘mandate rule.'” United States v. Quintieri, 306 F.3d 1217, 1225 (2d Cir. 2002) (footnote omitted), cert. denied, 539 U.S. 902 (2003). Thus, an issue decided on appeal may not be relitigated in the same case and “there must be compliance with the reviewing court's mandate.” Grigsby v. Barnhart, 294 F.3d 1215, 1218 (10th Cir. 2002). In this circuit, “[t]he mandate consists of our instructions to the district court at the conclusion of the opinion, and the entire opinion that preceded those instructions.” Procter & Gamble Co. v. Haugen, 317 F.3d 1121, 1126 (10th Cir. 2003); cf. Quintieri, 306 F.3d at 1225 n.5 (“Technically, the ‘mandate' of this Court consists of a ‘certified copy of [our] judgment, a copy of the opinion, and any direction as to costs.'“ (quoting United States v. Reyes, 49 F.3d 63, 66 (2d Cir.1995)).

         Tenth Circuit's Holding on the Meaning of the CGL Policy

         On pages two and three above, the court has already the Tenth Circuit's summary of B&V's claim for property damages under the CGL policy. see Black & Veatch Corp. v. Aspen Ins. (Uk) Ltd, 882 F.3d at 954. As far as the terms of the basic insuring agreement, the panel noted that the CGL policy obligated Aspen to pay on behalf of B&V its legal obligation for “'Property Damage' . . . caused by an ‘Occurrence.'” 882 F.3d at 955. The Policy defines “Occurrence” to be an “accident, including continuous or repeated exposure to substantially the same general harmful conditions, that results in . . . ‘Property Damage' that is not expected or intended by the ‘Insured.'” Id. The Policy defines “Property Damage” as “physical injury to tangible property of a ‘Third Party.'” Id. “Third Party” is defined as “any company, entity, or human being other than an ‘Insured.'” Id.

         On the issue of whether the damage done to the JBRs was an occurrence, the Tenth Circuit analyzed it as follows, in relevant part:

We start with the Policy terms and definitions, which are materially identical to the ISO's standard-form CGL policy. Under the Policy, an “occurrence” is an “accident ... that results in ‘Bodily Injury' or ‘Property Damage' that is not expected or not intended by the ‘Insured.'” An occurrence triggers coverage. We examine each part of this definition.
a. Accidental damages
The Policy does not define “accident, ” but the New York Court of Appeals has explained that a CGL policy covers damages only when they were “unexpected and unintentional.” Cont'l Cas. Co., 593 N.Y.S.2d 966, 609 N.E.2d at 510 (holding that these terms are to be construed narrowly as barring coverage “only when the insured intended the damages”); see also Consol. Edison Co. of N.Y. v. Allstate Ins. Co., 98 N.Y.2d 208, 746 N.Y.S.2d 622, 774 N.E.2d 687, 692 (2002) (“Insurance policies generally require ‘fortuity' and thus implicitly exclude coverage for intended or expected harms.”). A policyholder might take a “calculated risk”-such as hiring a subcontractor-without “expecting” damages to occur. See Cont'l Cas. Co., 593 N.Y.S.2d 966, 609 N.E.2d at 510. “[I]n fact, people often seek insurance for just such circumstances.” Id.
Whether or not B&V took a “calculated risk” by delegating work on the JBRs to a subcontractor, Aspen does not argue-nor does the record support-that B&V “expected or intended” MTI or any other subcontractor to cause damage. Nor is there evidence that B&V increased the likelihood of such damages through reckless cost-saving or other measures. See Fuller, 613 N.Y.S.2d at 155 (finding no “occurrence” where damages arose from “intentional cost-saving or negligent acts”). Thus, the damages at issue here satisfy the Policy's accidental requirement.
b. Property damage to a third party
The Policy covers costs arising from property damage. “Property Damage” is defined as “physical injury to tangible property of a ‘Third Party.'” ROA, Vol. 1 at 72. A “Third Party” is defined as “any company, entity, or human being other than an ‘Insured.' ” Id. The damage to the JBRs was physical injury to tangible property. Aspen argues, however, that the Policy designates AEP-the energy company that hired B&V to construct the JBRs-as an “Additional Insured, ” and thus AEP cannot be a third party. See Aplee. Br. at 45 (citing ROA, Vol. 7 at 1311). This argument fails.
Under the Policy, an “Insured” is defined as any entity listed as a “Named Insured” or designated as an “Additional Insured.” The Policy lists B&V as the “Named Insured.” ROA, Vol. 1 at 63. Under Endorsement 33, AEP is designated as an “Additional Insured, ” thereby adding AEP to B&V's existing insurance policy. See Id. at 114. Granting one party additional insured status on another's CGL policy is a “common risk-shifting technique” used in construction contracts. Samir Mehta, Additional Insured Status in Construction Contracts and Moral Hazard, 3 Conn. Ins. L.J. 169, 170 (1997). But it does not mean the Policy precludes coverage of the damages at issue here.
First, AEP is an “Additional Insured” only with respect to liability for property damage “arising out of operations performed by the Named Insured.” ROA, Vol. 1 at 114 (emphasis added). But here the work performed by a subcontractor (MTI), not by the “Named Insured” (B&V), caused the damages.
Second, Endorsement 33 contains a “separation of insureds” condition, which provides that the Policy “applies separately to each Insured against whom claim is made or suit is brought.” Id. Its purpose is to preserve coverage for damage claims made by one insured (here, AEP) against another (B&V). See West Am. Ins. Co. v. AV&S, 145 F.3d 1224, 1227 (10th Cir. 1998) (providing that under a “separation of insureds” condition, each insured is “entitled to have the [p]olicy construed as to it as if the [p]olicy were issued only as to it alone”); see also Greaves v. Pub. Serv. Mut. Ins. Co., 5 N.Y.2d 120, 181 N.Y.S.2d 489, 155 N.E.2d 390, 392 (1959) (same). In other words, when AEP claimed damages against B&V, the separation of insureds clause rendered AEP a third party with respect to its claims for property damage against B&V. This understanding of the Policy aligns with common sense: The principle risk B&V faced as an EPC contractor, and thus a main reason for obtaining CGL insurance, was the potential for claims alleging damages made by the property owner-AEP.
Black & Veatch Corp. v. Aspen Ins. (Uk) Ltd, 882 F.3d at 962-64 (footnotes omitted). The majority plainly intended its analysis and conclusion to be the rule of law on the meaning of “Occurrence” with its composite elements as applied to B&V's claim of property damages. See id. at p. 957 n. 6 (“The district court held only that the damages at issue here could not constitute a coverage-triggering ‘occurrence' under the Policy, so it did not proceed to the next step of determining the effect of any Policy exclusions or exceptions to the exclusions. It should do so on remand.”).[1]

         In sum, the Tenth Circuit has held as a matter of law the following. B&V's property damage claims “satisfy the Policy's accidental requirement.” Id. at 963. “[T]he separation of insureds clause rendered AEP a third party with respect to its claims for property damage against B&V.” Id. at 964. The subcontractor exception and Endorsement 4 would be rendered surplusage under Aspen's proposed meaning of occurrence. Id. At 964-65. The majority summarized its holding in this way:

In sum, the property damages at issue were caused by an “occurrence, ” as that term is defined in the Policy, because (1) B&V neither intended nor expected that its subcontractor would perform faulty work, so the damages were accidental, (2) the damages involved physical harm to the property of a third party, and (3) a contrary conclusion would render various Policy provisions meaningless in violation of New York's rule against surplusage.

Black & Veatch Corp. v. Aspen Ins. (Uk) Ltd, 882 F.3d at 965. The majority concluded its opinion making it unmistakably clear that it considered the following to be the settled law of the case:

Under the Policy, the damages at issue here were caused by a coverage-triggering “occurrence.” First, the damages were accidental and resulted in harm to a third-party's property, thus meeting the Policy's definition of an “occurrence.” Second, the district court's interpretation would violate New York's rule against surplusage by rendering the “subcontractor exception” meaningless. Third, the changes ISO has made to standard-form CGL policies demonstrate that the policies can cover the damages at issue here. Fourth, the overwhelming trend among state supreme courts has been to recognize such damages as “occurrences.” Fifth, New York intermediate appellate decisions are distinguishable, outdated, or otherwise inapplicable. We predict the New York Court of Appeals would decline to follow these decisions and instead would join the clear trend among state supreme courts holding that damage from faulty subcontractor work constitutes an “occurrence” under the Policy. For the foregoing reasons, we vacate the district court's summary judgment decision and remand for reconsideration in light of this opinion.

Black & Veatch Corp. v. Aspen Ins. (Uk) Ltd, 882 F.3d at 971 (footnote omitted).

         The court will apply the law of the case doctrine to all issues explicitly ruled upon in the majority's opinion as well as those issues necessarily decided by implication. Pursuant to the mandate rule, the court appreciates that the panel's opinion regards the coverage issues under the basic insuring agreement to be decided and for the district court on remand to move onto the next step of determining the Policy's exclusions and exceptions. see 882 F.3d at 957 n. 6; Procter & Gamble Co., 317 F.3d at 1126 (the mandate includes the panel's entire opinion preceding its final instructions).

         Physical Harm to Uncompleted Plants

         Aspen first argues against coverage under the basic insuring agreement because the components later replaced in the four uncompleted JBRs were not damaged or physically injured. “Removal and replacement of the new components is not physical injury or property damage.” ECF# 342, p. 37. Aspen asks this court to find that property damage “occurs” only if the defective work physically injures other parts of the project.

         To take up this issue now would first require this court to limit the Tenth Circuit's ruling on appeal that, “The damage to the JBRs was physical injury to tangible property.” 882 F.3d at 963. Indeed, the panel in holding that the “damages were caused by a coverage-triggering ‘occurrence'” had to conclude that “the damages were accidental and resulted in harm to a third-party's property.” Id. at 971. The law of case doctrine extends to issues decided explicitly or by necessary implication. Dobbs v. Anthem Blue Cross and Blue Shield, 600 F.3d 1275, 1280 (10th Cir. 2010). For a prior appeal to have implicitly resolved an issue, this Circuit looks to three circumstances:

“(1) resolution of the issue was a necessary step in resolving the earlier appeal; (2) resolution of the issue would abrogate the prior decision and so must have been considered in the prior appeal; and (3) the issue is so closely related to the earlier appeal its resolution involves no additional consideration and so might have been resolved but unstated.”

Id. (quoting McIllravy v. Kerr-McGee Coal Corp., 204 F.3d 1031, 1036 (10th Cir. 2000)). There is no plain statement or any clear indication that the Tenth Circuit was limiting its “occurrence” analysis to the completed JBRs or was excepting or reserving the uncompleted JBRs from its “occurrence” analysis. Without such a statement or indication, the court regards the appellate panel's “occurrence” findings as necessarily incorporating by implication all seven plants, completed and uncompleted.

         Aspen asks the court to limit the panel's occurrence finding to the completed plants based on this language in the panel's opinion:

Deficiencies in the components procured by MTI and constructed by MTI's subcontractors caused internal components of the JBRs to deform, crack, and sometimes collapse.
After work on three of the JBRs was completed, and while construction of four others was ongoing, AEP alerted B&V to the property damage arising from MTI's negligent construction. AEP and B&V entered into settlement agreements resolving their disputes relating to the JBRs at issue here. Under the agreements, B&V was obligated to pay more than $225 million in costs associated with repairing and replacing the internal components of the seven JBRs.

882 F.3d at 954 (bolding added). The above bolded terms are certainly active verbs that describe the damage done to the three completed plants. But, it is immediately followed by the description of AEP alerting B&V to property damage that involved all seven JBRs and resulted from the subcontractor's negligent construction. The Tenth Circuit concludes its discussion of B&V's property damage claim by noting that in the settlement with AEP, B&V “was obligated to pay more than $225 million in costs associated with repairing and replacing the internal components of the seven JBRs.” Id. (bolding added). As fairly understood on its face, the Tenth Circuit's opinion addresses B&V's claim for property damages to include all seven JBRs without distinguishing between completed and uncompleted plants. Thus, the Tenth Circuit's ruling that property damages occurred here is subject to the law of the case doctrine, and the mandate rule requires this court is follow it.

         In the alternative, the court is persuaded that New York follows the incorporation theory in holding that an injury occurs when a defective component is integrated into a larger product. See, e.g., Sturges Mfg. Co. v. Utica Mut. Ins. Co., 37 N.Y.2d 69, 72-73, 332 N.E.2d 319 (1975) (“When one product is integrated into a larger entity, and the component product proves defective, the harm is considered harm to the entity to the extent that the market value of the entity is reduced in excess of the value of the defective component.” (citation omitted)); see, e.g., Adler & Neilson Co. v. Insurance Co. of N. Am., 56 N.Y.2d 540, 542-543, 434 N.E.2d 1335 (1982) (repair and replacement costs incurred for non-defective components were property damage as they resulted from repairing the defective parts); Franco Belli Plumbing & Heating and Sons, Inc. v. Liberty Mut. Ins. Co., 2012 WL 2830247 at *8 (E.D.N.Y. Apr. 19, 2012) (citing in part, Chubb Ins. Co. of N.J. v. Hartford Fire Ins. Co., No. 97 Civ. 6935, 1999 SL 760206, at *8 (S.D.N.Y. 1999)(“Under New York case law, when an insured is unaware, as here, of a defect in its component of a product, which defect diminishes the value of the product into which it is incorporated, resulting in damage, such damage is considered to arise out of an ‘occurrence.'”), aff'd, 229 F.3d 1135 (2d Cir. 2000).”)). The court's interpretation and application of the Tenth Circuit's ruling on property damage is consistent with New York law.

SDamage to Third Party Property and “Particular Part” in Endorsement 4

         Aspen contends the replaced components were B&V's property, not the property of a third party, by reading the construction contract to say that B&V “owns” the components until completion of the plant. Aspen extends this argument relying on Exclusion D that carves out property damage to property “owned” by the “Insured” and on Endorsement 8 that makes the policy inapplicable to property damage “to real property leased to, rented to, occupied or managed by any Insured except as respects coverage provided by . . . Endorsement 4.” ECF# 342, pp. 40-41. Aspen also points to subparagraph (3) of Exclusion D as reaching “that particular part of real property on which the ‘insured' or any contractors or subcontractors working directly or indirectly on the ‘insured's' behalf are performing ‘your work', if the ‘property damage' arises out of ‘your work.'” ECF# 284-1, p. 23. Aspen reads this subparagraph to exclude coverage not just for the defective work but for the “entire scope of B&V's work.” Aspen says New York law supports its reading. ECF# 342, p. 41.

         To take up these issues now, the district court again would be forced to limit an express ruling made by the Tenth Circuit on appeal and again would have no grounds in that opinion for doing so. In finding there was an “occurrence” under the policy, the Tenth Circuit also had to find there was “property damage” which the policy defined as “physical injury to tangible property of a third party.” 882 F.3d at 962-63. On the third-party question, the Tenth Circuit explicitly addressed one of Aspen's arguments that AEP was an insured under the policy, not a third party. The Circuit panel concluded:

In other words, when AEP claimed damages against B&V, the separation of insureds clause rendered AEP a third party with respect to its claims for property damage against B&V. This understanding of the Policy aligns with common sense: The principle risk B&V faced as an EPC contractor, and thus a main reason for obtaining CGL insurance, was the potential for claims alleging damages made by the property owner-AEP.

Id. at 964. The Tenth Circuit expressly found above that AEP was the owner and third party with respect to its claims for property damage against B&V.

         Aspen does not reply to B&V's arguments that the Tenth Circuit's rulings are the law of the case doctrine on the issue of third-party damages. This court is required to follow the Tenth Circuit's ruling on this issue. And even if this issue had not been decided on appeal, this court would have decided that AEP owned the JBRs at the time of property damage based on the “31.0 Title and Risk of Loss” provision in the AEP contract.

         As for the “particular part” in Endorsement 4, the Tenth Circuit discussed it in these terms:

The second exclusion, known as “Endorsement 4, ” excludes coverage for property damage to the “particular part of real property” that B&V or its subcontractors were working on when the damage occurred. Id. at 83. This exclusion pertains only to ongoing, rather than completed, work. . . . .
In the context of ongoing work, the standard-form CGL policy excludes coverage for property damage to “[t]hat particular part of real property on which you or any contractors or subcontractors working ... on your behalf are performing operations, if the ‘property damage' arises out of those operations.” CGL Coverage Guide, App. B: 1986 Occurrence Form, at 298; see also ISO 1986 Circular (explaining that the policy covers “damage caused by faulty workmanship to ... parts of work in progress” other than what the contractor or subcontractors were working on). In other words, the policy excludes damage to “that particular part” of the project upon which the insured's operations were being performed at the time the damage occurred, but it covers damage to property other than “that particular part.” This is the current understanding of the phrase “that particular part” in the insurance industry today. Scott C. Turner, “That particular part” limitation, Insurance Coverage of Construction Disputes § 29:7 (2d ed. 2017). . . . .
Aspen's interpretation of an “occurrence” would also render “Endorsement 4” surplusage. As described above, “Endorsement 4” pertains to ongoing work and excludes coverage for property damage to “that particular part of real property” on which B&V or its subcontractors were actively working. See ROA, Vol. 1 at 83 (emphasis added). If faulty workmanship resulting in damage to B&V's own work could never trigger coverage as an “occurrence, ” this part of “Endorsement 4” would be meaningless. In other words, there would be no reason for “Endorsement 4” to exclude coverage only for damage to a “particular part” of the JBRs if the Policy could never cover damage to the insured's work in the first instance.

Black & Veatch Corp., 882 F.3d 955-56, 960, 965. In discussing Endorsement 4, the Tenth Circuit interpreted it to exclude coverage “for damage to a 'particular part' of the JBRs.” Id. at 965. This interpretation necessarily precludes Aspen's interpretation that the exclusion covers the “entire scope of B&V's work, ” that is, the entire plant.

         Aspen does reply to B&V's argument that the Tenth Circuit has interpreted the “particular part” language of Endorsement 4. Aspen singles out the Tenth Circuit's opinion at page 960 as no more than a comment on one treatise writer's opinion about this exclusionary language in CGL policies. Aspen also argues the Tenth Circuit's discussion of Endorsement 4 was not a final ruling but was only to show how this provision would be rendered superfluous if the insuring agreement could not “cover damage to the insured's work in the first instance.” 882 F.3d at 965. The above quote from the Tenth Circuit's opinion plainly shows the majority did interpret “that particular part” in Endorsement 4 as applying only to ongoing work and only “to a ‘particular part' of the JBRs, ” not the entire JBRs plant. For the court to rule in favor of Aspen on this argument, the district court would have to interpret “particular part” contrary to the appellate court's opinion. The Tenth Circuit's narrow reading of “particular part” was important in drawing its conclusion on surplusage. A broader reading of “particular part” would have certainly weakened the surplusage rationale behind its ruling. The law of the case doctrine forecloses the court's consideration of Aspen's argument on this issue.

         Property Damage to Cardinal 3 Occurring During Policy Period

         Under the basic insuring agreement, Aspen is to pay B&V for its legal obligations to pay “'Property Damage' occurring during the Policy Period stated in Item 4 of the Declarations.” ECF# 284-1, p. 7. Declaration Item 4 specifies a policy period from November 1, 2007, to November 1, 2008. Citing the testimony of B&V's corporative representative, Sheldon Wood, Aspen argues that the “property damage” for the Cardinal 3 plant was the removal and replacement of JBR internal components and that the rebuilding of Cardinal 3 did not begin until 2010 or after the policy expired. The issue here is whether property damage occurred during the policy period as to trigger coverage.

         Applying New York's “injury in fact” test for determining the trigger date of CGL coverage, B&V argues the injury here occurred when the defective gas risers were installed or when B&V was negligent in providing proper professional services related to gas risers. B&V also points to New York case law finding property damage as occurring when a defective part was installed. B&V believes there are genuine issues of material fact here that preclude summary judgment.

         In reply, Aspen comes forward with the following new argument:

B&V argues that there is a question of fact on when the installation of the defective risers occurred at Cardinal 3: thus this Court should deny Aspen/Catlin's Motion for Summary Judgment as to this plant. . . .
However, Paragraph 38 of the Consent Decree in the MTI Litigation recited that “Construction at Cardinal 3 did not begin until 2008. There, gas risers were installed without proper inspection by MTI from January 2009 through March 2009, in breach of its duties as construction and project manager.” (Dkt. # 311-1, Ex. B). This is outside Defendants' policy period and, therefore, summary judgment for Defendants as to Cardinal 3 is appropriate.

ECF# 348, p. 17. Because these installation dates are outside the policy period, Aspen argues it is entitled to summary judgment on Cardinal 3.

         Aspen waited until its reply brief to make this argument and present these additional facts. Generally, issues raised for the first time in a reply brief are not considered with an exception for new issues raised in reply to the respondent's arguments. In re Gold Resource Corporation Securities Litigation, 776 F.3d 1103, 1118 (10th Cir. 2015). Aspen's new argument replies to B&V's position on the “injury-in-fact” occurring when defective risers were installed or when B&V negligently performed its professional services. “The Court will not consider arguments raised for the first time in a reply brief, particularly where the arguments could have been made in the first instance.” Swimwear Solution, Inc. v. Orlando Bathing Suit, LLC, 309 F.Supp.3d 1022, 1044 (D. Kan. 2018) (internal quotation marks and citation omitted). As the following discussion of New York's law on triggering events makes clear, Aspen could have made this argument in its opening memorandum. Therefore, the court will not consider Aspen's new factual arguments first made in its reply brief.

         “New York law follows the ‘injury-in-fact' test which ‘rests on when the injury, sickness, disease or disability actually began.” Maxum Indemn. Co. v. A One Testing Laboratories, Inc., 150 F.Supp. 3D 278, 285 (S.D.N.Y. 2015) (quoting Downey v. 10 Realty Co., LLC, 78 A.D.3d 575, 911 N.Y.S.2d 67, 67 (2010)(internal quotation omitted)). The New York Court of Appeals has held:

In Maryland Cas. Co. v Grace & Co. (23 F.3d 617) the Second Circuit, applying New York law, held that, in an asbestos property damage claim, the “trigger date” for insurance coverage purposes is the date of installation, for it is at that point that the building owner sustains an injury in fact. This Court reached a similar conclusion in Sturges Mfg. Co. v Utica Mut. Ins. Co. (37 N.Y.2d 69, 72-73), holding that “[w]hen one product is integrated into a larger entity, and the component product proves defective” the larger entity has sustained an injury in fact.

MRI Broadway Rental, Inc. v. U.S. Mineral Products Co., 92 N.Y.2d 421, 427-28, 704 N.E.2d 550 (1998). “When one product is integrated into a larger entity, and the component product proves defective, the harm is considered harm to the entity to the extent that the market value of the entity is reduced in excess of the value of the defective component.” Sturges Mfg. Co. v. Utica Mut. Ins. Co., 37 N.Y.2d 69, 72-73, 332 N.E.2d 319, 322 (1975). “When faulty workmanship in building materials is the gravamen of an allegation of property damage, ‘under an injury-in-fact analysis, the injury may be said to occur at the time of installation.'” Maxum Indemn. Co., 150 F.Supp.3d at 285 (quoting Stonewall Ins. Co. v. Nat'l Gypsum Co., No. 86 Civ. 9671 (JSM), 1992 WL 123144, at *14 (S.D.N.Y. May 27, 1992), aff'd in part and rev'd in part on other grounds, 73 F.3d 1178 (2d Cir. 1995)); see Hoechst Celanese Corp. v. Certain Underwriters at Lloyd's London, 673 A.2d 164, 169 (Del. 1996) (“[U]nder New York law, an injury-in-fact or property damage may occur at different points in time along the continuum from initial exposure or installation to actual manifestation. (citations omitted). Accordingly, . . ., property damage sufficient to trigger insurance coverage may occur as early as installation of the plumbing systems into housing units.”).

         New York law recognizes the triggering event of coverage for property damage from a component part, like the defective risers, can occur as early as the part's installation. Therefore, Aspen is not entitled to summary judgment on its argument that coverage was not timely triggered because the removal and ...


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