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AIG Specialty Insurance Co. v. Liberty Mutual Fire Insurance Co.

United States District Court, D. Nevada

April 18, 2018

AIG SPECIALTY INSURANCE COMPANY, Plaintiff,
v.
LIBERTY MUTUAL FIRE INSURANCE COMPANY, Defendant.

          ORDER DENYING MOTIONS FOR SUMMARY JUDGMENT (ECF NOS. 14, 77)

          ANDREW P. GORDON UNITED STATES DISTRICT JUDGE.

         This is a declaratory relief action in a dispute between a primary insurer, defendant Liberty Mutual Fire Insurance Company, and an excess insurer, plaintiff AIG Specialty Insurance Company. Liberty and AIG both covered a construction project at the Palazzo Hotel in Las Vegas. Approximately three years after the project was completed, maintenance personnel noticed corrosion of the steel support framing underneath the Palazzo's pools and spas located on the third and fifth floors of the hotel. An investigation determined that water leaked into the unventilated crawl space beneath the pools creating a moist and humid environment that corroded the steel framing. That framing was also inconsistent with the project's specifications, which called for cold-formed metal stud framing with G90 galvanization. Instead, the contractors used light-gauge steel finished with a primer that was not properly finished to prevent rusting. The corrosion was so significant that it reduced the load carrying capacity of the framing system, which required replacing the system.

         The Palazzo's owner sued the contractors in Nevada state court for the cost of replacement. A substantial barrier to settlement of that action was a dispute between Liberty and AIG about how much each should contribute to the resolution of the claims. Liberty's policy covered $2 million per occurrence, with a $4 million general aggregate limit. Liberty tendered $2 million, contending that the property damage was the result of a single occurrence. AIG, on the other hand, contended that there were multiple occurrences, thus triggering Liberty's $4 million limit. AIG also asserted that a contractor's rework endorsement that covered the loss at issue was not subject to the $2 million per occurrence limit in Liberty's policy and instead was subject to the $4 million limit. Because AIG's duty to indemnify is not triggered until Liberty's primary policy is exhausted, AIG contended it had no obligation to contribute funds to settle the lawsuit because the overall damages were greater than $2 million but less than $4 million.

         The underlying lawsuit ultimately settled. However, this declaratory relief action between AIG and Liberty remained. The parties each moved for summary judgment. I granted AIG's motion on the issue of whether Liberty's $2 million per occurrence limit applies to the contractor's rework endorsement because I concluded Liberty's policy is ambiguous, and construing the ambiguity against the drafter, the $2 million per occurrence limit does not apply. ECF No. 103.

         I believed that ended the parties' dispute, but I requested a status report to ensure that was the case. AIG contends the case is over because all of the underlying settlement falls within the contractor's rework endorsement. ECF No. 14. In contrast, Liberty contends that although I ruled the contractor's rework endorsement was subject to the $4 million policy limit, I did not make any factual findings allocating what portion of the damages to the Palazzo's pool fell within any particular coverage.

         I agree with Liberty. It is theoretically possible that some of the damages to the Palazzo pool areas do not fall within the contractor's rework endorsement but would constitute property damage exceeding the $2 million per occurrence limit in Liberty's policy.[1] I therefore will address the parties' dispute in their competing summary judgment motions over whether there was a single occurrence or multiple occurrences.

         I. ANALYSIS

         Summary judgment is appropriate if the movant shows “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), (c). A fact is material if it “might affect the outcome of the suit under the governing law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). An issue is genuine if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id.

         The party seeking summary judgment bears the initial burden of informing the court of the basis for its motion and identifying those portions of the record that demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The burden then shifts to the non-moving party to set forth specific facts demonstrating there is a genuine issue of material fact for trial. Fairbank v. Wunderman Cato Johnson, 212 F.3d 528, 531 (9th Cir. 2000). I view the evidence and reasonable inferences in the light most favorable to the non-moving party. James River Ins. Co. v. Hebert Schenk, P.C., 523 F.3d 915, 920 (9th Cir. 2008).

         “When there are no disputed material facts, ” the construction of an insurance policy is “purely a question of law.” Allstate Ins. Co. v. Fackett, 206 P.3d 572, 575 (Nev. 2009) (en banc). I read the insurance policy “as a whole, ” and analyze its language “from the perspective of one untrained in law or in the insurance business.” Fourth St. Place v. Travelers Indem. Co., 270 P.3d 1235, 1239 (Nev. 2011) (quotations omitted), as modified on reh'g (May 23, 2012). I give policy terms “their plain, ordinary and popular connotations.” Id. (quotation omitted).

         If an insurance policy is ambiguous, “it will be construed against the insurer, because the insurer was the drafter of the policy. . . . Whether a term is ambiguous depends on whether it creates reasonable expectations of coverage as drafted.” Id. (quotation omitted). Consequently, I interpret the policy “to effectuate the reasonable expectations of the insured.” Id. (quotation omitted). In evaluating whether a policy term is ambiguous, I look at “the policy as a whole in order to give a reasonable and harmonious meaning and effect to all its provisions.” Id. (quotation omitted).

         Section I of the Liberty policy is entitled “Coverages.” ECF No. 17-1 at 60. Coverage A is entitled “Bodily Injury and Property Damage Liability.” Id. Coverage A provides coverage for “sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury' or ‘property damage' to which this insurance applies.” Id. “Property damage” is defined as “[p]hysical injury to tangible property . . . .” Id. at 82.

         This coverage is subject to a $2 million per occurrence limit. Id. at 2, 60, 72. “Occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Id. at 81; see also Id. at 10 (stating that property damage “arising out of continuous or repeated exposure to substantially the same general harmful conditions will be considered as the result of one and the same ‘occurrence'”).

         Nevada follows the “causal approach” to determine the number of occurrences. Bish v. Guar. Nat. Ins. Co., 848 P.2d 1057, 1058 (Nev. 1993). Under this approach, the inquiry focuses on “the cause or causes of the injury, ” not on the “number, magnitude or time of the injuries.” Id. Thus, “[a]s long as the injuries stem from one proximate cause there is a single occurrence.” Id. (quotation omitted). Proximate cause means “any cause which in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury ...


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