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Spring Glen Apartments LLP v. Arch Specialty Insurance Co.

United States District Court, D. North Dakota

April 2, 2018



          YOUNG, D.J. [1]


         Spring Glen Apartments LLP (''Spring Glen") brought this action against Arch Specialty Insurance Company (''Arch") alleging breach of contract and bad faith in connection with Arch's denial of Spring Glen's claim under an insurance policy issued by Arch. The parties now cross-move for summary judgment.

         A. Procedural History

         On February 7, 2017, Spring Glen filed a complaint in this Court under its diversity jurisdiction alleging breach of insurance contract and seeking insurance coverage for property damage and loss of business income. Compl. ("Compl."), ECF No. 1, ¶ 1. Spring Glen also seeks consequential damages, attorneys' fees, and other damages caused by Arch's alleged bad-faith denial of coverage. Id. On April 28, 2017, Spring Glen moved for partial summary judgment on its breach of contract claim. See Pl's Mot. Partial Summ. J. ("Pl's Mot."), ECF No. 9; Pl's Mem. Supp. Pl's Mot. Partial Summ. J. ("Pl's Mem."), ECF No. 10. Arch cross-moved for summary judgment on both counts. See Def.'s Mot. Summ. J. ("Def.'s Mot."), ECF No. 12; Def.'s Mem. Opp'n. Pl's Mot. Partial Summ. J. & Mem. Supp. Def.'s Mot. Summ. J. ("Def.'s Mem."), ECF No. 13. The parties jointly filed a stipulation of facts. Stip. Facts ("Stip. Facts"), ECF No. 8. This Court heard oral argument on the motions on February 20, 2018, and it took the matter under advisement. Min. Entry, ECF No. 23.

         B. Undisputed Facts

         Spring Glen is a North Dakota limited liability partnership that owns an apartment building (the "Building") in North Dakota. Stip. Facts 1. The Building was covered under a policy (the "Policy") issued by Arch, an insurance company incorporated in Missouri with a principal place of business in New Jersey. Id. at 1-3.

         1. Spring Glen's Claim

         On March 14, 2016, while the Policy was in effect, seven to ten inches of water flooded the "lower floor of the Building." Stip. Facts 1-2. The flooding occurred when an underground water main (the "Pipe") cracked. Id. The Pipe, which serviced the Building, was located roughly seven feet below the Building and was over forty years old. Id. at 1. The crack in the Pipe was caused entirely by wear and tear. Id. at 2. The water not only caused damage to the "lower floor" but also caused cracking in the walls and ceilings of upper floors that housed apartments (together, the '"Property Damage") . Id. The Property Damage rendered the Building untenantable until repaired, causing Spring Glen to sustain a loss of business income (the "'Business Losses"). Id.

         Spring Glen filed an insurance claim with Arch for the Property Damage and Business Losses. Id. at 4. Arch denied Spring Glen's claim in letters dated May 17, 2016, June 3, 2016, and June 8, 2016. Id.

         2. The Policy

         The Policy contains three forms relevant to this action: Policy Declarations (the ""Declarations"), a Building and Personal Property Coverage Form (the ""Property Coverage Form"), and a Causes of Loss -- Special Form (the ""Causes of Loss Form"). Ins. Policy (""Ins. Policy") 16, 18, 34, 43, ECF No. 8-1. The Declarations indicate that the Policy covers both the Building itself and business income from the Building. Id. at 16-17. In the '''Covered Causes of Loss" section of the Declarations, the Policy states '"Special." Id.

         The Property Coverage Form states that the Policy covers ''direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss." Id. at 18. The Policy defines "Covered Property" as including "the building or structure described in the Declarations, " which, as described above, is the Building. Id. The Policy defines "Covered Cause of Loss" as "direct physical loss unless the loss is excluded or limited in [the] policy." Id. at 43.

         The Causes of Loss Form, which pertains to "Special" causes of loss, contains various lists of causes that are excluded from coverage. Id. Section B(1) of the Causes of Loss Form sets forth one such list, stating: "We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss." Id. (emphasis added). One of the excluded causes listed is water (the "Water Exclusion"). Id. at 44. The Water Exclusion excludes coverage, in pertinent part, for;

(3) Water that backs up or overflows or is otherwise discharged from a sewer, drain, sump, sump pump or related equipment; (4) Water under the ground surface pressing on, or flowing or seeping through: (a) Foundations, walls, floors or paved surfaces; (b) Basements, whether paved or not; or (c) Doors, windows or other openings.


         The Water Exclusion ''applies regardless of whether any" of the listed causes ''is caused by an act of nature or otherwise caused." Id. The Water Exclusion also includes an "ensuing loss provision, " which states that "if any of the above [causes] results in fire, explosion or sprinkler leakage, we will pay for the loss or damage caused by that fire, explosion or sprinkler leakage." Id.

         Section B(2) of the Causes of Loss Form lists additional exclusions, including "loss or damage caused by or resulting from. . . [w]ear and tear" (the "Wear and Tear Exclusion"). Id. at 45. Later, it states, "[b]ut if an excluded cause of loss [listed in this subsection] results in a 'specified cause of loss'' ... we will pay for the loss or damage ...

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