United States District Court, D. North Dakota
MEMORANDUM AND ORDER
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.
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.
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.
Spring Glen's Claim
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.
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.
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
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.
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.
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.
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