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Mears Group, Inc. v. Kiawah Island Utility Inc.

United States District Court, D. South Carolina, Charleston Division

March 8, 2019

MEARS GROUP, INC., Plaintiff,
v.
KIAWAH ISLAND UTILITY, INC., Defendant.

          ORDER

          DAVID C. NORTON UNITED STATES DISTRICT JUDGE.

         The following matter is before the court on plaintiff Mears Group, Inc.'s (“Mears”) partial motion for summary judgment, ECF No. 18, and defendant Kiawah Island Utility, Inc's (“KIU”) cross-motion for summary judgment, ECF No. 25. For the reasons set forth below, the court grants in part and denies in part Mears's partial motion for summary judgment and denies KIU's cross-motion for summary judgment.

         I. BACKGROUND

         This case arises out of the construction of a pipeline running from Kiawah Island to Johns Island (“the Project”). KIU, the owner of the Project, entered into a contract (“the Contract”) with Mears to construct the pipeline. The Project consisted of using horizontal directional drilling to bore an underground hole and then pulling pipe through the hole. During this process, the pipe got stuck in the borehole, and Mears's work was lost. As a result, Mears had to drill a second borehole and install a new section of pipeline.

         Mears presented a claim for the lost work to KIU to be submitted to KIU's builder's risk insurance carrier. Mears contends that the Contract required KIU to obtain builder's risk insurance and name Mears as a loss payee. KIU disputes whether the Contract required KIU to provide builder's risk insurance for the Project, but regardless, KIU submitted Mears's claim under a property insurance policy held by KIU's parent, SouthWest Water Company. That policy is supplied by Westport Insurance Corporation (“Westport”). KIU also demanded that Mears submit a claim to its own builder's risk insurance carrier, which KIU claims that Mears still has not done. KIU explains that Westport denied the claim, saying that (1) the Contract required Mears, not KIU, to obtain builder's risk insurance, and (2) the cause of the lost work was a result of Mears's faulty workmanship, which is excluded from coverage. Westport determined that KIU's policy was “excess to” any of Mears's insurance policies, meaning KIU's policy would not pay until Mears's insurance policies limits are exhausted. ECF No. 18 at 9. Mears alleges that as a result of KIU's failure to procure builder's risk insurance, Mears was not provided the builder's risk insurance coverage it bargained for and has now suffered over $7 million of damages, the amount of money it cost Mears to re-drill the second borehole and obtain additional pipe.

         The dispute in this case centers around the Contract itself. The parties used a standard Engineers Joint Contract Documents Committee (“EJCDC”) form to draft the Contract. The Contract consists of, among other documents, (1) General Conditions, (2) Supplementary Conditions, and (3) Special Conditions. The General Conditions contain form contract language, while the Supplementary Conditions amend or supplement the General Conditions. The Special Conditions provide additional conditions to the Contract, but whether they supersede the General Conditions or merely add to them is at issue here.

         The first set of clauses relevant here are in the General Conditions. Article 5.06, with emphasis added by Mears, states:

         5.06. Property Insurance

A. Unless otherwise provided in the Supplementary Conditions, Owner shall purchase and maintain property insurance upon the Work at the Site in the amount of the full replacement cost thereof (subject to such deductible amounts as may be provided in the Supplementary Conditions or required by Laws and Regulations). This insurance shall:
1. include the interests of Owner, Contractor, Subcontractors, and Engineer, and any other individuals or entities identified in the Supplementary Conditions, and the officers, directors, members, partners, employees, agents, consultants, and subcontractors of each and any of them, each of whom is deemed to have an insurable interest and shall be listed as a loss payee;
2. be written on a Builder's Risk “all-risk” policy form that shall at least include insurance for physical loss or damage to the Work, temporary buildings, falsework, and materials and equipment in transit, and shall insure against at least the following perils or causes of loss: fire, lightning, extended coverage, theft, vandalism and malicious mischief, earthquake, collapse, debris removal, demolition occasioned by enforcement of Laws and Regulations, water damage (other than that caused by flood), and such other perils or causes of loss as may be specifically required by the Supplementary Conditions.
3. include expenses incurred in the repair or replacement of any insured property (including but not limited to fees and charges of engineers and architects);
4. cover materials and equipment stored at the Site or at another location that was agreed to in writing by Owner prior to being incorporated in the Work, provided that such materials and equipment have been included in an Application for Payment recommended by Engineer; . . . .

ECF No. 18-1 at 73. The second relevant provision in the General Conditions, with emphasis added by Mears, is as follows:

         5.07 Waiver of Rights

A. Owner and Contractor intend that all policies purchased in accordance with Paragraph 5.06 will protect Owner, Contractor, Subcontractors, and Engineer, and all other individuals or entities identified in the Supplementary Conditions as loss payees (and the officers, directors, members, partners, employees, agents, consultants, and subcontractors of each and any of them) in such policies and will provide primary coverage for all losses and damages caused by the perils or causes of loss covered thereby. All such policies shall contain provisions to the effect that in the event of payment of any loss or damage the insurers will have no rights of recovery against any of the insureds or loss payees thereunder. Owner and Contractor waive all rights against each other and their respective officers, directors, members, partners, employees, agents, consultants and subcontractors of each and any of them for all losses and damages caused by, arising out of or resulting from any of the perils or causes of loss covered by such policies and any other property insurance applicable to the Work; and, in addition, waive all such rights against Subcontractors and Engineer, and all other individuals or entities identified in the Supplementary Conditions as loss payees (and the officers, directors, members, partners, employees, agents, consultants, and subcontractors of each and any of them) under such policies for losses and damages so caused. None of the above waivers shall extend to the rights that any party making such waiver may have to the proceeds of insurance held by Owner as trustee or otherwise payable under any policy so issued.

Id. at 74. Mears also cited to Section 5.04 of the General Conditions at the hearing on the motions, which provides:

         5.04 Contractor's Insurance

A. Contractor shall purchase and maintain such insurance as is appropriate for the Work being performed and as will provide protection from claims set forth below which may arise out of or result from Contractor's performance of the Work and Contractor's other obligations . . .
5. claims for damages, other than to the Work itself, because of injury to or destruction of Tangible property wherever located, including loss of use resulting therefrom . . . .

Id. at 72 (emphasis added by the court). Mears explained that “the Work itself” falls under the coverage of builder's risk insurance. Hearing Tr. 7:11-17. The final General Conditions clause relevant here is relied upon by KIU and is as follows:

         5.03 Certificates of Insurance

A. Contractor shall deliver to Owner, with copies to each additional insured and loss payee identified in the Supplementary Conditions, certificates of insurance (and other evidence of insurance requested by Owner or any other additional ...

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