On September 26, 2011, the United States District Court for the District of Colorado issued an order that denied American Family Mutual Insurance Company’s motion for summary judgment regarding claims arising out of an alleged breach of insurance contract brought by High Street Lofts Condominium Association, Inc. (“High Street”). High St. Lofts Condo. Ass’n, Inc. v. Am. Family Mut. Ins. Co., 10-CV-02484-MSK-BNB, 2011 WL 4479120 (D. Colo. Sept. 26, 2011).
Concrete Express, Inc. began performing road repair work in May 2009 near the High Street Lofts in Boulder. That work included using tamping equipment to compact soil that allegedly created ground vibrations in the area. Shortly after the work began, representatives of High Street Lofts noticed damage to their buildings. In September 2009, High Street brought suit against Concrete Express (“CD Action”) alleging that “equipment used by Concrete Express caused extensive vibrations to travel through the ground and into the building,” which damaged High Street’s building. Id. at *2. Thereafter High Street filed suit against American Family (“Coverage Action”) based on American Family’s denial of coverage under a business insurance policy.
Since the CD Action had concluded, and ironically as the court pointed out, High Street’s position on causation had changed. In the CD Action, High Street had argued that vibrations from Concrete Express’ work caused the damages. In the Coverage Action, High Street argued “that the building was not damaged by vibrations at all,” but instead by “poorly performing historical foundations, disregard for geotechnical considerations,” and other causes not involving Concrete Express’ roadwork activities. Id. at *4.
American Family argued that High Street should be precluded from changing its causation argument from the CD Action to the Coverage Action because of judicial estoppel. The court dismissed this argument because it had not been proven that High Street had benefited from its previous causation theory, a necessary element of judicial estoppel.
American Family sought to exclude coverage based on: 1) an exclusion for damages caused by the negligence of a third party, and 2) an earth movement exclusion. The court quickly dismissed the first argument, as “Concrete Express’ negligence remains disputed.” Id. at *3.
The court then tackled the language of the insurance policy. The most relevant language from the policy regarding earth movement excluded coverage for the following:
Earth sinking (other than sinkhole collapse), rising, or shifting including soil conditions which cause settling, cracking or other disarrangement of foundations or other parts of realty. Soil conditions include contraction, expansion, freezing, thawing, erosion, improperly compacted soil and the action of water underlying the ground surface.
The court, applying the “reasonable expectations doctrine” and construing ambiguity against the drafter, held that an ordinary insured might reasonably understand this “un-grammatical maze” “‘to exclude coverage for settling, cracking or other disarrangement of foundations’ of buildings when that damage results from the ‘sinking, rising, shifting, expansion, or contraction’ of earth, when that movement is caused by ‘freezing, thawing, erosion, improperly compacted soil, [or] the action of [sub-surface] water” Id. at *6 (brackets in original).
Because freezing, thawing, erosion, and sub-surface water had been eliminated as potential causes, the court analyzed the “improperly compacted soil” exclusion. The court opined that American Family could still prove that the alleged earth movement was caused by improperly compacted soil or by vibrations causing harm to improperly compacted soil; therefore, any damages to High Street’s building would be within the policy exclusion. Id. at *7. However, High Street could still prove that the soil was properly compacted at original construction and any damages, (whether from vibrations or otherwise) would avoid the earth movement exclusion. Id. This would, ironically, now require both parties to alter their causation positions to support their interests. The court concluded that because there still was a genuine issue of material fact on the actual cause of the earth movement, the case must proceed to trial and American Family’s motion for summary judgment was denied. For additional information regarding Colorado construction litigation, please contact David M. McLain at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.
