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One Place Condominium, LLC v. Travelers Property Casualty Co.

United States District Court, N.D. Illinois, Eastern Division

October 6, 2014



SHEILA FINNEGAN Magistrate Judge.

Plaintiffs One Place Condominium LLC, The South Loop Shops LLC, Southblock Development LLC, C & K Partnership, and Southblock Management, Inc. (collectively "Plaintiffs" or "One Place") have filed this diversity suit against Defendant Travelers Property Casualty Company of America seeking to recover amounts allegedly due under a commercial insurance policy. The parties consented to the jurisdiction of the United States Magistrate Judge pursuant to 28 U.S.C. § 636(c), and both sides have filed cross-motions for partial summary judgment relating to certain contract terms that provide coverage for up to $2.5 million dollars in losses from "earth movement." The primary issue is whether the earth movement policy terms are ambiguous and must be construed to apply only when earth movement losses stem from natural causes (as One Place argues), or whether the terms are unambiguous and apply to earth movement losses from both natural and man-made causes (as Travelers contends). For the reasons set forth here, One Place's motion is denied, and Travelers' motion is granted.


The One Place Plaintiffs are all owners, developers and managers of property located at One East 8th Street in Chicago (the "Property"). (Doc. 116 ¶ 5). In late 2006, One Place began construction on the Property to erect a 10-story building with a one-story basement containing retail space, a parking garage and residential condominium units. ( Id. ¶ 6).

A. The Insurance Policy

1. Limits of Insurance. Travelers issued Plaintiffs a "Builders' Risk" insurance policy in connection with the construction project for the period from November 2, 2006 to November 2, 2007 (the "Policy"). ( Id. ¶ 7). The Policy insures against "loss' to Covered Property from any of the Covered Causes of Loss." (Policy, Doc. 1-1, at 14).[1] "Loss" is defined as "accidental loss or damage, " ( Id. at 28), and "Covered Causes of Loss" means "RISKS OF DIRECT PHYSICAL LOSS' except those causes of loss' listed in the Exclusions." ( Id. at 14). The Declarations page states that the relevant Limits of Insurance for "Builders' Risk" include:

• "Basic Limit of Insurance" $33, 000, 000 • "Earth Movement Limit of Insurance" $2, 500, 000 • "Earth Movement Annual Aggregate Limit of Insurance" $2, 500, 000 • "Flood Limit of Insurance" $2, 500, 000

• "Flood Annual Aggregate Limit of Insurance" $2, 500, 000 • "Specified Machinery Limit of Insurance" $33, 000, 000

( Id. at 7). The "Earth Movement Annual Aggregate Limit" (as well as the "Flood Annual Aggregate Limit") are shown as "modifiers" on the Im Pak® Coverage Summary page. ( Id. at 9).

2. Earth Movement Definitions. "Earth Movement Limit of Insurance" is defined under the Policy as:

the most we will pay for "loss" in any one occurrence caused directly or indirectly by "earth movement, " regardless of any other cause or event that contributes concurrently or in any sequence to the "loss."
But if loss' by fire, explosion or volcanic action' results from earth movement, ' the "Earth Movement Limit of Insurance" will not apply to the resulting loss.' Instead, we will pay up to the applicable Limit of Insurance shown in the Declarations that would otherwise apply to loss' by fire, explosion or volcanic action.' We will also pay up to such applicable Limit of Insurance for loss' by building glass breakage resulting from volcanic eruption, explosion or effusion.
All earth movement' that occurs within any 168-hour period will constitute a single occurrence. The expiration of this policy will not reduce the 168-hour period.
Any payment under the Earth Movement of Limit of Insurance' will not increase the application Limit of Insurance shown elsewhere in this policy.

( Id. at 27). "Earth movement" is defined as "any movement of the earth (other than sinkhole collapse'), [2] including but not limited to: a. earthquake; b. landslide; c. earth sinking, rising or shifting; d. volcanic eruption, explosion or effusion." ( Id. ). Losses from "mudslide" and "mudflow" are covered under the separate Flood Limit of Insurance.

3. Exclusions. The Policy identifies numerous Exclusions for events that are not covered. For certain of these exclusions, such as those pertaining to governmental action, nuclear hazard, wars, and ordinance or law, the Policy states that it will not pay for loss "caused directly or indirectly" by the event, and such loss "is excluded regardless of any other cause or event that contributes concurrently or in any sequence to" the loss. ( Id. at 20).

For certain other exclusions, the language is different: "We will not pay for loss' caused by or resulting from any of the following. But if loss' by a Covered Cause of Loss results, we will pay for that resulting loss.'" ( Id. at 21). Losses excluded under this provision include (in part) those resulting from:

• "Omission in, or faulty, inadequate or defective: (1) Planning, zoning, development, surveying, siting, design or specifications; or (2) Materials, workmanship or maintenance."

• "Settling, cracking, shrinking or expanding."

• "Hidden or latent defect, mechanical breakdown or failure (including rupture or bursting caused by centrifugal force), " corrosion, rust or dampness, wear and tear and gradual deterioration.

• "Weather conditions, " but this varies depending upon whether "an amount is shown under" the "Earth Movement Limit of Insurance" and the "Flood Limit of Insurance."[3]

C. "Loss" Events on the Property

The foundation for the building being constructed on the Property included drilled shafts or piers, known as caissons, which would support the load of the building. (Doc. 116 ¶ 11; Doc. 123 ¶ 19). The caisson foundation consisted of more than 90 concrete columns constructed in cylindrical shafts excavated under the proposed locations for the structural columns. The concrete columns were created by drilling deep holes into the ground with an auger and then filling them with concrete. Portions of the length of the caisson holes were reinforced with steel liners. (Doc. 116 ¶ 12). In addition to the caissons, the building had concrete foundation walls extending to frost depth, which is 42 inches deep (a full basement wall is 20 plus feet deep). These "frost walls" sit on top of the caisson caps, which are also made of concrete. ( Id. ¶ 13).

To assist with the excavation of these below-grade structures, subcontractor Hayward Baker installed an earth retention system ("ERS") consisting of steel sheet piling that was driven partially into the ground to hold back the soil on the perimeter of the Project. ( Id. ¶ 14). The sheet pile walls, which have soil on both sides, were installed on the south, east and west sides of the Project. The sheet piling on the south side was further braced by circular steel pipes, referred to as rakers, which were connected to the sheet piling on one end and a concrete grade beam on the other end. ( Id. ).

1. 2006 Movement of Earth

On October 23, 2006, One Place's project manager, Charles M. Shenk, reported a shaft cave-in at caisson 46 along grid line C on the west side of the Project, with an "[a]pproximately 30 [foot] radius slump." (Doc. 116-13, at 5). A Field Report prepared that day by an employee from the general contractor, Levine Construction, stated that during the excavation of caisson 46, the "shaft started to squeeze [at] approx[imately] 40 [feet]" and a "crack appeared [at] top elevation, encircling caisson approx[imately] 25-30 [feet] from caisson." ( Id. at 7). Apparently, similar soil squeeze was observed at caisson 52. (Doc. 116 ¶ 49). One Place remediated the damage by removing the soil from the holes and installing steel liners, and submitted an insurance claim to Travelers. ( Id. ). The parties refer to this as the November 2006 event.[4]

2. 2007 Movement of Earth

In late January 2007, workers discovered that sheet piling on the south side of the Project had moved along an east-west grid line. ( Id. ¶ 15). Shortly thereafter, on February 26, 2007, someone from Levine Construction observed that sheet piling along the west side of the Project near grid line D (referred to here as the "D Line sheeting") had also moved significantly to the east. ( Id. ¶ 16). Levine Construction notified One Place, subcontractor Hayward Baker and others about the movement of the D Line sheeting, One Place informed Travelers, and on March 8, 2007, a Stop Work Order was issued on the Project. ( Id. ¶¶ 17; Doc. 123 ¶ 24; Doc. 126 ¶ 9).

Following an investigation, Hayward Baker redesigned the ERS to brace and reinforce the sheet piling as follows: (a) steel H-piles were driven on the inside (east) of the sheeting; (b) to the extent there were gaps between the edges of the H-piles and sheeting, shims (steel plates) were welded to bridge the gap; (c) a horizontal steel beam called a whaler was installed on top of the H-piles and sheeting to tie the two together; (d) concrete grade beams were installed at columns 12 through 15; (e) five new rakers were installed, which went from the whaler on one end to the concrete grade beams on the other; and (f) certain soil excavation was performed to create room for equipment, along with certain backfilling (placing soil into a hole that is dug). (Doc. 116 ¶ 17, 18; Doc. 123 ¶¶ 25, 26). Construction relating to the reinforcement was completed by April 13, 2007, at which time the Stop Work Order was lifted and construction on the Project resumed. (Doc. 116 ¶ 18; Doc. 123 ¶¶ 29, 30).

In the meantime, in late February and early March 2007, subcontractor Concrete Structures raised concerns about the fact that soils under the frost walls and the caisson caps along the D Line had moved away from the concrete, creating voids. One Place's project manager, Mr. Shenk, raised similar concerns. (Doc. 116 ¶ 19). It is not clear what, if anything, was done about these issues at that time, but in late July 2007, the contractors discovered that the frost wall on the west side of the building along the D Line (between columns 11 and 14) had moved or shifted, and it was possible that the caisson caps had moved as well. ( Id. ¶ 20).

Though no stop work order was issued, the following repairs had to be made to the D Line frost wall and caisson caps: (a) backfilling of soil between the C and D lines; (b) the frost wall and caisson caps were demolished; (c) new concrete grade beams were formed; (d) a new frost wall was poured; and (e) certain areas were backfilled with soil. (Doc. 123 ¶¶ 34, 35). Construction to fix these issues was completed by August 18, 2007. (Doc. 116 ¶ 22). The Project itself was substantially completed as of December 10, 2008. ( Id. ¶ 6).

D. Investigation of the Loss Events and Related Insurance Claims

As a result of these events, One Place made claims for loss or damage to covered property under the Policy. Both sides retained experts to assist with the investigation and evaluation of the claims. Travelers initially retained construction consultants Madsen, Kneppers & Associates ("MKA") and engineers from Engineering Systems, Inc. ("ESI"), and subsequently hired Dr. Richard Finno, a professor and geotechnical expert at Northwestern University, as well as MKA competitor Lisa Enloe of Held Enloe & Associates, LLC. (Doc. 126 ¶¶ 9, 10, 13, 65, 66; Doc. 147 ¶ 5). One Place, in turn, hired the engineering firm Wiss, Janney, Elstner Associates, Inc., Robert Lukas of Geotechnical Engineering, Inc., and public adjuster Robert Levin of Globe Midwest/Adjusters International ("Globe Midwest"). On Mr. Levin's advice, One Place also retained the law firm of Childress Duffy in the spring of 2007. G. Craig Becker, another public adjuster from Globe Midwest became involved later in the case. (Doc. 116 ¶¶ 24, 25; Doc. 126 ¶¶ 11, 22).

1. Claim from November 2006 Event

One Place submitted a claim to Travelers for remediating the damage to caisson shafts 46 and 52 caused by soil squeeze. (Doc. 116 ¶ 49; Doc. 150 ¶ 49). It appears that Travelers initially declined to pay the amounts requested, but on July 14, 2009, public adjuster Craig Becker wrote a letter to Richard M. Sarff, Travelers' adjuster, in which he expressed appreciation for Travelers' willingness to reconsider the 2006 claim. He further stated: "I also want to point out that the policy provides coverage for earth movement." (Doc. 116-12, at 42). At his deposition, after being shown this sentence in the letter, Mr. Becker affirmed that he was referring to the earth movement definition in the Policy. (Doc. 116-14, at 15). He was then shown the Policy itself and asked to read the definition of earth movement. When asked whether, in his opinion, the language was ambiguous, he responded: "I wouldn't categorize it as ambiguous. I would categorize it as very broad." ( Id. ).

There is no dispute that (a) One Place and Travelers ultimately reached a settlement agreement regarding caissons 46 and 52, which had suffered soil squeeze, with Travelers paying over $95, 000; and (b) in the settlement agreement, both Travelers and One Place acknowledged that the loss was due to earth movement, and the $95, 000 was allocated to the Earth Movement Aggregate Limit under the Policy. (Doc. 116 ¶ 49; Doc. 150 ¶ 49). Nowhere in the settlement agreement (or elsewhere for that matter, at least as far as the Court can tell) was there ever any discussion of whether the earth movement in 2006 that led to the losses occurred "naturally" or was "man-made."

The parties did not (and still do not) agree on the interaction, if any, between the 2006 and 2007 earth movement events.

2. Claim from 2007 Events

On March 19, 2007, shortly after the 2007 loss events, Travelers' adjuster Mr. Sarff sent a letter to One Place stating that his consultants had some concerns about the design of the earth retention system. The letter also reminded One Place that the Policy contained an exclusion for losses caused by defective design. (Doc. 126 ¶ 14). One Place did not believe the loss involved defective design, concluding instead that the sheet piling failure had been caused by earth movement which was covered under the Policy. Early on, One Place's public adjuster Levin knew that the Policy covered earth movement and had read the definition of earth movement in the Policy. (Doc. 116 ¶ 25; Doc. 150 ¶ 25). In a letter to Travelers' adjuster Sarff dated April 5, 2007, Mr. Levin stated:

In this instance, the Travelers' policy includes earth movement as a covered cause of loss... Inasmuch as the insured sustained a loss to covered property resulting from a covered cause of the loss, Travelers is responsible to indemnify the insured for their loss(es).

(Doc. 126-7, at 3). During a subsequent July 1, 2013 deposition, Mr. Levin agreed that he intended the letter to convey to Travelers that "a loss by a covered cause of loss did result, and that covered cause of loss was earth movement." (Doc. 116-15, at 80, Levin Dep., at 49). Mr. Levin likewise referenced "the earth shifting incident(s)" in correspondence to Mr. Sarff dated April 10, 2007. (Doc. 116-12, at 56). In a May 2, 2007 email to Mr. Sarff, Mr. Levin further stated, "After numerous discussions regarding the cause of the earth movement loss, it is my belief causation was initiated during the caisson installation, thereby resulting in the ultimate loss and surrounding collapse." (Doc. 116-12, at 59). And in still another email to Mr. Sarff on July 23, 2007, Mr. Levin said: "As continuously stated to you verbally and formally, we see no exclusion contained in the policy whereby coverage could be prevented. In fact, the policy explicitly provides coverage." (Doc. 116-12, at 63).

As the investigation continued, Travelers' experts ultimately concluded that the defectively designed earth retention system caused the sheet piling failure, which in turn led to the problems with the D Line frost wall and caissons. The engineers from ESI (retained by Travelers) issued a report to that effect dated July 21, 2007. (Doc. 126 ¶ 21; Doc. 116 ¶ 21). In an effort to establish coverage under the Policy, One Place responded with reports from their own experts confirming that the loss was earth movement. (Doc. 126 ¶¶ 22, 23; Doc. 116 ¶¶ 24, 25). As Mr. Lukas, the engineering expert, stated in his August 28, 2007 report, "It is our opinion that ground movements occurred because of the reduction in shear strength of the soil as a result of soil squeeze [during the drilling of the caisson holes] thereby resulting in failure of the steel sheeting retention system." (Doc. 126 ¶ 24). This statement is consistent with emails Mr. Levin sent to Mr. Sarff on July 26 and August 1, 2007, with the subject line "Sheet Piling Movement, " and discussing what he called "the frost wall damage that occurred as a result of the earth movement, " and the cost of structural repairs to the caissons "which have moved as a result of the Earth Movement Claim." (Doc. 116-12, at 65). It is also consistent with Mr. Levin's email to Mr. Sarff dated August 28, 2007, attaching reports and surveys identifying "what we now know to have occurred as a result of there (sic) earth movement." (Doc. 116-12, at 71). During his deposition, Mr. Levin agreed that as of August 1, 2007, it was his opinion that the loss was covered, and one of the reasons was that there is coverage under the policy for earth movement. (Doc. 116-15, at 78, Levin Dep., at 41).

Travelers had its experts from ESI review and respond to the Lukas report, but the engineers did not change their position that the loss was caused by the defective design of the earth retention system. (Doc. 126 ¶ 25). One Place still challenged the denial of coverage, however, and the parties continued to exchange information and attend meetings to discuss the issue. ( Id. ¶¶ 29, 30). During a meeting on May 9, 2008 between Travelers (adjuster Sarff, ESI engineers Chad Fisher and Peter A. Lenzini, and in-house counsel) and One Place representatives (public adjuster Levin, engineering expert Lukas, and counsel Katherine Dedrick), One Place emphasized that there were caissons close to the earth retention system, two of which had experienced "soil squeeze." (Doc. 126 ¶ 32). During a July 30, 2008 telephone conference, Mr. Levin reportedly told Mr. Sarff that (1) he was sending additional letters to support One Place's position that the movement of the earth retention system was a covered loss, and (2) he had spent many hours with One Place's counsel going over the policy and they feel it is very broad and it is clear that the cause of the loss was earth movement. (Doc. 116 ¶ 26g).[5]

Negotiations continued, and Travelers eventually decided to have the expert engineering reports from ESI and Mr. Lukas peer reviewed by Northwestern professor Dr. Richard Finno. ( Id. ¶ 35). In response to Dr. Finno's advice that with respect to the earth retention system both sides were correct to some degree and this was a gray area, Mr. Sarff sent One Place a letter dated December 22, 2008 withdrawing Travelers' denial of coverage as to the claim for damage to the ERS. ( Id. ¶¶ 35, 36; Doc. 116 ¶ 30; Letter from R. Sarff to J. Karp of 12/22/08, Doc. 126-7, at 5).

At some point thereafter (it is unclear when), One Place began to take the position that the 2007 losses had not been caused by "Earth Movement" as defined in the Policy. One Place asserts in this litigation that "Earth Movement" as defined in the Policy is limited to movement of earth from natural as opposed to man-made causes. One Place states that they "do not dispute that earth moved at some point" but do "dispute the cause of this movement. It is [One Place's] position the cause of any earth movement was the drilling of the caisson holes." (Doc. 149, at 3). As One Place sees it, this means the 2007 losses all stem from earth movement caused by man, rather than naturally-occurring "Earth Movement" as defined in and explicitly covered by the Policy. Therefore, One Place contends that the $2.5 million Earth Movement Limit of Insurance does not apply and they should be allowed to recover up to the $33 million basic limit of insurance for the earth movement losses.

For purposes of summary judgment, Travelers assumes that the losses occurred in the manner described by One Place and argues that the $2.5 million dollar limit applies in any event since "Earth Movement" under the Policy encompasses any movement regardless of cause. (Doc. 155, at 5).


A. Standard of Review

Summary judgment is proper when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c). In viewing the facts presented on a motion for summary judgment, the court must construe the evidence in a light most favorable to the non-moving party and draw all reasonable inferences in favor of that party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986); National Athletic Sportswear, Inc. v. Westfield Ins. Co., 528 F.3d 508, 512 (7th Cir. 2008). "A court's role is not to evaluate the weight of the evidence, to judge ...

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