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ORDER – 1

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF WASHINGTON

AT TACOMA

MACLEAN TOWNHOMES, LLC, a

Washington limited liability company, as

assignee of American Heritage Builders, a

Washington corporation,

Plaintiff,

v.

CHARTER OAK FIRE INSURANCE

CO., a foreign insurance company,

Defendant and Third-Party

Plaintiff,

 v.

FIRST SPECIALTY INSURANCE

COMPANY, a foreign insurance

company,

 Third-Party Defendant.

CASE NO. C06-1093BHS

ORDER DENYING IN PART

AND GRANTING IN PART

DEFENDANT’S MOTION

FOR SUMMARY JUDGMENT

RE PROPERTY DAMAGE

ISSUES

This matter comes before the Court on Defendant’s Motion for Summary

Judgment re Property Damage Issues. Dkt. 118. The Court has considered the pleadings

filed in support of and in opposition to the motion and the remainder of the file and

hereby grants in part and denies in part Defendant’s motion for the reasons stated herein.

I. PROCEDURAL AND FACTUAL BACKGROUND

On August 3, 2006, Plaintiff MacLean Townhomes, LLC filed a complaint for

declaratory relief and monetary damages against Defendant Charter Oak Fire Insurance

Co. Dkt. 1. Plaintiff’s claims are based on the assignment of an insurance contract
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ORDER – 2

between assignor American Heritage Builders (AHB) and Defendant Charter Oak. Dkt.

56 at 1. 

MacLean was the developer and builder of the Summerhill Village Condominium

(“the Condominium”), a 166-unit condominium located in Issaquah, Washington. 

Declaration of Chris Landschulz (“Landschulz Decl.”), Dkt. 57, ¶¶ 3, 4. MacLean

developed the Condominium in three phases and each phase included 10 separate

buildings (for a total of 30 buildings at the Condominium). Id.

On August 23, 1999, MacLean entered into a subcontract (“Subcontract”) with

AHB under which AHB agreed to install all siding, exterior wood trim, weather resistive

barrier, and soffits on Phase 2 of the Condominium. Id. ¶ 5. AHB finished working on

Phase 2 in December 1999. Declaration of Chad Hansen (“Hansen Decl.”), Dkt. 60, ¶ 4. 

On February 23, 2000, MacLean and AHB extended the Subcontract to include Phase 3

of the construction project. Id. ¶ 5.

Defendant Charter Oak insured AHB under a “Commercial General Liability”

insurance policy, policy number IO-680-464175, with an August 18, 2000 through

August 18, 2001 policy period. Declaration of Gregory L. Harper (“Harper Decl.”), Dkt.

59, Exh. A (“Policy”). The Policy has limits of $1,000,000 “each occurrence” and

$2,000,000 in the “aggregate.” Id. at 14, 64. According to the Policy’s insuring clause, it

covers “those sums that the insured becomes legally obligated to pay.” Id. at 59.

In early 2003, the Summerhill Village Condominium Owners Association (“the

Association”) first notified MacLean about alleged construction defects and resulting

property damage at the Condominium. Landschulz Decl., ¶ 7. The Association alleged

that damage was resulting from, among other things, defects in the performance of AHB’s

work on Phases 2 and 3 of the Condominium. Id., Exh. B.

While the Association and MacLean were negotiating a settlement of the defects,

MacLean filed a lawsuit against AHB (and several other subcontractors) in King County

Superior Court (“the Underlying Action”). Id., ¶ 9. MacLean sued AHB for both breach
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ORDER – 3

of contract and indemnity for MacLean’s liability to the Association. Id. AHB tendered

the defense of the Underlying Action to Charter Oak. 

On March 3, 2005, MacLean and AHB executed a Settlement Agreement,

Assignment of Rights and Covenant Not to Execute. Landschulz Decl., Exh. E

(“Settlement Agreement”). The amount of the Settlement Agreement was $1,806,219.06. 

Id. In addition, AHB assigned to MacLean all of its contractual and extra-contractual

claims and causes of action against its liability insurers, including Charter Oak. Id. In

return, MacLean agreed to enforce the Stipulated Judgment only against AHB’s insurance

companies. Id. 

On June 10, 2008, Defendant filed a Motion for Summary Judgment Re Property

Damage Issues. Dkt. 118. On July 7, 2008, Plaintiff responded. Dkt. 147. On July 11,

2008, Defendant replied. Dkt. 158.

II. DISCUSSION

A. Summary Judgment Standard

Summary judgment is proper only if the pleadings, the discovery and disclosure

materials on file, and any affidavits show that there is no genuine issue as to any material

fact and that the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c).

The moving party is entitled to judgment as a matter of law when the nonmoving party

fails to make a sufficient showing on an essential element of a claim in the case on which

the nonmoving party has the burden of proof. Celotex Corp. v. Catrett, 477 U.S. 317, 323

(1985). There is no genuine issue of fact for trial where the record, taken as a whole,

could not lead a rational trier of fact to find for the nonmoving party. Matsushita Elec.

Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986) (nonmoving party must

present specific, significant probative evidence, not simply “some metaphysical doubt.”).

See also Fed. R. Civ. P. 56(e). Conversely, a genuine dispute over a material fact exists if

there is sufficient evidence supporting the claimed factual dispute, requiring a judge or

jury to resolve the differing versions of the truth. Anderson v. Liberty Lobby, Inc., 477
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ORDER – 4

U.S. 242, 253 (1986); T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass’n, 809 F.2d

626, 630 (9th Cir. 1987).

The determination of the existence of a material fact is often a close question. The

Court must consider the substantive evidentiary burden that the nonmoving party must

meet at trial – e.g., a preponderance of the evidence in most civil cases. Anderson, 477

U.S. at 254; T.W. Elec. Serv., Inc., 809 F.2d at 630. The Court must resolve any factual

issues of controversy in favor of the nonmoving party only when the facts specifically

attested by that party contradict facts specifically attested by the moving party. The

nonmoving party may not merely state that it will discredit the moving party’s evidence at

trial, in the hopes that evidence can be developed at trial to support the claim. T.W. Elec.

Serv., Inc., 809 F.2d at 630 (relying on Anderson, supra). Conclusory, nonspecific

statements in affidavits are not sufficient, and missing facts will not be presumed. Lujan

v. Nat’l Wildlife Fed’n, 497 U.S. 871, 888-89 (1990).

B. Defendant’s Motion for Summary Judgment

Defendant moves for summary judgment on the following four issues:

1) the subject policy of insurance provides coverage only for

actual property damage proximately caused by AHB's work;

2) there is no coverage for any property damage to AHB’s own

work or own product;

3) there is no recovery under the policy for impaired property

which is not physically damaged; and

4) there is no recovery for “get to” costs which involve AHB’s

own work or own product.

Dkt. 118 at 2. 

The Ninth Circuit has set forth a three-step process to determine what claims are

covered by policies such as the one before this court: (1) whether there was an

“occurrence” giving rise to the alleged damages; (2) whether any of the alleged damages

are “property damage”; and (3) whether the property damages are nevertheless barred

from coverage by a specific exclusion under the policies. Dewitt Const. Inc. v. Charter
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1 It is important to note that the court added a fourth question regarding

“consequential damages.” See id. at 1136.

ORDER – 5

Oak Fire Ins. Co., 307 F.3d 1127, 1133 (9th Cir. 2002)1. The court considered these

questions issues of contract interpretation. Id. 

In Washington, the interpretation of insurance policy language is a question of law.

State Farm Gen. Ins. Co. v. Emerson, 102 Wn.2d 477, 480 (1984). Definitions provided

in the policy are controlling. Overton v. Consolidated Ins. Co., 145 Wn.2d 417, 427

(2002). However, if a term is left undefined, it is given the plain and ordinary meaning

found in a standard English dictionary. Id. at 428.

1. Occurrence

In this case, whether coverage has been triggered by an “occurrence” involves

questions of fact. See Dkt. 134. Plaintiff alleges damages due to AHB’s work, whereas

Defendant claims that the alleged damages were not because of AHB’s work. Id. Taking

the facts in the light most favorable to the Plaintiff, there has been “occurrence” that falls

within the policies definition.

2. Property Damage

The subject insurance contract provides that “[Defendant] will pay those sums that

the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or

‘property damage’ to which this insurance applies.” Dkt. 59-2 at 59. “Property damage”

means: (a) “physical injury to tangible property, including all resulting loss of use of that

property” or (b) “loss of use of tangible property that is not physically injured.” Id. at 69.

It is undisputed that AHB and its subcontractors (collectively “AHB”) were hired

to “install all siding, exterior wood trim, and soffits” to the buildings in question. See

Dkt. 58, Declaration of Mark Lawless ("Lawless Decl."), ¶ 8 (listing numerous other

specific duties). Plaintiff alleges property damage to the framing and sheathing of the

Condominiums. Id. ¶ 12. Plaintiff does not allege that the siding that was installed by

AHB was damaged. Id. (“the siding itself was not physically injured”). Plaintiff’s expert,
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ORDER – 6

however, concluded that “[l]ocating and repairing all of the underlying sheathing and

framing that was damaged from the defects in the siding installation required removing

and replacing all [AHB’s work].” Id. ¶ 14. Thus, the question is one of damage because

of AHB’s work and not one of damage to AHB’s work.

In Washington, for faulty workmanship to give rise to property damage, there must

be property damage separate from the defective product itself. Yakima Cement Products

Co. v. Great American Ins. Co., 93 Wn.2d 210, 216-219 (1980) (no property damage

occurred due to the incorporation of defective concrete panels where record was devoid

of evidence that the building value was diminished). See also Marley Orchard Corp. v.

Travelers Indem. Co., 50 Wn. App. 801, 806-807 (1988) (stress to trees was property

damage caused by the installation of a defective sprinkler system, unlike Yakima Cement

where there was no damage separate from the defect). 

In this case, taking the facts in the light most favorable to Plaintiff, there is

property damage separate from the defective AHB work itself. Therefore, for the

purposes of this motion, Plaintiff has shown some “property damage” that is within the

scope of the policy.

3. Applicability of Exclusions

The Court must next analyze whether any exclusion under the policies bar

coverage. See supra. Defendant bears the burden of proving that property damages that

fall within the scope of the policy are excluded from coverage. See, e.g., Am. Star Ins.

Co. v. Grice, 121 Wn. 2d 869, 874-75 (1993) (insurer bears the burden of proving that a

loss is not covered because of an exclusionary provision). Exclusions are strictly

construed against the insurer because they are contrary to the protective purpose of

insurance. See Diamaco, Inc. v. Aetna Cas. & Sur. Co., 97 Wn. App. 335, 341 (1999).

Defendant claims that three exclusions apply: (1) “your work” or “your product”

exclusion; (2) “impaired property” exclusion; and (3) “get to” costs exclusion. Dkt. 118

at 11-19.
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ORDER – 7

a. “Your work” or “Your Product”

Defendant claims that the insurance policy does not apply to the following:

j. Damage to Property

“Property damage” to:

***

(5) That particular part of real property on which you or any

contractors or subcontractors working directly or indirectly on your

behalf are performing operations, if the “property damage” arises out

of those operations; or

(6) That particular part of any property that must be restored,

repaired or replaced because “your work” was incorrectly performed

on it.

k. Damage to Your Product

“Property damage” to “your product” arising out of it or

any part of it.

l. Damage to Your Work 

“Property damage” to “your work” arising out of it or any part of it

and included in the “products-completed operations hazard.”

This exclusion does not apply if the damaged work or the work out

of which the damage arises was performed on your behalf by a

subcontractor.

Dkt. 118 at 11 (quoting insurance policy (Dkt. 59-2 at 61)).

Defendant argues that Washington courts have upheld these exclusions and that

these exclusions have been the subject of litigation around the country. Dkt. 118 at 11-

12. Whether the exclusions are enforceable is not in question; the application of these

exclusions is the question before the Court.

Defendant argues that “a general liability policy is not a performance bond or

product liability insurance.” Dkt. 158 at 9 (citing Schwindt v. Underwriters at Lloyd’s of

London, 81 Wn. App. 293, 302 (1986)). Defendant claims that Plaintiff has conceded

that there is no damage to AHB work and/or product. Dkt. 158 at 9. Defendant therefore

concludes that there is no coverage for AHB’s work or product. Id.
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ORDER – 8

Plaintiff contends that these exclusions are irrelevant because the exclusions only

bar coverage “to” AHB’s work and/or product. Dkt. 147 at 18. Plaintiff claims that it is

seeking damages for property damage caused by AHB’s faulty work and not damage to

AHB’s work. Id. Plaintiff therefore concludes that any exclusion for property damage to

AHB’s work is inapplicable to the facts of this case. Id. at 21. Although Plaintiff’s

argument essentially make these exclusions moot, Defendant is entitled to judgment on

the interpretation of these exclusions.

 Therefore, Defendant’s motion for summary judgment is granted on this issue to

the extent that the “your work” and “your product” exclusions bar coverage for damage to

AHB’s work and/or product.

b. Impaired Property or Property Not Physically Injured

Defendant claims that the insurance policy does not apply because of the following

exclusions:

m. Damage to Impaired Property or Property Not Physically Injured

“Property damage” to “impaired property” or property that has not

been physically injured arising out of:

(1 ) A defect, deficiency, inadequate or dangerous condition in “your

product” or “your work”; or

(2) A delay or failure by you or anyone acting on your behalf to

perform a contract or agreement in accordance with its terms.

This exclusion does not apply to the loss of use of other property

arising out of sudden and accidental physical injury to “your

product” or “your work” after it has been put to its intended use.

Dkt. 118 at 14 (quoting insurance policy (Dkt. 59-2 at 61)). “Impaired property” means: 

tangible property, other than “your product” or “your work,” that cannot be

used or is less useful because:

a. It incorporates “your product” or “your work” that is known or

thought to be defective, deficient, inadequate or dangerous; or

b. You have failed to fulfill the terms of a contract or agreement;

if such property can be restored to use by:
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ORDER – 9

a. The repair, replacement, adjustment or removal of “your product”

or “your work”; or

b. Your fulfilling the terms of the contract or agreement.

Dkt. 59-2 at 67. Defendant argues that Plaintiff’s alleged damages are excluded by both

the “impaired property” portion of this exclusion and the “property not physically

injured” portion of this exclusion.

Defendant initially argued that the “building is simply impaired” and, therefore,

the exclusion applies. Dkt. 118 at 16. The extent of the damage is a question of fact that

has yet to be determined. See Dkt. 134. 

Next, Defendant argues “that the impaired property exclusion applies to bar

coverage for the siding and the building paper, to which Plaintiff admits that there is no

physical damage.” Dkt. 158 at 10-11. Plaintiff, however, is not seeking coverage for

damage to the siding or building paper. Defendant further argues that “[a]bundant

evidence has been presented that the minor damage to the sheathing and framing could be

repaired through isolated removal of the siding system.” Dkt. 158 at 12. Plaintiff

contends “that if any non-policyholder work must also be repaired, then the ‘impaired

property’ exclusion does not apply.” Dkt. 147 at 23. These positions make it evident that

there is a question of fact as to what property has neither been impaired nor physically

injured because of AHB’s defective work. Therefore, Defendant’s motion for summary

judgment is denied on this issue because there is a question of material fact as to what

property will qualify for this exclusion.

c. “Get to” Costs

Defendant argues that Plaintiff should not be entitled to “get to” costs. Dkt. 118 at

16-19. Defendant does not argue that this is an enforceable exclusion of the insurance

contract. Defendant admits that this is an anticipatory argument and that Plaintiff’s

hypothetical argument is “not supported by applicable Washington law in this regard.” 

Id. at 17. Plaintiff neither responded to nor advanced any arguments that related to
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ORDER – 10

Defendant’s anticipatory “get to” costs theory. Defendant claims that, because Plaintiff

failed to respond, Defendant is entitled to summary judgment on this issue. Dkt. 158 at 2.

Defendant’s request is confusing. A party is entitled to summary judgment if

“there is no genuine issue as to any material fact and that the movant is entitled to

judgment as a matter of law.” Fed. R. Civ. P. 56(c) (emphasis added). While Defendant

argues that Plaintiff’s arguments would not be “supported by applicable Washington

law,” Defendant fails to show how its arguments are supported by applicable Washington

or Ninth Circuit law. In other words, Defendant is requesting that the Court issue an

advisory opinion on a question of first impression based on an unopposed pleading. The

Court will not accept that invitation mainly because Defendant’s arguments relate more to

the issue of consequential damages and warranty coverage than they do to supposed “get

to” costs. See Dkt. 118 at 16-19. The Court considers the former issues below. 

Therefore, Defendant’s motion for summary judgment is denied on the issue of

“get to” costs because Defendant has failed to show that it is entitled to judgment as a

matter of law.

4. Consequential Damages

The insurance policy at issue provides for indemnification of the insured for “those

sums that the insured becomes legally obligated to pay as damages because of . . .

‘property damage’ to which the insurance applies.” See supra. In construing similar

language, the Washington Court of Appeals determined that the policy allowed for

consequential damages. Marley Orchard, 50 Wn. App. at 806-807. The plaintiff in

Marley was allowed to recover for expenditures reasonably made in an effort to avoid or

minimize damages. Id. See also Gen. Ins. Co. of Am. v. Gauger, 13 Wn. App. 928, 931-

32 (1975) (finding that once the definition of property damage is satisfied, “any and all

damages flowing therefrom and not expressly excluded from the policy are covered”).

Plaintiff argues that consequential damages include not only the damaged

sheathing and framing but also the removing and replacing of all of AHB’s work. Dkt.
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ORDER – 11

147 at 14. Plaintiff claims that these damages are “because of” AHB’s defective work. 

Id. Plaintiff is requesting an overly broad definition of damages that “flow from” the

alleged deficiencies. There remains a question of fact as to what property was or is

actually damaged as opposed to merely impaired or not physically injured at all. See

supra. Thus, there is an issue of fact as to what portion of AHB’s work needed to be

removed and replaced because of damaged property as opposed to the portion of AHB’s

work that needed to be replaced simply because it was defective. Defendant claims that 

the residing “on all four walls of the 30 buildings” was the major cost of the repairs to the

Condominiums when only “minimal” framing and siding needed to replaced because of

actual water damage. Dkt 16-17. Defendant is correct when it asserts that holding the

insurer liable for replacing all of the insured’s work when only minimal damaged

property exists would turn the insurance claim into a warranty obligation. Id. at 18. 

Defendant, however, is incorrect when it asks the Court to draw the line between

insurance coverage and warranty obligations as a matter of law, especially when

questions of fact exist as to the extent of the damages. It is within the province of the

factfinder to determine what property is damaged and, therefore, what property is covered

by the insurance contract.

If the factfinder concludes that none of the sheathing or framing is barred by any

of the exclusions, then Plaintiff may recover for expenditures reasonably made in an

effort to avoid or minimize damages. Those reasonable expenditures will also be a

question of fact for the factfinder. Plaintiff may argue that the removal and replacement

of the siding is a reasonable expenditure to avoid or minimize its damages to the property. 

Defendant may counter that removing and replacing all the siding is not a reasonable

expenditure that an insurance company is required to pay and, therefore, should not be

included in this insurance action. While the Court will express no opinion on the validity

of these arguments, the parties have produced evidence showing that there exists
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ORDER – 12

sufficient questions of material fact as to the extent of damage and the expenditures

reasonably made to avoid or minimize that damage. 

Therefore, Defendant’s summary judgment motion is denied as to the issue of

limiting Plaintiff’s recovery to only the damaged sheathing and framing because there are

questions of material fact on this issue.

III. ORDER

Therefore, it is hereby

ORDERED that Defendant’s Motion for Summary Judgment Re Proprety

Damage Issues (Dkt. 118) is GRANTED in part and DENIED in part as stated herein.

DATED this 14th day of August, 2008.

A 

BENJAMIN H. SETTLE

United States District Judge