Court Opinion

ID: 8375423
Source: CourtListenerOpinion
Date Created: 2022-10-24 00:01:02.092321+00
Date Added: 2024-06-11T16:46:33.139503
License: Public Domain

USCA4 Appeal: 20-2319      Doc: 41         Filed: 10/21/2022    Pg: 1 of 16

                                            UNPUBLISHED

                               UNITED STATES COURT OF APPEALS
                                   FOR THE FOURTH CIRCUIT

                                              No. 20-2319

        BETHANY BOARDWALK GROUP LLC,

                            Plaintiff - Appellant,

                     v.

        EVEREST SECURITY INSURANCE COMPANY,

                            Defendant - Appellee.

        Appeal from the United States District Court for the District of Maryland, at Baltimore.
        Ellen Lipton Hollander, Senior District Judge. (1:18-cv-03918-ELH)

        Argued: September 13, 2022                                    Decided: October 21, 2022

        Before GREGORY, Chief Judge, and KING and HARRIS, Circuit Judges.

        Affirmed by unpublished per curiam opinion.

        ARGUED: Gregory Layton Arbogast, GEBHARDT & SMITH LLP, Baltimore,
        Maryland, for Appellant. Peter James Jenkins, JACKSON & CAMPBELL, P.C.,
        Washington, D.C., for Appellee. ON BRIEF: Lawrence J. Gebhardt, George B.
        Cunningham, GEBHARDT & SMITH LLP, Baltimore, Maryland, for Appellant. Daniel
        J. Lynn, JACKSON & CAMPBELL, P.C., Washington, D.C., for Appellee.

        Unpublished opinions are not binding precedent in this circuit.
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        PER CURIAM:

               Plaintiff Bethany Boardwalk Group LLC (“Bethany”) appeals from adverse rulings

        in which the District of Maryland denied its claim for insurance coverage under a

        commercial property insurance policy (the “Policy”) issued in 2018 by defendant Everest

        Security Insurance Company (“Everest Insurance”). Bethany initiated this civil action in

        federal court in December 2018, seeking a declaratory judgment that Everest Insurance is

        obliged to provide coverage under the Policy for roof and other damages sustained to

        Bethany’s hotel during a 2018 windstorm. By opinions rendered in 2020, the district court

        rejected Bethany’s insurance claim and its efforts to pursue further proceedings. Bethany

        has appealed those rulings and, as explained herein, we affirm the comprehensive analysis

        made by the district court.

                                                    I.

                                                    A.

               Bethany owns and operates a hotel called the Bethany Beach Ocean Suites

        Residence Inn in Bethany Beach, Delaware. Although the hotel has two buildings, only

        one — the North Building — is at issue here. When the North Building was constructed

        in 2015, a business called C.C.S. Roofing installed the hotel’s thermoplastic polyolefin

        (“TPO”) roofing system manufactured by Firestone Building Products.            A properly

        installed TPO system should have withstood wind gusts of up to 55 miles per hour.

        Broadly, the TPO roofing system consists of a concrete base, on top of which the installers

        glue successive layers of polyiso insulation boards that form the slope and shape of the

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        roof. The installers top off the insulation boards with a TPO membrane that completes the

        roofing system.

               The Policy underlying this dispute, which is made up of numerous forms outlining

        the insurance coverage provisions and their limitations, generally provides that, as the

        insurer, Everest Insurance “will pay for 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.” See J.A. 95. 1 The Business Income (and Extra Expense)

        Coverage Form of the Policy further provides that Everest Insurance “will pay for the

        actual loss of Business Income [that Bethany, as the insured] sustain[s] due to the necessary

        ‘suspension’ of [its] ‘operations’ during the ‘period of restoration,’” so long as “[t]he loss

        or damage [was] caused by or result[ed] from a Covered Cause of Loss.” Id. at 111.

               The Policy’s Causes of Loss Form — which spells out the provisions at issue here

        — outlines situations in which the Policy will and will not provide coverage. Specifically,

        the Policy provides coverage for certain perils, which the Causes of Loss Form designates

        as “Covered Causes of Loss.” See J.A. 124-33. In general, a “Covered Cause of Loss” is

        any “direct physical loss unless the loss is excluded or limited” by the Policy. Id. at 124.

        Several specific Covered Causes of Loss are described therein, including “fire; lightning;

        explosion; windstorm or hail; smoke; aircraft or vehicles; riot or civil commotion;

        vandalism; leakage from fire-extinguishing equipment; sinkhole collapse; volcanic action;

               1
                 Citations herein to “J.A. __” refer to the contents of the Joint Appendix filed by
        the parties in this appeal.
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        falling objects; weight of snow, ice or sleet; [and] water damage.” Id. at 133 (emphasis

        added).

               Meanwhile, Section B(3) of the Causes of Loss Form identifies exclusions that

        preclude insurance coverage under the Policy. As pertinent in this appeal, Section B(3)

        provides as follows:

               3. [Everest Insurance] will not pay for loss or damage caused by or resulting
               from any of the following, 3.a. through 3.c. But if an excluded cause of loss
               that is listed in 3.a. through 3.c. results in a Covered Cause of Loss, [Everest
               Insurance] will pay for the loss or damage caused by that Covered Cause of
               Loss.

                                                   * * *

               c. Faulty, inadequate or defective: . . . Design, specifications, workmanship,
               repair, construction, renovation, remodeling, grading, compaction[.]

        See J.A. 127-28 (emphasis added). The emphasized sentence of Section B(3) of the Causes

        of Loss Form is the specific Policy provision identified and discussed herein as the

        “ensuing loss clause.” See infra section II.A.

               On September 9, 2018, a windstorm struck Bethany Beach, Delaware, with wind

        gusts reaching 39.6 miles per hour and 0.11 inches of rain deposited.             During the

        windstorm, the North Building’s roof suffered a partial blow-off. As a result, the TPO

        membrane peeled back, exposing the polyiso boards and allowing rainwater to infiltrate

        the hotel’s North Building. The infiltrating water damaged the drywall and carpeting in a

        hotel room and the ceiling of the hotel’s restaurant.

               As a result of the damages suffered by and in the North Building from the

        windstorm, Bethany submitted a claim under the Policy to Everest Insurance. Everest

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        Insurance accordingly dispatched a business called Applied Engineering and Technology

        (“AET”) to inspect the damaged roof and the other damages and make a report to both

        Everest Insurance and Bethany assessing the cause of the damages to the North Building

        of the hotel (the “AET Report”). The AET Report concluded that the damages suffered

        were “mainly caused by improper installation of the Firestone TPO roof system.” See J.A.

        263. More specifically, the AET Report concluded that the polyiso insulation boards had

        been improperly glued together, which rendered the North Building’s roof susceptible to

        wind uplift pressures. Id. As a result of the AET report, Everest Insurance denied

        Bethany’s claim for insurance coverage, reasoning that “the damages sustained . . . were

        the result of faulty workmanship and improper installation,” and faulty workmanship is an

        excluded cause of loss under Section B(3)(c) of the Policy’s Causes of Loss Form. Id. at

        375-76.

                                                    B.

                                                     1.

               In December 2018, Bethany initiated this civil action against its insurer Everest

        Insurance, seeking a declaration that the Policy covers “all damages and losses sustained

        by Bethany” as a direct or consequential result of the windstorm, plus prejudgment interest.

        See J.A. 18. At the outset, the parties agreed — and jointly advised the court by letter of

        February 12, 2019 — that resolution of this litigation primarily turns on the proper

        interpretation of the Policy’s provisions. Id. at 34-35. They further advised the district

        court that the facts were largely undisputed and that it would be most efficient to first

        resolve issues of coverage and liability under the Policy and only conduct discovery later,

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        if necessary, on damages. As part of that letter agreement, Bethany consented to “accept

        the findings and conclusions of the expert retained by Everest [Insurance]” — that is, the

        AET Report. Id. Accordingly, with the court’s authorization, the parties filed cross

        motions seeking summary judgment on the issues of coverage and liability.

                                                     2.

               On March 5, 2020, the district court made its initial ruling, by which it denied

        Everest Insurance’s request for summary judgment and partially granted Bethany’s cross

        motion for summary judgment. See Bethany Boardwalk Group LLC v. Everest Sec. Ins.

        Co., No. 1:18-cv-3918 (D. Md. Mar. 5, 2020), ECF No. 34 (the “Coverage Ruling”). More

        specifically, the Coverage Ruling concluded that the Policy required Everest Insurance to

        cover Bethany’s costs incurred repairing the hotel’s interior water damage and the resulting

        lost business income, because those damages and losses were caused by the windstorm,

        which is a Covered Cause of Loss. Id. at 28. The Coverage Ruling also determined,

        however, that the Policy did not oblige Everest Insurance to cover the costs of repairing

        the North Building’s roof because that damage had been caused by faulty workmanship,

        which is an excluded cause of loss. Id.

               Bethany promptly requested the district court to reconsider its decision in the

        Coverage Ruling that Everest Insurance was not obliged to pay for any of the repairs to the

        hotel’s roof. Bethany claimed that Everest Insurance should pay for repairs to any portion

        of the hotel roof that had been properly installed but damaged during the windstorm.

        Bethany maintained that the AET Report only established that the polyiso boards had been

        improperly installed, but offered no opinion as to the TPO membrane. Bethany supported

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        its motion for reconsideration with the affidavit of an expert named Brad Kauffman, who

        had overseen the repairs to the North Building’s roof. See J.A. 421 (the “Kauffman

        Affidavit”). Kauffman summarized the findings of his roof inspection, which confirmed

        the AET Report’s conclusion that the polyiso boards had been improperly glued together,

        but opined that the TPO membrane had been properly installed onto the polyiso boards.

        Kauffman further opined that the cost of replacing the polyiso boards had been around

        $135,000, while replacing the TPO membrane had cost another $150,000. Accordingly,

        Bethany requested that the court reconsider the portion of its Coverage Ruling regarding

        coverage of the roof repairs and then require Everest Insurance to cover and pay for the

        replacement costs of the non-defective portion of the North Building’s roof — that is, the

        TPO membrane.

               After the Coverage Ruling was filed, Bethany also sought to amend its complaint,

        seeking primarily to add a claim for litigation expenses related to a third-party lawsuit that

        Bethany had pursued in a Maryland state court against C.C.S. Roofing, the entity that had

        installed the defective North Building roof in 2015. 2 Bethany also sought by its motion to

        amend to add allegations to the complaint that were drawn from the Kauffman Affidavit

        — specifically, that the TPO membrane had been properly installed, and that the costs of

               2
                 Bethany has acknowledged in its appellate submissions that the Maryland state
        court proceedings against C.C.S. Roofing have been settled. Pursuant thereto, Bethany
        recovered, according to its initial brief in this appeal, “both a substantial portion of its claim
        against Everest under the [P]olicy and its attorneys’ fees and litigation expenses in the suit
        against Everest.” See Br. of Appellant 14-15.
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        repairing the polyiso boards and of repairing the TPO membrane were separate and

        “distinct” costs. See J.A. 468-69.

               For its part, Everest Insurance filed a second motion for summary judgment,

        requesting the district court to further declare that under the Policy’s applicable deductible,

        Everest Insurance did not owe Bethany any coverage. More specifically, Everest Insurance

        contended that the expenses for which the court had found it liable — the interior water

        damage and resulting lost business income — did not exceed the Policy’s $100,000

        deductible.

                                                      3.

               On December 2, 2020, the district court disposed of the three motions filed after the

        Coverage Ruling — those being Bethany’s motion to reconsider, Bethany’s motion to

        amend, and Everest Insurance’s second motion for summary judgment. See Bethany

        Boardwalk Group LLC v. Everest Sec. Ins. Co., No. 1:18-cv-3918 (D. Md. Dec. 2, 2020),

        ECF No. 55 (the “Final Decision”). First, the Final Decision denied Bethany’s motion to

        reconsider, ruling that Bethany had failed to show that the Coverage Ruling was erroneous

        and did not allege any new or substantially different evidence. Id. at 16-18. The Final

        Decision then denied Bethany’s motion to amend its complaint, reasoning that the proposed

        amendments were futile and, if allowed, would unduly prejudice Everest Insurance. Id. at

        29. Finally, because Bethany did not dispute Everest Insurance’s contention that Bethany’s

        losses due to interior water damage and lost business income do not exceed $100,000 —

        the applicable deductible under the Policy — the Final Decision granted Everest

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        Insurance’s second motion for summary judgment. Id. at 32. Bethany has timely noted

        this appeal, and we possess jurisdiction pursuant to 28 U.S.C. § 1291.

                                                        II.

               On appeal, Bethany challenges the district court’s judgment in multiple respects.

        First, Bethany challenges the Coverage Ruling’s determination, in its denial of Bethany’s

        summary judgment motion, that the Policy does not cover the costs of repairing the North

        Building’s roof damage. More specifically, Bethany relies on the “ensuing loss clause”

        and maintains that the Policy covers all damages sustained as a result of the windstorm,

        including all damages to the North Building’s roof. Next, Bethany challenges the Final

        Decision’s denial of its motion to reconsider, contending that, even if the Policy does not

        cover the costs of repairing the entire North Building roof, it nevertheless covers the costs

        of repairing the TPO membrane, which had been properly installed but was damaged by

        the windstorm. Finally, Bethany challenges the Final Decision’s denial of the motion to

        amend its complaint, contending that, if Bethany ultimately succeeds on its breach of

        contract claim, it is entitled to recover the litigation expenses incurred as a result of its state

        court proceedings against C.C.S. Roofing. We assess and dispose of Bethany’s appellate

        contentions in turn.

                                                        A.

               We first assess Bethany’s contention that the district court erred in its Coverage

        Ruling partially denying Bethany’s summary judgment motion by deciding that the Policy

        does not cover any of the costs of repairing the North Building roof. We review a summary

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        judgment ruling de novo, “applying the same legal standards as the district court and

        viewing all facts in the light most favorable to the nonmoving party.” See W.C. Eng., Inc.

        v. Rummel, Klepper & Kahl, LLP, 934 F.3d 398, 402-03 (4th Cir. 2019) (internal quotation

        marks omitted). An award of summary judgment is appropriate “if the movant shows that

        there is no genuine dispute as to any material fact and the movant is entitled to judgment

        as a matter of law.” See Fed. R. Civ. P. 56(a).

               In initially requesting summary judgment, Bethany maintained that Everest

        Insurance had improperly denied coverage that was required under the Policy. More

        specifically, Bethany identified and relied on the Policy’s “ensuing loss clause,” which

        provides that “if an excluded cause of loss that is listed in 3.a through 3.c [i.e., faulty

        workmanship] results in a Covered Cause of Loss, [Everest Insurance] will pay for the loss

        or damage caused by the covered cause of loss.” See J.A. 127. In other words, Bethany

        claimed that the Policy’s ensuing loss clause provides for coverage when, despite the

        exclusions specified, “a separate, independent, and subsequent Covered Cause of Loss

        causes or contributes to the loss.” Id. at 37.

               Arguing its view of the applicable Maryland law, Bethany maintained that, because

        Section B(3) does not limit the degree to which the covered cause of loss must contribute

        to the claimed damages — which Everest Insurance could have accomplished by writing a

        more explicit Policy — the fact that a covered cause of loss contributed concurrently with

        an excluded cause of loss is sufficient to provide coverage for all damages to the North

        Building that resulted from the windstorm. Accordingly, Bethany requested the district

        court to declare that Everest Insurance was liable under the Policy for the costs of replacing

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        the North Building’s entire roof, repairing the hotel’s internal water damage, and

        compensating Bethany for the business income it had lost as a result of those damages.

              Put most simply, we agree with the district court. Recognizing in its Coverage

        Ruling that state courts around the country are split between two approaches for

        interpreting an “ensuing loss clause,” the court acknowledged that whether an ensuing loss

        clause provides coverage when a covered cause of loss and an excluded cause of loss

        concurrently cause damages is a novel question that the Maryland courts have not

        heretofore resolved. Under the majority approach taken by the states that have addressed

        that issue, an ensuing loss clause does not cover damages resulting in part from a defect

        when “the very risk raised by the flawed construction came to pass.” See TMW Enters.,

        Inc. v. Fed. Ins. Co., 619 F.3d 574, 577 (6th Cir. 2010). Instead, the damages must result

        from “an independent or fortuitous intervening cause.” See Taja Invs. LLC v. Peerless Ins.

        Co., 717 F. App’x 190, 192 (4th Cir. 2017); Costco Wholesale Corp. v. Commonwealth

        Ins. Co., 45 F. App’x 646 (9th Cir. 2002).

               Under the minority approach, on the other hand, an ensuing loss clause will provide

        insurance coverage for damages caused by a covered cause of loss — even when an

        excluded cause of loss like faulty workmanship contributed to the damages — but not for

        the costs of repairing the excluded cause of loss. See e.g., Arnold v. Cincinnati Ins. Co.,

        276 Wis. 2d 762 (2004). In other words, that approach distinguishes between the original

        defective work and other property damages. See e.g., Eckstein v. Cincinnati Ins. Co., 469

        F. Supp. 2d 445, 462 (W.D. Ky. 2007). For example, in the Arnold case, the Wisconsin

        Supreme Court ruled that, when a rainstorm leaked through defective caulking and caused

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        interior water damage, the ensuing loss clause provided insurance coverage for repairing

        the water damage — which was a cause of loss covered under the applicable policy — but

        not for repairing the faulty caulk, in that faulty workmanship was an excluded cause of loss

        under the applicable policy. See Arnold, 276 Wis. 2d at 719.

               In its Coverage Ruling, the district court explained that it did not need to “predict

        how the Maryland Court of Appeals would read the ensuing loss clause, because the result

        is the same under either approach.” See Coverage Ruling 27. That is, the Policy does not

        cover the costs of repairing the North Building roof, but it covers the costs of repairing the

        interior water damage and the resulting lost business income. As the court explained, it

        was undisputed that, “but for the defective installation, the roof should have withstood the

        wind.” Id. at 28. Therefore, as the Coverage Ruling reasoned, the very risk implicated by

        the faulty workmanship — the roof being blown off — had actually occurred, and it would

        not be covered under the majority approach. Moreover, the North Building roof repairs

        also would not be covered under the minority approach because the improper adhesion of

        the polyiso boards was faulty workmanship, which Section B(3)(c) of the Causes of Loss

        Form excludes from coverage. The water damage to the hotel, on the other hand, was

        caused by the rain that occurred during the windstorm. Because water damage is not a risk

        implicated by the faulty workmanship on the North Building roof, and the windstorm —

        an independent and fortuitous intervening cause — is a covered cause of loss, there is

        coverage under the Policy for all other damages caused by the windstorm under both

        approaches that are utilized to interpret ensuing loss clauses. Id. at 28-29.

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               Put succinctly, we are constrained to reject Bethany’s challenge with respect to the

        Policy’s ensuing loss clause.      That is, we agree with the district court that faulty

        workmanship — an excluded cause of loss — caused the North Building’s roof damage.

        Everest Insurance is therefore not liable for the costs of any of the hotel’s roof repairs under

        the ensuing loss clause.

                                                      B.

               We turn next to Bethany’s appellate contention that the district court erred in the

        Final Decision by denying Bethany’s motion to reconsider the Coverage Ruling. That

        motion is pursued under Federal Rule of Civil Procedure 54(b), and we review the denial

        of such a motion for abuse of discretion. See Carlson v. Bos. Sci. Corp., 856 F.3d 320, 325

        (4th Cir. 2017). As a threshold matter, a trial court should only reconsider and revise an

        earlier ruling in three narrow circumstances: (1) if the trial produces substantially different

        evidence; (2) if there is a change in applicable law; or (3) when the court has committed a

        clear error resulting in a manifest injustice. See U.S. Tobacco Coop. Inc. v. Big South

        Wholesale of Va., LLC, 899 F.3d 236, 257 (4th Cir. 2018). Of importance, a motion to

        reconsider is not an opportunity for a losing party to present evidence that it could have

        presented before the adverse ruling. See Carlson, 865 F. 3d at 325. And it is not sufficient

        for a party to show that legal precedent could support an alternative resolution. As we have

        said, a successful challenge to a trial court’s order under Rule 54(b) must be “wrong with

        the force of a five-week-old, unrefrigerated dead fish.” See TFSW, Inc. v. Franchot, 572

        F.3d 186, 194 (4th Cir. 2009).

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               Simply put, we discern no abuse of discretion with respect to the Final Decision’s

        denial of Bethany’s motion to reconsider. By its motion, Bethany maintained that, because

        only the polyiso boards were improperly installed, the Policy requires Everest Insurance to

        cover the repairs to the TPO membrane. To support its position, Bethany relied on the

        AET Report, which concluded that the polyiso boards were improperly installed, and the

        Kauffman Affidavit, which confirmed that conclusion and opined that the TPO membrane

        was properly installed. The district court explained, however, that the Kauffman Affidavit

        did not present any new evidence. It simply highlighted material that was available to

        Bethany throughout the court proceedings. Moreover, Bethany failed to present any

        controlling precedent that would support its proposed position of isolating the costs of

        repairing the defective polyiso boards from the costs of repairing the assertedly non-

        defective TPO membrane. In these circumstances, the district court did not abuse its

        discretion in declining to reconsider its Coverage Ruling.

                                                    C.

               Finally, we turn to the contention that the district court erred in denying Bethany’s

        request for leave to amend its complaint. We review the denial of such a motion for abuse

        of discretion. See Laber v. Harvey, 438 F.3d 404, 428 (4th Cir. 2006) (en banc). Federal

        Rule of Civil Procedure 15(a)(2) provides a court with wide discretion to grant a motion to

        amend when “justice so requires.” That discretion, however, is not unlimited: a court

        should deny such a motion, inter alia, if the amendment would be futile or would prejudice

        the opposing party. See Davison v. Randall, 912 F.3d 666, 690 (4th Cir. 2019). Generally,

        a proposed amendment will unduly prejudice the nonmoving party if it “raises a new legal

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        theory that would require the gathering and analysis of facts not already considered by the

        opposing party.” See Johnson v. Oroweat Foods Co., 785 F.2d 503, 510 (1986).

               In these circumstances, we are satisfied that the district court did not abuse its

        discretion in ruling that Bethany’s proposed amendments were futile or in deciding that its

        approval of them would unduly prejudice Everest Insurance. Bethany sought primarily to

        augment its breach of contract claim with a request for recovery of the litigation expenses

        it had incurred in pursuing its state court lawsuit against C.C.S. Roofing. Bethany was

        contending that Everest Insurance should be liable for those fees and costs under the

        collateral litigation doctrine, which can authorize the recovery of such items when the

        defendant’s wrongful conduct has necessitated third-party litigation. See E. Shore Title

        Co. v. Ochse, 453 Md. 303, 330 (2017). Bethany also sought to make new factual

        allegations in its complaint that were predicated on the views set forth in the Kauffman

        Affidavit.

               As the Final Decision ruled, however, Bethany’s proposed new claim is futile

        because the collateral litigation doctrine does not apply here. Bethany had waited more

        than a year to initiate its state court lawsuit and failed to demonstrate to the district court

        that the state court litigation was a necessary result of Everest Insurance’s denial of

        coverage. Moreover, the court did not abuse its discretion by ruling in the Final Decision

        that the proposed amendments would unduly prejudice Everest Insurance. Indeed, the

        parties had agreed to an expedited schedule and not to conduct discovery on the issues of

        coverage and liability. As the Final Decision recognized, it would unduly prejudice Everest

        Insurance to allow Bethany to produce additional evidence supporting a novel theory of

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        liability after initially losing on that issue. Accordingly, the Final Decision did not err in

        denying Bethany’s motion to amend.

                                                     III.

               Pursuant to the foregoing, we are unable to identify any reversible error committed

        by the district court in the underlying proceedings. 3 We are therefore satisfied to affirm

        the well-considered and thoroughly explained rulings made by the district court in the

        Coverage Ruling and in the Final Decision.

                                                                                         AFFIRMED

               3
                  With respect to the Final Decision’s award of summary judgment to Everest
        Insurance, Bethany concedes on appeal that its claim for coverage of the interior water
        damage and loss of business does not exceed the applicable deductible of the Policy. As a
        result, the summary judgment awarded to Everest Insurance in the Final Decision is proper
        unless Everest Insurance is liable for the North Building’s roof damages. Because we
        affirm the district court’s ruling that Everest Insurance is not liable for those roof damages,
        the Final Decision’s summary judgment award is not disturbed. See Br. of Appellant 16.
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