Court Opinion

ID: 9881263
Source: CourtListenerOpinion
Date Created: 2023-09-29 21:01:27.762901+00
Date Added: 2024-06-11T14:11:40.461541
License: Public Domain

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

SOUTH CAPITOL BRIDGEBUILDERS
(“SCB”), a joint venture composed of ARCHER
WESTERN CONSTRUCTION, LLC and
GRANITE CONSTRUCTION COMPANY,

Plaintiff,
Vv. Case No. 21-cv-1436 (RCL)
LEXINGTON INSURANCE COMPANY,

Defendant.

MEMORANDUM OPINION

This diversity case is before the Court on cross-motions for summary judgment and
concerns the interpretation of an insurance policy issued by defendant Lexington Insurance
Company (“Lexington”) to plaintiff South Capitol Bridgebuilders (“SCB”). SCB was hired to
build the Frederick Douglas Memorial Bridge and obtained a “builder’s risk policy” and
endorsements thereto from Lexington. In building and integrating the supportive structures of the
bridge, SCB’s poor vibration of concrete resulted in construction malformations known as
“honeycombing” and “voiding,” which harmed the structural integrity of the bridge. As a result,
SCB had to replace sizable portions of the bridge’s supportive structures. Believing that the
insurance agreement provided coverage for those expenses, SCB sought reimbursement. However,
Lexington, relying on its interpretation of the insurance policy, refused to pay. SCB then brought

this suit seeking damages for breach of contract and bad faith.
Before the Court are SCB’s Motion for Partial Summary Judgment on the breach of
contract claim, ECF No. 66, and Lexington’s Cross-Motion for Summary Judgment on the breach
of contract claim and on SCB’s bad faith claim, ECF No. 68. SCB has not filed for summary
judgment on the bad faith claim. Neither party disputes that concrete repair expenses were
necessitated by deficiencies in SCB’s workmanship. They simply disagree over whether the
insurance policy provides coverage—a question of law. Because the material facts are not in
dispute, Lexington’s liability under the policy is an appropriate question for summary judgment.

Upon consideration of the parties’ briefing, the record, and the applicable law, the Court
will GRANT SCB’s motion and DENY Lexington’s motion.

I BACKGROUND

A. The Insurance Policy and The Extension
SCB began building the Frederick Douglass Memorial Bridge in Washington, D.C. in the
summer of 2017. Compl. § 22, ECF No. 1.! SCB obtained a “completed value builder’s risk”
insurance policy from Lexington to cover the period from July 13, 2017 to January 1, 2022. Id. 4
2, 13. The Policy agreement insured against “all risks of direct physical loss of or damage to
insured property.” Exhibit 1, ECF No. 1-1, at 9. The Policy defined “Property Insured” to include
“Permanent Works” and “Temporary Works.” PSMF { 13. “Permanent Works” included “{a]ll

materials, supplies, equipment, machinery, and other property of a similar nature . . . when used

' Among the documents considered in connection with the pending motion are: Complaint (“Compl.”), ECF No. 1;
Completed Value Builders Risk Policy (“the Policy”), Exhibit 1, ECF No. 1-1; Plaintiff's Motion for Partial Summary
Judgment (“P1. Mot.”’), ECF No. 66; Plaintiff's Statement of Material Facts as to Which There Is No Genuine Dispute
(“PSMF’”), ECF No. 67-1; Defendant Lexington Insurance Company’s Cross-Motion for Summary Judgment (“Def.
Mot.”), ECF No. 68; Defendant Lexington Insurance Company’s Statement of Material Facts as to Which There Is
No Genuine Dispute (““DSMF”), ECF No. 68; Defendant Lexington Insurance Company’s Response to Plaintiff's
Statement of Material Facts as to Which There Is No Genuine Dispute (“DR”), ECF No. 68. Plaintiff's Reply
Memorandum in Further Support of Its Motion for Partial Summary Judgment and in Opposition to Lexington’s Cross-
Motion for Summary Judgment (“PRM”), ECF No. 70; and Defendant Lexington Insurance Company’s Reply in
Support of Its Cross-Motion for Summary Judgment (“DRM”), ECF No. 72. Other documents were considered but
are not cited to in this memorandum opinion.
or to be used in or incidental to the demolition of existing structures, site preparation, fabrication
or assembly, installation or erection or the construction of or alteration, renovation, rehabilitation
of the Insured Project.” /d. § 14. The Policy defined “Temporary [W]orks” as “fa]ll scaffolding,
form work, fences, shoring, hoarding, falsework, and temporary buildings all incidental to the
project.” /d. § 15.

Part B(1) of The Policy, entitled “Perils Excluded,” explicitly excluded certain items from
coverage under the Policy. Part B(1) states in pertinent part:

This policy shall not pay for loss, damage or expense caused directly or indirectly by any
of the following.

[...]

(B) Faulty or defective workmanship or materials, unless direct physical loss or damage by
an insured peril ensues and then this policy will cover for such ensuing loss or damage
only;

(C) Fault, defect, error, deficiency or omission in design, plan or specification, unless direct

physical loss or damage by an insured peril ensues and then this policy will cover for such

ensuing loss or damage only;
Id. § 20. Multiple terms within these items go undefined in the Policy, including “insured peril,”
“physical loss,” and “damage.”

The Policy also included endorsements that modified the insurance provided by the Policy.

See PSMF J 22. Among these endorsements was the LEG 3 Defect Extension (“the Extension”).
Id. The Extension explicitly replaced some of the language in the “Perils Excluded” section of the

Policy.’ Jd. 23. The Extension also provided a definition for the word “damage” as used in the

Extension and a limitation on “damage” as used throughout the Policy.

? Due to a scrivener’s error in the endorsement, which the Court will detail more thoroughly in its analysis, the
LEG 3 Defect Extension also implicitly replaces other language in Part B(1).

3
The Extension states in pertinent part:

Perils Excluded, Item C. is deleted and replaced by the following:

All costs rendered necessary by defects of material workmanship, design, plan, or
specification and should damage (which for the purposes of this exclusion shall
include any patent detrimental change in the physical condition of the Insured
Property) occur to any portion of the Insured Property containing any of the said
defects, the cost of replacement or rectification which is hereby excluded is that

cost incurred to improve the original material workmanship design plan or
specification.

For the purpose of this policy and not merely this exclusion it is understood and

agreed that any portion of the Insured Property shall not be regarded as damaged

solely by virtue of the existence of any defect of material workmanship, design,

plan, or specification.

All other terms and conditions of the policy remain the same.
Id. 23.

B. The Bridge Construction, Honeycombing, and Voiding

Before the Court fully delves into the insurance policy construction issues at the core of
this case, it must first outline the bridge construction issues that brought the parties to this point.

The design of the Frederick Douglass Memorial Bridge includes cast-in-place concrete
substructure elements and a composite deck supported by three consecutive steel arches on each
side of the bridge. Jd. § 24. Those three arches are supported on concrete abutments on the east
and west sides of the Anacostia River and two concrete V-shaped piers (“piers”) which provide
support more towards the center of the river. See id. From those three arches, cables are hung
which connect the arches to the bridge deck. See DSMF 6. Together, the abutments, piers, and
arches work together to support the weight of the bridge. See id.

Starting in August and continuing through early September 2019, SCB poured concrete for

the bridge’s abutments and two piers. Compl. 24. SCB cast these structures in place using molds

called formworks, DSMF 4 6. Due to the magnitude of the abutments and piers, concrete was
placed in separate pours, or “lifts.” Jd. § 6, 7, 9. SCB completed each abutment in three pours and
each pier in four pours. /d. J 7, 9. While pouring the lower sections of the abutments and piers,
workers stood inside the formwork and vibrated the concrete to ensure even placement. Compl.
4] 25. These vibrations were necessary to ensure that the concrete reached all areas of the formwork.
DSMEF 4 11. This same process, however, was not feasible during concrete placement at the tips
of the abutments and piers. PSMF § 32. As a next-best measure, SCB placed access holes in the
side of the tip-section formwork to allow workers to vibrate the concrete. Compl. § 25. However,
due to inadequate vibration of concrete during placement, once the concrete dried and workers
removed the formwork, SCB observed structural deformities referred to as “honeycombing” and
“voiding” in the concrete. Id. § 27, 29.

Honeycombing is a structural weakness caused by porosity in concrete. DSMF 4 7. Some
honeycombing can be relatively minor where concrete simply does not have a “smooth finish.” Jd.
This sort of “cosmetic” honeycombing is common and can be repaired by simply “mixing up some
cement and sand and smearing it in the holes.” Jd. However, other types of honeycombing can be
more deleterious. Significant honeycombing is referred to as “voiding” and can diminish
concrete’s weightbearing capacity. See PSMF 4 34. Both minor honeycombing and voiding were
observed once SCB removed the formworks on the piers. /d.; DSMF § 7, 10. The voiding included
holes in the concrete “measuring several feet wide and deep [,] visible to the naked eye.” PSMF 4
35. Further, the effect of these voids on the structural integrity of the bridge were not merely
theoretical. Indeed, SCB maintains—and Lexington does not dispute—that “[a]fter the flawed

concrete was appended to the existing load bearing sections of the bridge, the structure was no
longer able to support the weight of the bridge.”? PSMF § 34; See DSMF; Exhibit F, ECF No. 67,
at 28 (“[The abutment] could support the dead load of the structure, but it had been damaged to
the point it could not support the live load of the next stages of construction.”). A consulting service
retained by Lexington concluded that the honeycombing was a result of workmanship-related
issues, including inadequate vibration during placement, that resulted in poor consolidation of the
concrete. Exhibit 2, ECF No. 1-2, at 3. SCB does not dispute this finding.

The honeycombing and voiding required SCB to cease work and undertake repairs. Compl.
{| 27-30. While minor honeycombing was repaired with cosmetic patching, more serious
honeycombing and voiding required significant alteration. On the piers, SCB chipped away soft,
unsound concrete and replaced it with new concrete. DSMF {ff 7, 10. To repair the voids in the
abutments, SCB sawed off the last 17 feet of the abutments and replaced them. Jd. SCB maintains
that the flawed concrete required it to shore the structures to prevent collapse and undertake repairs
in excess of $2.2 million; Lexington contests this amount. See DR ¥ 1.4

C. Lexington Rejects SCB’s Claim for Reimbursement

On October 24, 2019, SCB filed a claim with Lexington seeking reimbursement for the
cost of repair. Compl. | 33. Lexington denied coverage once on April 19, 2020, and when SCB
requested reconsideration of that determination, Lexington denied coverage once again on May
18, 2020. Id. f§ 44, 47. Following those unsuccessful requests for reimbursement, SCB

commenced an action alleging breach of contract and bad faith in the U.S. District Court for the

3 Local Rule 7(h)(1) of this Court notes that “[iJn determining a motion for summary judgment, the Court may
assume that facts identified by the moving party in its statement of material facts are admitted, unless such a fact is
controverted in the statement of genuine issues filed in opposition to the motion.” The purpose of the rule is to aid
courts in deciding motions for summary judgment by refining the record to focus on disputed factual issues. Burke v.
Gould, 286 F.3d 513, 517 (D.C. Cir. 2002).

* Lexington correctly acknowledges that a damages determination is premature at this juncture. DR § 1. The parties
have previously agreed that expert discovery on that issue would follow this threshold determination of coverage. See
ECF No. 53.
Northern District of Illinois. Compl. {] 1. The case was transferred to this Court. This Court has
subject-matter jurisdiction pursuant to 28 U.S.C. § 1332(a)(1) as there is complete diversity of
citizenship between the parties and the amount in controversy exceeds the jurisdictional minimum.
Compl. 4 9. SCB moved under Fed. R. Civ. P. 56(a) for partial summary judgment on its breach
of contract claim. Pl. Mot. Lexington cross-moved for summary judgment on the breach of contract
claim and moved for summary judgment on the bad faith claim. Def. Mot.
Il. LEGAL STANDARD
A. Applicable Law

Both parties agree that Illinois insurance law governs the Policy agreement. See Pl. Mot.
at 3; Def. Mot. at 11.° In Illinois, interpretation of an insurance policy is a question of
law. Outboard Marine Corp. v. Liberty Mut. Ins. Co., 607 N.E.2d 1204, 1212 Il. 1992). “In
construing the language of [an insurance] policy, the court’s primary objective is to ascertain and
give effect to the intent of the parties to the contract.” Traveler’s Ins. Co. v. Eljier Mfg., Inc.,757
N.E.2d 481, 491 (Ill. 2001). “In order to ascertain the meaning of the policy’s language and the
parties’ intent, the court must construe the policy as a whole and ‘take into account the type of
insurance purchased, the nature of the risks involved, and the overall purpose of the contract.’” Jd.
(quoting Am. States Ins. Co. v. Koloms, 687 N.E.2d 72 (ill. 1997)). Indeed, “[a]ll the provisions of
the insurance contract, rather than an isolated part, should be read in light of each other to

determine whether an ambiguity exists.” F.D..C. v. Am. Cas. Co. of Reading, Pa., 998 F.2d 404,

> The parties quarrel over the operative choice of law rules. As this Court explained in a previous opinion in this case,
Illinois courts engage in choice-of-law analysis only “if there is a conflict between Illinois law and the law of another
state such that a difference in law will make a difference in the outcome.” Bd. of Forensic Document Examiners, Inc.
v. Am. Bar Ass ‘n, 922 F.3d 827, 831 (7th Cir. 2019) (internal quotation marks and citation omitted); accord Townsend
v. Sears, Roebuck & Co., 879 N.E.2d 893, 898 (Ill. 2007). Thus, Lexington correctly asserts that if there was a
substantive conflict between Ilinois and District of Columbia law in this case, District of Columbia law would apply.
Def. Mot. at 11. However, because no such conflict has been demonstrated to exist, Illinois law applies.

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408 (7th Cir. 1993) (quoting Dash Messenger Serv., Inc. v. Hartford Ins. Co. of Illinois, 582 N.E.2d
1257, 1260 (1991)) (internal quotations omitted).

When an insured sues their insurer over a denial of coverage, “the insured has the burden
of proving that his loss falls within the terms of his policy.” ABW Dev., LLC v. Cont'l Cas. Co.,
203 N.E.3d 922, 928 (Ill. 2022). If an insured establishes a prima facie case, the burden shifts to
the insurer to demonstrate that the loss resulted from an expressly excluded peril. Johnson Press
of Am., Inc. v. N. Ins. Co. of New York, 791 N.E.2d 1291, 1298 (2003). Further, “it is the insurer's
burden to affirmatively demonstrate the applicability of an exclusion.” Jd. at 1298.

If the words of a policy are clear and unambiguous, a court must afford them their plain,
ordinary, and popular meaning. Eljier, 757 N.E.2d at 496. Moreover, courts will not create an
ambiguity where there is none. See id. at 491. However, if the language of a policy is subject to
more than one reasonable interpretation, “an ambiguity exists which must be resolved in favor of
coverage.” F.D.I.C. v. Am. Cas. Co. of Reading, Pa., 998 F.2d 404, 408 (7th Cir. 1993). This rule
of strictly construing ambiguous provisions against the insurer is “most rigorously” applicable to
“ambiguous exclusionary provisions in which the insurer seeks to limit its liability.” Playboy
Enterprises, Inc. v. St. Paul Fire & Marine Ins. Co., 769 F.2d 425, 428 (7th Cir. 1985). Thus,
exclusionary provisions are applied to deny the insured coverage only where their terms are “clear
definite, and explicit.” Jd.

B. Summary Judgment
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.” Fed. R. Civ.
P. 56(a).° A fact is material when it “might affect the outcome of the suit” under the governing
substantive law. Anderson vy. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). And a dispute is
genuine if “the evidence is such that a reasonable jury could return a verdict for the nonmoving
party.” Jd. The movant bears the burden of “identifying those portions of the record it believes
‘demonstrate the absence of a genuine issue of material fact.’” White v. Wash. Nursing Facility,
206 F. Supp. 3d 137, 143 (D.D.C. 2016) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 322
(1986)). Once the movant has made an “adequate showing that a fact cannot be disputed, the
burden then shifts to the party opposing summary judgment to ‘set forth specific facts showing
that there is a genuine issue for trial.’” Jd. (quoting Anderson, 477 U.S. at 250). Summary judgment
is also proper if the non-movant “fails to make a showing sufficient to establish the existence of
an element essential to that party’s case, and on which that party will bear the burden of proof at
trial.” Jd. (quoting Celotex Corp., 477 U.S. at 322).

A party asserting that a fact cannot be genuinely disputed, or that a fact is genuinely
disputed, must support that assertion by either (a) “citing to particular parts of materials in the
record,” or (b) “showing that the materials cited do not establish the absence or presence of a
genuine dispute or that an adverse party cannot produce admissible evidence to support the fact.”
Fed. R. Civ. P. 56(c)(1)(A)-{B). When considering a motion for summary judgment, the Court
must view the evidence in the light most favorable to the non-movant and draw all reasonable
inferences in favor of the non-movant. Holcomb v. Powell, 433 F.3d 889, 895 (D.C. Cir. 2006).
The party opposing summary judgment, however, “may not rest upon the mere allegations or

denials of his pleading, but .. . must set forth specific facts showing that there is a genuine issue

° The Court notes that this case comes on cross-motions for summary judgment. In effect, the parties have agreed that
only questions of law are involved and invited the Court to decide the issues based on the record.
for trial.” Anderson, 477 U.S. at 248. Finally, in assessing summary judgment, a court may not
make credibility determinations or weigh evidence. Jd. at 255.

III. DISCUSSION

A. The Damage Alleged by SCB is Unambiguously Within the Scope of Coverage

To prove that Lexington breached the Policy, SCB must first meet its prima facie burden
of establishing coverage for its claini. Johnson Press of Am., Inc. v. N. Ins. Co. of New York, 791
N.E.2d 1291, 1298 (II. App. Ct. 2003). SCB clears this hurdle. The “completed value builder’s
risk” policy that Lexington issued SCB insured against “all risks of direct physical loss of or
damage to insured property.” Exhibit 1, ECF No. 1-1, at 9. There is no dispute that the Policy
insured the piers and abutments. PSMF 4 25, Def. Mot. at 19 (““SCB contends that the Bridge V-
Piers [sic] and abutments constitute ‘insured property’ under the policy, a proposition with which
Lexington does not quarrel.”). The sole disagreement on the issue of coverage is whether “damage”
is properly understood to include the costs of fixing the concrete flaws that weakened the bridge.
The answer is unambiguously yes.

“Damage,” as used in the Policy’s coverage provision, encompasses SCB’s claim for
reimbursement. See F.D.I.C. v. Am. Cas. Co. of Reading, Pa., 998 F.2d 404, 408 (7th Cir. 1993).
As a preliminary matter, the term “damage” goes undefined in the body of the Policy. Thus, the
Court must turn to the plain, ordinary, and popular meaning of term. Traveler’s Ins. Co. v. Eljier
Mfg., Inc.,757 N.E.2d 481, 496 (Ill. 2001). Damage is defined as “loss or injury to person or
property” or “any bad effect on something.” Damage, Black’s Law Dictionary (10th ed. 2014). On
the undisputed facts, SCB’s inadequate vibration caused a decrease in the weightbearing capacity
of the bridge and its support structures. PSMF 4 34. A decreased weightbearing capacity is surely

an injury, or at the very least a bad effect, on the bridge and its support structures.

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The Court’s assessment of the meaning of “damage” need not end with the dictionary.
Under Illinois law, to determine ambiguity, the court looks not merely to an “isolated part” but
rather to “[a]ll the provisions of the insurance contract.” F.D.J.C., 998 F.2d at 408 (7th Cir. 1993)
(quoting Dash Messenger Serv., Inc. v. Hartford Ins. Co. of Illinois, 582 N.E.2d 1257, 1260 ( Ill.
App. Ct. 1991)) (internal quotations omitted). While the Court is not determining the applicability
of exclusions at this stage, reviewing the “Perils Excluded” section of the Policy alongside the
coverage provision provides further evidence that malformities stemming from defects in material
workmanship are unambiguously within the scope of coverage. Item B in the “Perils Excluded”
section provides a broad exclusion for “loss, damage or expense caused directly or indirectly
by . .. [flaulty or defective workmanship or materials.” PSMF § 20. Setting aside the effect of this
exclusion for the moment, the clear implication of Item B is that “faulty or defective workmanship”
can cause “loss, damage, or expense”—otherwise this exclusion would not have been necessary.

The LEG 3 Defect Extension similarly suggests that SCB’s claim is within the scope of
coverage of the Policy. The Court will more thoroughly untangle the tortured language of the
Extension at the next stage of the analysis, but the Extension’s treatment of the term “damage,”
which it defines as “patent detrimental change,” underscores that issues of defective workmanship
can cause damage. PSMF § 23. SCB seems to suggest that “damage” as used here is identical to
how “damage” is used in the coverage provision. PRM at 5. But that argument is a bridge too far.
Instead, the Extension provides that the word “damage” “for the purposes of this exclusion shall
include any patent detrimental change in the physical condition of the Insured Property.”
(emphasis added). While the definition in the Extension may shed light on the scope of “damage”

as used in the coverage provision, prefatory language in the Extension’s damage definition

td
suggests that it is not necessarily used the same way as “damage” in the coverage provision. This
is made more evident by the penultimate sentence of the Extension which says:

For the purpose of this policy and not merely this exclusion it is understood and agreed that

any portion of the Insured Property shall not be regarded as damaged solely by virtue of

the existence of any defect of material workmanship, design, plan, or specification.
PSMF 423 (emphasis added). On another note, Lexington argues that this part of the Extension
defines “damage” in a way that conclusively excludes defects caused by material workmanship.
Def. Mot. at 18-19. But “caused by” and “solely by virtue of the existence” are not the same. The
Extension does not suggest that property cannot be “damaged” if there were defects in material
workmanship somewhere in the causal chain. Instead, it indicates that defects of material
workmanship in and of themselves are insufficient to constitute damage. SCB does not seek
reimbursement solely for its defective workmanship. On the undisputed facts, SCB’s defective
workmanship led to honeycombing and voiding, which in turn led to decreased structural integrity
of the bridge. Thus, Lexington’s arguments are unavailing.

Finally, in assessing the meaning of “damage,” the Court must consider the “parties’ intent”

and the “overall purpose of the contract.” Traveler’s Ins. Co. v. Eljier Mfg., Inc., 757 N.E.2d 481,
491 (ill. 2001). SCB purchased an “all risk” insurance policy for the construction of a bridge.
Exhibit 1, ECF No. 1-1, at 9. One such risk, inherent in any complex construction project, is
damage from errors of workmanship. The record evidence suggests that Lexington was aware that
it was agreeing to insure issues that arose during the construction of the bridge. Indeed, John
Catania, the Lexington adjuster responsible for handling SCB’s claim indicated as much in his
deposition. See Exhibit E, ECF No. 67-6, Catania Dep. 79:10—70:11. (“[W]e didn't insure a bridge.

We insured the building of the bridge.”’). The plain language of the coverage provision, the policy

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as a whole, and the intent of the parties suggest that structural damage stemming from SCB’s

defective workmanship is within the scope of coverage.

B. Lexington’s Case Law Fails to Establish that the Damage Alleged by SCB is Not
Covered.

Lexington argues that Illinois law definitively establishes that insured property must be
altered, not merely defectively constructed, in order to constituted “physical loss” or “damage.”
Def. Mot. at 19. Lexington further asserts that no insured property was altered because the
honeycombed concrete components were defective “from the time [they] were made.” Jd. The
concrete components did not become defective, says Lexington, but rather were defective from the
moment the concrete dried and the components became fabricated. Additionally, Lexington argues
that the incorporation of defective components into a larger project does not constitute damage

under IIinois law. Def. Mot. at 23.

The Court finds Lexington’s argument unpersuasive for two reasons. For starters, a change
that results in a reduction in the weightbearing capacity of a bridge is an “alteration” to that bridge.
Second, even if this were not so, Lexington’s authorities are inapposite. In the span of a few pages,
Lexington cites nearly two dozen cases in its argument that SCB’s claim is not covered by the
Policy. Def. Mot. at 12-16. The Court has reviewed each of them. Lexington’s cases, while
perhaps impressive in quantity, are wanting in relevance. The Court will not endeavor to march
through every individual case here, as many of these cases are inapposite for the same reason.
Indeed, grouping these cases makes clear how each is distinguishable. Lexington’s litany of
authorities falls neatly into three buckets.

First, Lexington cites several cases in which businesses sought reimbursement from their
insurers for the loss of the use of their property following COVID-19 closure orders. /d.; see, e.g.,

ABW Dev., LLC v. Cont'l Cas. Co., 203 N.E.3d 922, 928 (Ill. 2022). None of these cases involved
3
construction, bridges, workmanship defects, or anything of the sort. Instead, these are cases where
courts held that businesses could not recover for economic losses stemming from their inability to
operate during the closures because neither the virus nor the corresponding shutdowns constituted
“physical loss” or “damage” under those policies. Jd. To state the obvious, none of these cases are
similar to the facts here. Nor do these holdings require, as Lexington claims, that the terms used
in SCB’s Policy be construed to exclude coverage for repairing and replacing flawed concrete that
caused structural weakness. Even worse, a closer examination of these cases reveals that they
undermine Lexington’s argument. For example, in Rose’s 1 LLC, the court held that a
governmental edict alone could not constitute a direct physical loss under an insurance policy
because there was no “compromise to the physical integrity” of the property insured in that case.
Rose's 1, LLC v. Erie Ins. Exchange, No. 2020-CA-002424, 2020 WL 4589206, at *3 (D.C. Super.
August 6, 2020). Once again, Lexington does not persuasively articulate how a reduction in the
weightbearing capacity of the bridge is anything other than a “compromise to [its] physical
integrity.”

The Court now turns to Lexington’s second batch of authorities. Lexington cites a slew of
cases in which businesses were sued by third parties for issues stemming from defective
manufacturing and construction. Def. Mot. 12, 14-16; See, e.g., Traveler's Ins. Co. v. Eljier Mfg.,
Inc.,757 N.E.2d 481, 491 (ill. 2001). In each of these cases the businesses sought to recover from
their insurers. Lexington relies on these cases to argue that “damage” does not include repair and
replacement costs stemming from the creation or incorporation of defective parts. The main
holding of these cases is that costs of repairs are regarded as “economic injuries” that do not trigger
coverage for physical loss or damage. Def. Mot. at 23. To be sure, these cases bear a closer

resemblance to this case than Lexington’s pandemic-loss precedents. Further, these cases recite

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some generally applicable principles of Illinois insurance law. However, they are nonetheless
inapposite for Lexington’s purpose.

Lexington relies principally on the Illinois Supreme Court’s decision in E/jier. The plaintiff
in that case was the parent company to a manufacturer of residential plumbing systems. Eljier, 757
N.E.2d at 486. The plaintiff's subsidiary purchased comprehensive general liability insurance
policies from the defendant, which covered “physical injury to or destruction of tangible property.”
Id. at 488. Eventually, the plaintiff's plumbing systems began to leak, and the plaintiff faced tens
of thousands of lawsuits, some of which demanded damages for the cost of repairing or replacing
the faulty plumbing. /d. The plaintiff sought a declaratory judgment that its insurance company
would indemnify it for the cost of repairing or replacing the bad plumbing. Jd. The Illinois Supreme
Court said no: coverage for physical injury “is not triggered by purely economic losses, such as
damages for inadequate value, costs of repair or replacement, and diminution of value that result
from a product’s inferior quality or its failure to perform for the general purposes for which it was
manufactured and sold.” Jd. at 502 (cleaned up) (emphasis added). Lexington argues that under
Eljier and similar Illinois cases, the cost of repair is an economic loss that does not trigger coverage
for physical injury.

However, the insurance policies in Eljier and its kin were Commercial General Liability
(CGL) policies—distinct from the “builder’s risk policy” that SCB purchased. /d. at 488. This
difference is critical. CGL policies are intended to insure against “the possibility that the goods,
products or work of the insured, once relinquished or completed, will cause bodily injury or
damage to property other than to the product or completed work itself, and for which the insured
may be found liable.” Diamond State Ins. Co. v. Chester-Jensen Co., Inc., 611 N.E.2d 1083, 1091

(Ill. App. Ct. 1993) (quoting Roger C. Henderson, Jnsurance Protection for Products Liability and

15
Completed Operations—What Every Lawyer Should Know, 50 NEB. L. REV. 415, 441 (1971))
(emphasis added). In this way, Illinois law makes clear that the purpose of CGL policies is “to
provide coverage for injury or damage to the person or property of others; they are not intended to
pay the costs of repairing and replacing the insured's defective work and products.” Viking Const.
Memt., Inc. v. Liberty Mut. Ins. Co., 831 N.E.2d 1, 13 (Ill. App. Ct. 2005) (quoting Pekin Ins. Co.
v. Richard Marker Assocs., Inc., 682 N.E.2d 362, 365 (Ill. App. Ct. 1997)) (emphasis added). As
a result, “when the underlying complaint alleges only damage to the structure itself, courts have
found that there was no coverage.” Pekin Ins. Co., 682 N.E.2d 362, 365 (1997). By contrast, the
policy at issue in this case undoubtedly provides coverage for damage to the bridge’s structures,
whether permanent or temporary, during construction. PSMF § 13-15. In this way, the CGL
policies in these cases differ drastically from the builder’s risk policy purchased by SCB.

SCB correctly argues that this difference is fatal to Lexington’s reliance on this line of
cases to deny coverage. PRM at 9. Even so, Lexington maintains that its CGL precedent should be
dispositive, arguing that SCB has “no principled basis for construing the same words differently
under different types of insurance policies.” DRM at 4. Of course, the precise opposite is true.
Under Illinois law, it is firmly established that “the type of insurance purchased” is a critical
consideration in determining the meaning of the terms in an insurance policy. Traveler’s Ins. Co.
v. Eljier Mfg., Inc.,757 N.E.2d 481, 491 (Ill. 2001).

Finally, in a footnote, Lexington cites a half-dozen cases—none of which interpret Illinois
law—to argue that “damage” in builder’s risk insurance contracts requires some “initial
satisfactory state” or otherwise precludes recovery for defective construction. Def. Mot. at 24.
Lexington does not bother to explain how these nonbinding cases are analogous or why the court

should consider them persuasive. Jd. Moreover, the larger issue with this bucket of cases is an

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issue applicable to all of the cases that Lexington cites: the agreement in this case is simply
different. Full stop. No case Lexington cites involves a similar construction project or a similar
insurance policy that was similarly modified. The Court must give effect to the intent of the parties
before it in construing an insurance policy. Traveler’s Ins. Co. v. Eljier Mfg., Inc.,757 N.E.2d 481,
491 (Ill. 2001). Even if it were the case that some other analogous policies have defined damage
differently—-which Lexington has not demonstrated—Lexington would at best be able
demonstrate an ambiguity, which would still be resolved in favor of coverage. F.D.I.C. v. Am. Cas.
Co. of Reading, Pa., 998 F.2d 404, 408 (7th Cir. 1993).
C. Lexington Fails to Demonstrate that an Exclusion is Applicable

Given that SCB has established coverage under the Policy, Lexington has the burden of
demonstrating that an exclusion applies. Lexington relies on the LEG 3 Defect Extension to do so.
Def. Mot. at 27. SCB argues that the language of the Extension unambiguously supports coverage.
Pl. Mot. at 8. Lexington counters that it unambiguously excludes coverage. Def. Mot. at 27. Neither
party is correct. The LEG 3 Extension is ambiguous—egregiously so. To understand this, one need
only attempt to read it. In just three sentences, Lexington managed to squeeze in a run-on sentence,
an undefined term, several mispunctuations, and a scrivener’s error.’ Exhibit 1, ECF No. 1-1, at
39, The Extension is internally inconsistent and bordering incomprehensible. SCB’s statement that
the Extension is “convoluted” is an understatement. P]. Mot. at 8. Nonetheless, the Court will
endeavor to sort it out by breaking it down piece by piece.

The parties’ first disagreement on the Extension begins with its title: “LEG 3 Defect

Extension.” More specifically, they disagree over whether the provision is in fact an extension at

"Despite being capitalized, “Insured Property” is not defined in the Extension. Exhibit 1, ECF No. 1-1, at 39. However,
the slightly different “Property Insured” is defined in the body of the policy. Exhibit 1, ECF No. 1-1, at 9. While this
contributes to the ambiguity of the Extension, the Court sees no reason to treat the two terms differently.

1?
all. Lexington argues that the provision is really an exclusion because it was meant to delete and
replace portions of the “Perils Excluded” section of the Policy. PRM at 6; DRM at 6. SCB argues
that the provision actually operates as an extension of coverage under the Policy. PRM at 6; DRM
at 6—7. But of course, two things can be true at once. Yes, the LEG 3 Extension is an exclusion—
it even refers to itself as one. Exhibit 1, ECF No. 1-1, at 39 (including “for the purposes of this
exclusion”). However, in replacing a broad exclusion from coverage with a narrower exclusion,
the endorsement functionally extends what SCB is entitled recover for. Jd. Unfortunately, exactly
which previously operative exclusion, or exclusions, the Extension replaced is the next area of
confusion.

The plain text of the LEG 3 Extension only purports to replace one section of the Policy’s
exclusions: “Perils Excluded, Item C.” Exhibit 1, ECF No. 1-1, at 39. However, SCB correctly
notes that, in substance, the Extension encompasses the subject matter of both Item B and Item C.
Pl. Mot. at 8. Indeed, Item B excludes coverage for issues related to “[flaulty or defective
workmanship or materials,” and Item C excludes coverage for issues related to “[flault, defect,
error, deficiency or omission in design, plan or specification.” Collectively, those provisions
contained the Policy’s exclusions for claims associated with errors in SCB’s work—precisely what
the Extension covers. As a result, SCB’s motion for summary judgment argued that “it appears
that Lexington made a scrivener’s error and the parties intended for LEG 3 extension to supersede
both Items B and C.” Pl. Mot. at 8. Lexington responded with the following: “SCB states that the
LEG 3 extension is ambiguous and should be read as replacing both Exclusion B and Exclusion
C... but that resolving that question is not necessary to these motions.” Def. Mot. at 11. To be
sure, resolving the question of whether the Extension is ambiguous is critical to resolving these

motions. Thus, the Court rejects Lexington’s invitation to ignore the unclear and error-riddled

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language of the Extension, which Lexington drafted, signed, and now seeks to rely on to deny
coverage.

Additionally, the Court is curious as to why Lexington referred to the presence of the
scrivener’s error in the LEG 3 Extension as a “question” that need not be “resolved” in its cross-
motion for summary judgment, but then turned around and proclaimed that “Lexington has
acknowledged in this case that there is a scrivener’s error in the Policy’s LEG 3 endorsement.” /d.;
DR at 2. In feigning ignorance of the scrivener’s error, Lexington implied that it may or may not
be there. Def. Mot. at 11. By playing this game of Schrédinger’s typo, Lexington obscured the
issues and wasted this Court’s time. While a scrivener’s error is not dispositive of the existence of
ambiguity in a contract provision, when viewed in light of the morass that is the LEG 3 Extension,
this additional error reinforces this Court’s conclusion that the text of the Extension is far from
“clear, definite, and explicit.” Playboy Enterprises, Inc. v. St. Paul Fire & Marine Ins. Co., 769
F.2d 425, 428 (7th Cir. 1985).

Next the Court turns to the meat of the Extension, which excludes from coverage:

All costs rendered necessary by defects of material workmanship, design, plan, or

specification and should damage (which for the purposes of this exclusion shall include

any patent detrimental change in the physical condition of the Insured Property) occur to

any portion of the Insured Property containing any of the said defects, the cost of

replacement or rectification which is hereby excluded is that cost incurred to improve the
original material workmanship design plan or specification.

Exhibit 1, ECF 1-1, at 39. Both parties acknowledge that the Extension begins by generally

precluding recovery for defects in material workmanship. Def. Mot. at 20; See Pl. Mot. at 8. And

both parties agree that nested within the exclusion is some exception for instances in which there

is “damage”—a “patent detrimental change in the condition of the insured property.” Def. Mot. at

20; Pl. Mot. at 8. Thus, the actual disagreement is two-pronged: (1) on the facts of this case, did

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SCB’s claim describe damage, and (2) what exactly is the scope of the exception to exclusion if
damage is established? The Court takes these two disagreements in turn.

First, the Court holds that “damage” as used in the LEG 3 Extension unambiguously
encompasses SCB’s claim. Once again, the honeycombing and voiding resulted in a reduction in
the weightbearing capacity of the bridge. This qualifies as a “detrimental change in the condition
of the insured property.” Moreover, that change is “patent.” Patent is defined as “[o]bvious;
apparent.” Patent, Black’s Law Dictionary (10th ed. 2014). In addition to causing a decrease in
the structural integrity of the bridge and its parts, the honeycombing and voiding were several feet
long, deep, and visible to the naked eye. PSMF § 35. Thus, it was undoubtedly obvious or apparent
that there was a detrimental change in condition. Perhaps Lexington could argue that the minor
honeycombing, which is considered “common” and cosmetic,” could not qualify as “patent,” but
Lexington never makes this argument. DSMF 97.

With damage established, the Court now turns to the scope of the exception to this
exclusion. The Extension excludes replacement or rectification of costs incurred to “improve” the
original workmanship. Exhibit 1, ECF 1-1, at 39. But what does it mean to “improve” the original
workmanship? SCB seems to suggest this means making it better than originally planned. See P1.
Mot. 8. Thus, if SCB decided to replace the defective concrete with solid gold, or otherwise
upgrade it, SCB could not then seek reimbursement of those enhancements. By contrast, under
Lexington’s view, simply patching or replacing defective components constitutes an improvement.
DRM at 8. After all, if something broken gets fixed, hasn’t that thing been improved? This
argument has intuitive appeal but falls apart upon closer scrutiny. Sure, repairing or replacing a
defective component can technically be considered an improvement—unless that component is

replaced with something worse. However, the context of the Extension suggests that to improve

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means to make a thing better than it would have been if it were not for defective work. In fact, the
Extension explicitly distinguishes the “cost incurred to improve” work from “the cost of
replacement or rectification.” Lexington’s suggestion that the two are coextensive is unavailing.

At bottom, the LEG 3 Defect Extension is subject to more than one reasonable
interpretation and is therefore ambiguous. To be sure, SCB’s reading is more plausible.
Nonetheless, Lexington’s argument—while far from convincing—meets the low bar of being
reasonable in light of the mishmash of terms that comprise the LEG 3 Extension. As a result, the
Court holds that the Extension is ambiguous as to whether it excludes coverage. Thus, under
Illinois law, the Court must construe the Extension against its drafter, Lexington, and in favor of
coverage. F.D.I.C. v. Am. Cas. Co. of Reading, Pa., 998 F.2d 404, 408 (7th Cir. 1993). Because
the Extension does not exclude coverage for SCB’s claim for reimbursement, this Court holds that
Lexington is liable for breaching the Policy.

D. Summary Judgment on SCB’s Bad Faith Claim is Inappropriate

SCB also sues Lexington on a claim of bad faith. Compl. §] 23. By Illinois statute, an
insurance company acts in bad faith if it acts vexatiously or unreasonably in settling a claim. See
215 Ill. Comp. Stat. Ann. 5/155. “Whether the insurer’s acts are ‘unreasonable and vexatious’
within the meaning of section 155 is a question of fact, which is discretionary with the trial court.”
Green v. Int'l Ins. Co., 605 N.E.2d 1125, 1129 (Ill App. Ct. 1992). No single factor in this analysis
is dispositive as the court must examine the “attitude of the defendant” in light of the totality of
circumstances. /d. SCB has not filed for summary judgment on the issue of bad faith, nor have the
parties fully briefed the Court on the facts relevant to SCB’s bad faith claim. Lexington argues that
because there is no coverage, the Court should grant summary judgment in its favor on the bad

faith claim. Def. Mot. at 21-22. However, this Court just held that Lexington is wrong; there

Zl
decidedly is coverage. As a result, summary judgment on the bad faith claim is not presently
appropriate.
IV. CONCLUSION
For the foregoing reasons, the Court will GRANT SCB’s motion for summary judgment
and DENY Lexington’s cross-motion for summary judgment.

A separate Order consistent with this Memorandum Opinion shall issue.

Date: September G 2023 nee Latte

Roycé C. Lamberth
United States District Judge

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