Tenth Circuit Limits Policyholder Recovery for Defective Work and Rejects Windfall Award

This coverage dispute arose from a claim to recover the policyholder’s cost of repairing a site dewatering system.  Glacier Construction Company (Glacier) had contracted with a municipal body to build a new wastewater pumping facility.  Glacier purchased a builder’s risk insurance policy from Travelers Property Casualty (Travelers), which included coverage for “Builder’s Risk Site Preparation.”

That provision stated, in pertinent part, as follows:  “If … You incur expenses to reexcavate the site, reprepare the site, regrade the land, or reperform similar work because of loss of or damage to Covered Property by a Covered Cause of Loss, you may extend the applicable Limit of Insurance for that ‘job site’ to pay for such expense.”  The Travelers Policy also defined “Covered Property” as “[b]uildings or structures including temporary structures while being constructed, erected, or fabricated at the ‘job site,’” and “[p]roperty that will become a permanent part of the buildings or structures at the ‘job site.’”

To start construction, Glacier had to pump out excess water at the site through a process called “dewatering.”  To that end, Glacier installed four wells and pumps, which operated until they were damaged by sediment intrusion caused by above-average rainfall.  In addition to replacing the failed wells and pumps, Glacier added shoring, engineering tie-backs, and a well-point system to the site as part of its second dewatering plan.  Glacier tendered to Travelers the cost of the new dewatering design and implementation costs.  Travelers denied coverage, and Glacier commenced this action.

The district court granted summary judgment allowing Glacier’s recovery of its cost to replace the original wells and pumps, but not the new well point system.  The parties cross-appealed.  The Tenth Circuit affirmed the district court’s adverse coverage determination as to Travelers, to wit, the policy covered the damage to the original wells and pumps.

The court then addressed Glacier’s argument that it should be entitled to coverage for the cost of designing the new dewatering plan and installing the shoring system, engineering tie-backs, and well-point system.  Because the policy only covered “expenses to reexcavate the site, reprepare the site, regrade the land, or reperform similar work,” the Tenth Circuit found the cost of a new well system and accompanying structures should not be covered.  To find otherwise, the Court noted, would encourage a builder insured to shift the construction expense to its insurer by “economiz[ing] on an initial dewatering plan” to be later replaced by a more elaborate and sustainable one at the insurer’s expense.  The Court also found that Glacier’s argument was contrary to the “ordinary and accepted sense of the Policy terms limit[ing] coverage [under a business risk policy] to correction of work previously done.”  Consequently, the court only affirmed coverage for repairs to the original dewatering system.