Improvement of Land is Covered Under CGL per Montana Fed. Court

In March of this year, the federal district court in Montana considered whether damage to a pipeline right of way caused by historic precipitation levels was covered under an insurance contract.  In Barnard Pipeline Inc. v Travelers Property Casualty Co. of America, 2014 WL 980120 (D. Mont. Mar. 18, 2014), the court addressed the claim of an insured that was constructing and installing a 28-mile extension of a gas pipeline through a right of way that extended through a mountain range.  The initial phase of the pipeline extension included construction and improvement of various access roads to the right of way, along with clearing vegetation, stripping topsoil, and leveling/grading the right of way.  Once complete, the area would then be used to install the pipeline during the second phase of construction.  During the second phase, a trench would be formed along the right of way, the pipeline would be installed in the trench, and then it would be back-filled and reseeded to appear “natural.”

The area of the right of way received an unusually high amount of precipitation while construction was ongoing, which resulted in additional costs related to repair work and increased construction time due to difficult working conditions.  The insured filed an insurance claim relating to the damage to the right of way, among other things.  The historic precipitation levels constituted a covered cause of loss under the policy, but the insurance company denied the claim on the basis that the claim for damage to the right of way fell within the policy exclusion for damage to “land.”  The insured filed suit, alleging that the damage to the right of way was covered under the policy.

During the lawsuit, the insured argued that the work performed on the right of way meant it was covered property, not simply excluded land.  In support, the insured pointed to the fact that the insurance policy covered “Builder’s Risk,” which was defined to include “Buildings or structures including temporary structures while being constructed, erected, or fabricated on the ‘job site,’”  The policy declarations broadly defined the “Builder’s Risk” to include the “Apex Pipeline Expansion Wasatch Loop spanning Davis, Salt Lake & Morgan Counties Utah, including the project access roads and all pipe storage sites in connection with this project.”  The insured argued that the work performed to transform the right of way into a workable space for the second phase of construction transformed it from uncovered land into a covered structure—or temporary structure—that was essential to the completion of pipeline construction.  The insured countered that the work performed on the right of way did not transform the land into a “structure” as that term is commonly understood.  Instead, the insurer argued, the right of way was still comprised of soil, which is commonly considered land, and is excluded under the policy.

The federal court ultimately sided with the insured, finding that the coverage grant was ambiguous based upon the definitions provided by the parties.  As such, the court interpreted the terms in favor of the insured and against the insurance company.  The court also noted that it was not persuaded that the work performed during the first phase of construction rendered the right of way a structure as that term is commonly understood and used in the policy.  In support, the court pointed to the fact that the right of way existed as raw land that was then transformed into something “artificial” or “purposely joined together.”  The court found that the definition of the “Builder’s Risk” contained in the declarations reasonably supported the conclusion that the policy covered the work on the right of way.  Finally, the court rejected the insurer’s argument that the right of way constituted excluded land, pointing to the fact that the exclusion must be narrowly construed and that the area was substantially altered by the insured’s construction work.

The attorneys of MLR are experienced in analyzing and litigating insurance coverage issues that arise under commercial general liability (CGL) insurance policies.  Please contact us with any questions concerning the issues addressed in this post or any other matter you see in the Insurance Coverage Blog.

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