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EMS USA, Inc. v. The Travelers Lloyds Insurance Co.

United States District Court, S.D. Texas, Houston Division

February 28, 2018

EMS USA, INC., Plaintiff,
v.
THE TRAVELERS LLOYDS INSURANCE COMPANY, Defendant.

          MEMORANDUM AND RECOMMENDATION

         Pending before the court[1] is Defendant The Travelers Lloyds Insurance Company's (“Defendant”) Motion for Summary Judgment (Doc. 27), Defendant's Second Motion for Summary Judgment (Doc. 30), and Plaintiff EMS USA, Inc.'s (“Plaintiff”) Motion for Summary Judgment (Doc. 28). The court has considered the motions, the responses, all other relevant filings, and the applicable law. For the reasons set forth below, the court RECOMMENDS that Plaintiff's motion be GRANTED IN PART AND DENIED IN PART and Defendant's motions be GRANTED IN PART AND DENIED IN PART.

         I. Case Background

         Plaintiffs originally filed this insurance action against its insurer for declaratory relief and damages for breach of the insurance contract and violations of the Texas Insurance Code.

         A. The Insurance Policy

         Plaintiff purchased a Builders' Risk Policy (the “Policy”) from Defendant to cover the period from September 1, 2015, to September 1, 2016.[2] Plaintiff was the insured entity under the Policy.[3] The coverage on the Policy was divided into two groups.[4]Group one included “covered property consisting of frame and joisted masonry construction, ” with a limit of liability of $1, 000, 000.[5] Group two included “covered property consisting of non-combustible or better construction, ” with a limit of liability of $15, 000, 000.[6] Additionally, the Policy contained coverage for property in transit or temporary storage, as well as extended and additional coverages for other potential construction and weather issues.[7]

         The Policy provided, in relevant part, that:

A. COVERAGE
We will pay for direct physical loss of or damage to Covered Property caused by or resulting from a Covered Cause of Loss.
1. Covered Property
Covered Property, as used in this Coverage Form, means the following types of property you own or for which you are legally liable, the value of which is included in the estimated “total project value” shown in the Declarations:
a. Permanent Works
Materials, equipment, machinery, supplies and property of a similar nature that will become a permanent part of the project described in the Declarations during completion of such project or that will be used or expended in the completion of such project.
Completion of the project includes site preparation (including demolition of existing buildings or structures), fabrication, assembly, installation, erection, alteration, renovation and similar construction activities.
b. Temporary Works
Cofferdams, construction forms, cribbing, falsework, hoarding, scaffolds, fencing, signs, office trailers (and their “contents”) and similar temporary buildings or structures incidental to completion of the project described in the Declarations.
We will cover such property:
(1) At the job site described in the Declarations; and . . .
2. Property and Costs Not Covered
Covered Property does not include: . . .
c. Land and land values and the value of cut, fill and backfill materials that existed at the job site prior to the date construction commenced.
But this restriction does not apply to:
(1) The value of cut, fill and backfill materials purchased for use in the completion of the project to the extent the value of such property is included in the estimated “total project value” shown in the Declarations.
(2) Labor, material and equipment charges incurred to move, remove, place or otherwise handle cut, fill and backfill materials to the extent such costs are included in the estimated “total project value” shown in the Declarations.
. . .
11. “Specified causes of loss” means fire; lightning; explosion; windstorm or hail; smoke (including the emission of puff back of smoke, soot fumes or vapors from a boiler, furnace or related equipment); aircraft or vehicles; riot or civil commotion; vandalism; leakage from fire extinguishing equipment; “sinkhole collapse”; volcanic action; falling objects as limited below; weight of snow, ice or sleet; “water damage”, all only as otherwise insured against in this Coverage Part.[8]

         B. The Underlying Facts

         Plaintiff was hired to build a natural gas pipeline for Martin Operating Partnership, L.L.P. (“Martin”) in Jefferson County, Texas.[9] To complete the horizontal directional drilling operations, Plaintiff subcontracted with Isaacks Directional Drilling Company (“Isaacks”).[10]

         On or after October 5, 2015, Isaacks commenced work on the site, including drilling the pilot hole.[11] Isaacks then began reaming operations in order to widen the pilot hole for the eventual pipeline.[12] To undergo the reaming operations, a drill string enclosing the guide wire was attached to the reamer and directed the drill bit.[13]

         On November 13, 2015, after Isaacks had reamed about 1, 450 feet, the guide wire broke and prevented the flow of mud necessary for the reaming process.[14] After Isaacks took out one end of pipeline to remove the broken guide wire, it continued to ream for another 450 feet until the reamer and drill string became lodged in the pilot hole.[15] Ron Wochner, an employee of Plaintiff, opined that this occurred because drilling mud was not flowing while the guide wire was being fixed.[16] Two companies were hired by Plaintiff to salvage the pilot hole, but neither was able to fix the situation and the hole was abandoned.[17] A new subcontractor, Michels Corporation (“Michels”) was hired by Plaintiff to recommence the project by drilling a new pilot hole deeper underground.[18]

         C. The History of this Lawsuit

         On May 2, 2016, Plaintiff filed this action in the 80thDistrict Court of Harris County, Texas.[19] Defendant removed to this court on May 24, 2016, on the basis of diversity jurisdiction.[20]Plaintiff filed an amended complaint with leave of court on January 12, 2017.[21]

         On April 28, 2017, Defendant filed its motion for summary judgment, contending that Plaintiff's claim was not covered under the Policy.[22] Plaintiff responded and filed a cross-motion for summary judgment on May 17, 2017.[23] Defendant filed a second motion for summary judgment on ...


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