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The Charter Oak Fire Insurance Co. v. Wisconsin Electric Power Co.

United States District Court, E.D. Wisconsin

June 16, 2017

THE CHARTER OAK FIRE INSURANCE COMPANY, Plaintiff,
v.
WISCONSIN ELECTRIC POWER COMPANY and URS CORPORATION, Defendants.

          DECISION AND ORDER

          LYNN ADELMAN, DISTRICT JUDGE

         Plaintiff, The Charter Oak Fire Insurance Company, filed a complaint alleging claims for negligence and breach of contract against Wisconsin Electric Power Company (“WEPCO”) and a claim for negligence against URS Corporation. In a prior order, I granted WEPCO's motion to dismiss Charter Oak's claims against it for failure to state a claim upon which relief may be granted. See Jan. 13, 2017 Dec. and Order, ECF No. 31. Before me now is Charter Oak's motion for reconsideration of that order. Also before me is URS's own motion to dismiss the claims that Charter Oak alleged against it.

         I. BACKGROUND

         According to the allegations of the amended complaint, Charter Oak issued a property insurance policy to Metropolitan Environmental Services, a company that performs dredging and excavation services. In August 2011, Metropolitan and WEPCO entered into a contract under which Metropolitan agreed to provide dredging services to WEPCO at its Oak Creek power plant. The area to be dredged was located at the bottom of a bluff, between the bluff and the shore of Lake Michigan.

         At approximately the same time that Metropolitan was performing its dredging work at the bottom of the bluff, WEPCO and URS were engaged in a separate construction project at the top of the bluff. On the morning of October 31, 2011, Metropolitan had its heavy equipment on site at the bottom of the bluff, near the Lake Michigan shoreline, when a section of the bluff collapsed, resulting in a large quantity of earth sweeping across the dredging area and pushing Metropolitan's heavy equipment into the lake. The bluff collapse did not injure anyone, but it caused significant damage to Metropolitan's equipment.

         Charter Oak paid Metropolitan $749, 096.82 for the damage to its heavy equipment. Charter Oak now seeks to exercise its subrogation rights and recover its payment to Metropolitan from WEPCO and URS. It alleges that WEPCO and URS were negligent in the performance of the construction work at the top of the bluff, and that such negligence was the cause of the collapse. Charter Oak also alleges that, in the contract between WEPCO and Metropolitan for the dredging work, WEPCO agreed to indemnify Metropolitan for losses caused by WEPCO's own negligence.

         In its motion to dismiss the amended complaint, WEPCO argued that several provisions of the contract between it and Metropolitan barred Charter Oak from recovering the payments it made to Metropolitan under its policy.[1] However, in my decision on the motion, I addressed only one of those reasons, which was based on a provision of the contract that I described as a “subrogation waiver.” I concluded that WEPCO had shown that this waiver applied and barred all of Charter Oak's claims against it. Charter Oak now contends that this conclusion was erroneous. WEPCO contends that the conclusion was correct, and it also asks me to decide the other issues it raised in its original motion to dismiss. URS, in its motion to dismiss, contends that the subrogation waiver in the contract between Metropolitan and WEPCO also bars Charter Oak's claim against it.

         II. DISCUSSION

         A. Subrogation Waiver

         As I explained in my original decision, the contract between WEPCO and Metropolitan contains language requiring Metropolitan to procure certain forms of insurance. See Contract at pp. 2-4.[2] The required coverages were for workers compensation and several forms of liability insurance, including Commercial General Liability (CGL) insurance or its “equivalent.” Id. The contract also required WEPCO to be included as an additional insured under the CGL policy. Id. at 3. And the contract contained the following subrogation waiver, on which I relied in my original decision:

[Metropolitan] waives the right of subrogation, and waives all rights against [WEPCO] and its agents, officers, directors and employees for recovery of damages to the extent these damages are covered by any of the insurance required above.

Id.

         WEPCO argued in its original motion that, given Metropolitan's waiver of the right of subrogation, Charter Oak cannot now step into Metropolitan's shoes and attempt to assert any rights against WEPCO that Metropolitan would have had under contract or tort law. See Br. at 11-14, ECF No. 17. WEPCO, in its opening brief, anticipated that Charter Oak would argue that the subrogation waiver did not apply because it paid Metropolitan under a policy of property insurance, which is a form of coverage that the contract did not expressly require Metropolitan to procure. WEPCO then made three counterarguments. First, it argued that property insurance is the “equivalent” to the forms of insurance required under the contract and therefore falls within the waiver. Id. at 12. Second, it argued that the damages that Metropolitan incurred in the bluff collapse would be “covered” by Metropolitan's CGL policy. Id. Specifically, in connection with this second argument, WEPCO included the following in its opening brief:

Second, WEPCO is an Additional Insured under the CGL and excess policies. This is meaningful because WEPCO, as an Additional Insured, is an entity “covered” by Metropolitan's CGL policy against any claims for negligence causing property damage on the project. If Charter Oak is correct that WEPCO was negligent and could bear liability for the bluff collapse (which is denied), WEPCO's potential liability would fall within the CGL policy and therefore be in the category of “damages covered by any of the insurance required above.” This is no technicality; the entire purpose of requiring the insurance, adding the company as an additional insured, and including a subrogation waiver is to place the sole risk of loss on a third party commercial entity whose purpose is to underwrite and cover such risks-the insurance company. Charter Oak underwrote the risk, and it paid out under the terms of its policy. It has no subrogation claim against WEPCO.

Id. at 12-13. WEPCO then, in its third argument, argued that if there were any ambiguity as to whether the subrogation waiver applied to bar Charter Oak's claim, the court should construe that ambiguity in WEPCO's favor. Id. at 13.

         As WEPCO anticipated, Charter Oak, in its response brief, argued that the subrogation waiver did not apply because Charter Oak paid Metropolitan under a property policy. Br. in Opp. at 10-11, ECF No. 21. However, Charter Oak did not respond to the three specific arguments that WEPCO made in its opening brief as to why Charter Oak's claims were within the scope of the subrogation waiver even though Charter Oak made payments under a property policy. See id. Charter Oak merely cited the relevant contract language and asserted in conclusory fashion that it did not apply to payments made under a property policy. Indeed, Charter Oak's entire argument consisted of four sentences, which I can reproduce here:

While it is true that the Contract contains a Waiver of Subrogation, it specifically states that the waiver only applies to the extent damages are paid under a policy of insurance required to be purchased under the Contract. The policies required to be purchased under the WEPCO/Metropolitan Contract are: CGL, automobile, professional liability, environmental impairment and aircraft liability. Nowhere in the WEPCO/Metropolitan Contract is there a requirement that Metropolitan purchase property insurance. Thus, the Waiver of Subrogation clause does ...

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