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Engineering & Construction Innovations, Inc. v. Western National Mutual Insurance Co.

Court of Appeals of Minnesota

June 10, 2013

Engineering & Construction Innovations, Inc., Appellant,
Western National Mutual Insurance Co., Respondent.


Ramsey County District Court File No. 62-CV-11-6841

Adina R. Bergstrom, Sauro & Bergstrom, PLLC, Woodbury, Minnesota; and David D. Hammargren, Hammargren & Meyer, P.A., Bloomington, Minnesota (for appellant)

Anthony J. Kane, Terhaar, Archibald, Pfefferle & Griebel, LLP, Minneapolis, Minnesota (for respondent)

Considered and decided by Smith, Presiding Judge; Cleary, Judge; and Huspeni, Judge. [*]

SMITH, Judge

Appellant brought a declaratory judgment action against its insurance provider seeking insurance proceeds due to a loss that occurred while it was acting as a subcontractor on a major construction project. The district court granted respondent's motion for summary judgment after it determined that: (1) appellant's suit was barred by the doctrine of res judicata, (2) that its claim was blocked by a two-year time limitation in its insurance policy, and (3) that appellant's claim was vitiated by a policy exclusion regarding losses caused by errors in workmanship. Because respondent failed to fulfill its statutory duty to inform appellant of its available coverage options, we reverse the district court's conclusion that res judicata and the two-year time limitation barred appellant's suit. On the merits, because respondent failed to meet its burden establishing that the workmanship policy exclusion applies, we reverse the summary judgment determination and remand for further proceedings.


In January 2006, Frontier Pipeline LLC hired appellant Engineering & Construction Innovations, Inc. (ECI) as a subcontractor to install and connect below-ground, forcemain-access structures (FAS) to connect segments of sewer piping in the White Bear Lake/Hugo area. The deadline for Frontier to complete the project was May 7, 2007. Prior to commencing its work on the Frontier piping project, ECI renewed two insurance policies with respondent Western National Mutual Insurance Company (Western National). The policies were for general liability and inland-marine coverage. The policies' effective periods ran from January 31, 2007 through January 31, 2008.

To prevent groundwater from accessing the excavation area and piping, ECI injected cementious grout underground through tubing designed to form a collar around the subterraneous piping. While there were multiple FAS connections, this dispute focuses on ECI's work at the FAS 1 location. On August 30, 2007, ECI injected 16 cubic yards of cementious grout into the ground at the FAS 1 connection. Normally, ECI measures underground pressure buildup to ensure that the injected grout has the desired effect. On this occasion ECI did not receive the normal pressure indicators. ECI commenced testing to determine whether the grout had seeped into undesirable areas, but it was unable to determine exactly what occurred underground. Because ECI discovered no apparent problem, it continued its work.

Approximately two months later it was discovered that the previously unaccounted for grout had entered the open end of one of the sewer pipe segments. The grout had hardened inside 120 linear feet of piping and filled approximately 18 inches of the pipe's 22-inch internal diameter. The hardened grout rendered the piping unfit for use. ECI acknowledged its contractual duty to remove the grout and commenced operations to repair the damage. Removal proved difficult and costly, taking two months' time at a cost of $705, 000 for labor and materials. It is undisputed that no lasting physical damage occurred to the piping from either the entry or removal of the grout.

Following ECI's remedial actions it informed Western National of the situation and suggested that its common liability (CGL) policy covered the loss. Western National investigated the claim for over one month but concluded that the definitive cause of the loss was unknown. Western National denied coverage. ECI brought a declaratory judgment action in district court seeking a declaration that the costs related to cleaning out the grout were covered by its CGL policy. The district court granted ECI's motion and Western National appealed the entry of judgment in favor of ECI. On appeal, we determined that the CGL policy contained a relevant exclusion that applied to the loss and reversed the district court's determination in favor of ECI. See Eng'g & Constr. Innovations, Inc. v. W. Nat. Mut. Ins. Co., No. A10-150, 2010 WL 3220139, at *3 (Minn.App. Aug. 17, 2010), review denied (Minn. Oct. 27, 2010).

Following our determination, ECI submitted a claim under its inland-marine policy (IM policy). ECI alleged that it was previously unaware of its potential coverage under the IM policy. Western National denied coverage under the IM policy because the policy contained an exclusion relating to workmanship errors. "[Y]our policy excludes coverage for errors in workmanship (negligent or not) and the removal of the grout, which was injected inside the pipe in error; [i]nstead of around the pipe is a removal of workmanship error and not covered under the policy." The policy language at issue provided, in relevant part:

3. "We" do not pay for loss or damage if one or more of the following exclusions apply to the loss. But if loss by a covered peril results "we" will pay for the resulting loss. . . .
b. Defects, Errors, and Omissions – "We" do not pay for loss caused by an act, defect, error, or omission ...

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