      RECOMMENDED FOR FULL-TEXT PUBLICATION
           Pursuant to Sixth Circuit Rule 206             2    Detroit Water Team v.                 Nos. 02-1324/1419
   ELECTRONIC CITATION: 2004 FED App. 0177P (6th Cir.)         Agricultural Ins. Co., et al.
               File Name: 04a0177p.06
                                                                              _________________
UNITED STATES COURT OF APPEALS                                                     COUNSEL
             FOR THE SIXTH CIRCUIT                        ARGUED: Ann E. Erickson Gault, COLLINS, EINHORN,
               _________________                          FARRELL & ULANOFF, Southfield, Michigan, for
                                                          Appellant. Raymond A. Fylstra, KUBASIAK, FYLSTRA,
DETROIT WATER TEAM JOINT X                                REIZEN & ROTUNNO, Chicago, Illinois, Thomas B.
VENTURE ,                          -                      Orlando, FORAN, GLENNON, PALANDECH & PONZI,
            Plaintiff-Appellee/ -                         Chicago, Illinois, for Appellees. ON BRIEF: J. Mark
                                   -  Nos. 02-1324/1419   Cooney, COLLINS, EINHORN, FARRELL & ULANOFF,
              Cross-Appellant, -                          Southfield, Michigan, for Appellant. Raymond A. Fylstra,
                                    >                     John C. Anderson, KUBASIAK, FYLSTRA, REIZEN &
                                   ,
           v.                      -                      ROTUNNO, Chicago, Illinois, Stephen J. Pokoj, FILDEW,
                                   -                      HINKS, GILBRIDE, MILLER & TODD, Detroit, Michigan,
AGRICULTURAL INSURANCE             -                      Thomas B. Orlando, Matthew S. Ponzi, FORAN,
                                   -                      GLENNON, PALANDECH & PONZI, Chicago, Illinois,
COMPANY , an Ohio                                         Daniel J. Seymour, NAGI, BAXTER & SEYMOUR, Detroit,
Corporation,                       -
                                                          Michigan, for Appellees.
          Defendant-Appellee, -
                                   -                                          _________________
                                   -
AMERICAN NATIONAL FIRE             -                                              OPINION
INSURANCE COMPANY , an             -                                          _________________
Ohio Corporation,                  -
         Defendant-Appellant/ -                              BOYCE F. MARTIN, JR., Circuit Judge. In these
                                   -                      consolidated cases, Detroit Water Team Joint Venture seeks
               Cross-Appellee. -
                                                          insurance coverage under an American National Fire
                                  N                       Insurance Company commercial general liability policy and
      Appeal from the United States District Court        an Agricultural Insurance Company builder’s risk policy for
     for the Eastern District of Michigan at Detroit.     a loss incurred during the course of its renovation of a City of
   No. 00-73239—Robert H. Cleland, District Judge.        Detroit water plant. The district court held that coverage was
                                                          available under the American National policy, but not under
              Argued: October 23, 2003                    the Agricultural policy. American National appeals the
                                                          district court’s award of summary judgment in favor of
          Decided and Filed: June 11, 2004                Detroit Water Team with respect to coverage under the
                                                          commercial general liability policy, and Detroit Water Team
Before: KEITH, MARTIN, and SUTTON, Circuit Judges.        appeals the award of summary judgment in favor of

                           1
Nos. 02-1324/1419               Detroit Water Team v.        3    4       Detroit Water Team v.                       Nos. 02-1324/1419
                            Agricultural Ins. Co., et al.                 Agricultural Ins. Co., et al.

Agricultural with respect to coverage under the builder’s risk    Agricultural of its expenses.1 After both insurers denied
policy. For the reasons discussed below, the district court’s     coverage, this lawsuit ensued and all parties moved for
judgment is affirmed in part and reversed in part.                summary judgment. The district court held that coverage was
                                                                  available under the American National commercial general
                    I. BACKGROUND                                 liability policy, but not under the Agricultural builder’s risk
                                                                  policy. American National appeals the award of summary
  Detroit Water Team entered into a “design/build” contract       judgment in favor of Detroit Water Team, and Detroit Water
with the City of Detroit to renovate the City’s water plant. In   Team appeals the award of summary judgment in favor of
connection with that project, Detroit Water Team procured         Agricultural.
two insurance policies: (1) a commercial general liability
policy issued by American National, which covered Detroit                                     II. ANALYSIS
Water Team and one of its subcontractors, Adamo Demolition
Company; and (2) a builder’s risk policy issued by                  We review de novo a district court’s award of summary
Agricultural, which covered Detroit Water Team, all of its        judgment, as well as its interpretation of an insurance
subcontractors and other identified parties.                      contract. Parameter Driven Software v. Massachusetts Bay
                                                                  Ins. Co., 25 F.3d 332, 336-37 (6th Cir. 1994). Summary
  The water plant renovation project called for demolition of     judgment should be granted when “the pleadings, depositions,
a portion of an old reservoir. Detroit Water Team hired           answers to interrogatories, and admissions on file, together
Adamo, a demolition subcontractor, to perform this                with the affidavits, if any, show that there is no genuine issue
demolition work. Connected to one wall of the reservoir was       as to any material fact and that the moving party is entitled to
a semi-circular manhole structure. The reservoir and the          a judgment as a matter of law.” FED . R. CIV . P. 56(c). In
manhole structure shared one common wall that was made of         determining whether a genuine issue of material fact exists,
concrete; the rest of the manhole structure was made of           we must draw all reasonable inferences in favor of the
masonry. The manhole structure contained an electrical            nonmoving party. Bonds v. Cox, 20 F.3d 697, 701 (6th Cir.
system comprised of live wires, feeds and tubes, which            1994).
provided power and air to the functioning water plant. The
City and Detroit Water Team agreed that this electrical                             A. American National Policy
system, along with the manhole structure that housed it,
would remain entirely intact throughout the renovation              Our analysis of whether coverage is available under the
project so that the water plant could continue to operate         American National policy begins – and ends – with the
during that time. Nevertheless, in the course of demolishing      policy’s insuring agreement, which provides that American
the reservoir, Adamo also tore down the concrete wall that the    National “will pay those sums that the Insured becomes
reservoir shared with the manhole, which caused the entire
manhole structure to collapse and the electrical system within
to sustain considerable damage.                                       1
                                                                        As discussed more fully herein, Detroit W ater T eam argues that it
  Detroit Water Team immediately repaired the damaged             was obliga ted to repair the electrical system by virtue of its contract with
electrical system and notified American National and              the City, which required it to “take immediate action to restore” any
                                                                  interrupted service “within twenty-four (24) hours or less.”
Nos. 02-1324/1419                Detroit Water Team v.        5    6     Detroit Water Team v.                 Nos. 02-1324/1419
                             Agricultural Ins. Co., et al.               Agricultural Ins. Co., et al.

legally obligated to pay as damages because of ‘bodily injury’     (Mich. App. 1969); MacDonald v. State Farm Mut. Auto. Ins.
or ‘property damage’ to which this insurance applies.” The         Co., 165 N.W.2d 665 (Mich. App. 1968)). In this case, it is
district court held that Detroit Water Team was not “legally       undisputed that there has been no judicial determination or
obligated” to repair the electrical system, but predicted –        settlement establishing Detroit Water Team’s liability.
noting the lack of Michigan cases on point – that the
Michigan Supreme Court would nevertheless require                    Detroit Water Team argues that its legal obligation to repair
American National to prove that it suffered prejudice as a         the electrical system derives from two sources: general tort
result of Detroit Water Team’s actions in order to bar             principles and its contract with the City. We disagree on both
coverage. Finding that American National had failed to             fronts. In an effort to establish tort liability, Detroit Water
demonstrate any prejudice, the district court held that            Team argues that “[t]here is a well settled princip[le] in
coverage was not barred. For the following reasons, we hold        Michigan, as well as other jurisdictions, that a duty of
that the district court was correct in determining that Detroit    ordinary care arises from the performance of a contractual
Water Team was not “legally obligated” to repair the               obligation.” Chamberlain v. Bissell, 547 F. Supp. 1067, 1081
electrical system, but incorrect in predicting that the Michigan   (W.D. Mich. 1982). Detroit Water Team contends that, by
Supreme Court would require American National to prove             virtue of its design/build contract with the City, it had a
that it suffered prejudice in order to bar coverage on that        contractual obligation “to exercise ordinary care to protect the
ground.                                                            [City]’s property from damage resulting from [Detroit Water
                                                                   Team’s] demolition activities,” and that Detroit Water Team’s
   It is well-established that an insured has the initial burden   negligent performance of that contractual obligation was
of proving that its losses fall within the scope of the policy’s   actionable in tort. Detroit Water Team Br. at 41.
insuring agreement. See, e.g., Esicorp, Inc. v. Liberty Mut.
Ins. Co., 266 F.3d 859, 864 (8th Cir. 2001); Data Specialties,        Detroit Water Team’s argument misconstrues the identity
Inc. v. Transcont’l Ins. Co., 125 F.3d 909, 911 (5th Cir.          of the negligent party, if any, in this case. As the parties have
1997). Thus, Detroit Water Team has the burden of proving          stipulated, it was Adamo, not Detroit Water Team, whose
that it was “legally obligated” to pay the “sums” that it          demolition activities proximately caused the damage to the
incurred in repairing the damaged electrical system. The           electrical system. There is no evidence that Detroit Water
phrase “legally obligated” necessitates “more than inchoate or     Team has committed any negligence whatsoever. Detroit
potential liability.” Aetna Cas. & Sur. Co. v. Dow Chem. Co.,      Water Team apparently assumes that it is liable for Adamo’s
10 F. Supp. 2d 771, 797 (E.D. Mich. 1998) (citing Ryan v.          negligence, but the general rule under Michigan law is that a
Royal Ins. Co. of Am., 916 F.2d 731, 738-43 (1st Cir. 1990)).      general contractor is not liable for the negligence of its
Although the Michigan Supreme Court has never expressly            subcontractor. Candelaria v. B.C. Gen. Contractors, Inc.,
defined the phrase “legally obligated,” decisions from the         600 N.W.2d 348, 352 (Mich. App. 1999). While several
Michigan Court of Appeals “imply” – but do not expressly           exceptions to this general rule exist, id., Detroit Water Team
hold – “that the term ‘legal obligation’ requires either a         has not argued that any apply here, and our independent
judicial determination of liability or a settlement between the    review of the record confirms that none of the exceptions
insurer, insured and the claimant . . . .” Coil Anodizers, Inc.    applies under the facts of this case. Therefore, Detroit Water
v. Wolverine Ins. Co., 327 N.W.2d 416, 418 (Mich. App.             Team has failed to carry its burden of proving that it was
1982) (citing Giffels v. Home Ins. Co., 172 N.W.2d 540             “legally obligated” in tort to repair the electrical system.
Nos. 02-1324/1419                    Detroit Water Team v.              7    8     Detroit Water Team v.                 Nos. 02-1324/1419
                                 Agricultural Ins. Co., et al.                     Agricultural Ins. Co., et al.

  Detroit Water Team also argues that it was “legally                        answer to that question would generally depend upon whether
obligated” to make the repairs by virtue of its contract with                Detroit Water Team’s risks in dealing with the City –
the City, which required it to “take immediate action” to                    specifically, the risk that it would have to take immediate
restore any interrupted service within twenty-four hours.2                   action to restore an interrupted service – aligned with the risks
There is some dispute as to whether contractual liability, as                that Detroit Water Team and American National agreed
opposed to tort liability, can ever constitute a “legal[]                    would be insured under the policy. While we do not believe
obligat[ion]” within the meaning of the policy’s insuring                    that these risks aligned, we need not definitively decide that
agreement. Compare 1 Lee R. Russ & Thomas F. Segalla,                        issue given that coverage would be barred in any event
Couch in Insurance § 103:14 (3d ed. 2003) (“While the                        because Detroit Water Team’s contractual obligation to make
phrase ‘legal liability’ includes liability assumed by contract,             the repairs was not sufficiently definite as to constitute a legal
the phrases ‘liability imposed by law,’ and ‘legally obligated               obligation for which the insuring agreement provides
to pay as damages’ do not.”), and Hartford Accident &                        coverage.
Indem. Co. v. Reale, 644 N.Y.S.2d 442, 443 (App. Div. 1996)
(“the purpose of a commercial general liability policy . . . is                 In determining whether a particular loss falls within the
to provide coverage for tort liability for physical damage to                scope of an insuring agreement, it is necessary to focus upon
others and not for contractual liability of the insured for                  “[t]he nature of the damage and the risk involved . . . .”
economic loss”), and Action Ads, Inc. v. Great Am. Ins. Co.,                 Vandenburg, 982 P.2d at 244. The nature of the damage in
685 P.2d 42, 45 (Wyo. 1984) (liability insurance                             this case is that during the course of its demolition work,
“encompasses liability which the law imposes on all insureds                 Adamo caused property damage to the electrical system that
for their tortious conduct and not on the liability which a                  was running the City’s water plant. Adamo was a named
particular insured may choose to assume pursuant to                          insured under the American National policy that was issued
contract”), with Vandenburg v. Superior Court, 982 P.2d 229,                 to Detroit Water Team, and the risk of Adamo causing such
243-46 (Cal. 1999) (holding that it is “incorrect” to                        property damage was precisely the “nature” of the “risk” for
“distinguish[] contract from tort liability for purposes of the              which Adamo was insured under that policy. If any party was
CGL insurance coverage phrase ‘legally obligated to pay as                   “legally obligated” to pay any “sums” because of this
damages[]’”).                                                                incident, it was Adamo. Notably, had Detroit Water Team
                                                                             not rushed to repair the damage, the City presumably would
  Assuming – without deciding – that contractual liability                   have sought damages from Adamo, in which case coverage
can, in appropriate cases, constitute a legal obligation within              likely would have been available under the American
the meaning of the policy’s insuring agreement, the question                 National policy. Detroit Water Team’s anticipatory actions,
becomes whether this is such an appropriate case. The                        however, thwarted that process from occurring. Although
                                                                             Detroit Water Team did undertake certain contractual
                                                                             obligations to restore interrupted service, any legal liability
    2
                                                                             that Detroit Water Team may have incurred on the basis of
      Detroit W ater Team seems to suggest that this provision requires      that contract is entirely speculative. There was certainly no
any interrupted service to be completely restored within twenty-four hours   judicial determination or settlement establishing Detroit
of the interruptio n. In fact, however, we rea d the p rovisio n as merely
requiring that “immediate action” aimed at restoring the service be taken    Water Team’s liability in this regard, nor any other reason to
within twenty-four ho urs.                                                   believe that its liability was anything more than merely
Nos. 02-1324/1419                Detroit Water Team v.         9    10    Detroit Water Team v.                 Nos. 02-1324/1419
                             Agricultural Ins. Co., et al.                Agricultural Ins. Co., et al.

“inchoate” or “potential.” Aetna, 10 F. Supp. 2d at 797             burden of proving the applicability of the insuring agreement,
(citing Ryan, 916 F.2d at 738-43). Therefore, Detroit Water         see supra Esicorp, 266 F.3d at 864; Data Specialties, 125
Team has failed to carry its burden of proving that it was          F.3d at 911, and has shifted that burden onto the insurer. We
“legally obligated” by contract to repair the electrical system.    do not believe that the Michigan Supreme Court would adopt
                                                                    a rule that would lead to these consequences, particularly in
   Having concluded that Detroit Water Team was not                 light of the conspicuous lack of authority supporting such a
“legally obligated” to repair the electrical system, we must        rule.
next address the district court’s prediction that the Michigan
Supreme Court would require insurers like American National           In sum, we hold that because Detroit Water Team was not
to prove that they suffered prejudice in order to bar coverage      “legally obligated” to pay for the repairs to the electrical
for a loss that does not fall within the policy’s insuring          system, American National properly denied coverage on that
agreement. The district court’s prediction was based upon its       ground – regardless of whether it suffered prejudice as a result
view that the purpose of the “legally obligated” language is        of Detroit Water Team’s actions.
analogous to the purpose of “notice” and “cooperation”
provisions – i.e., to prevent collusion between the insured and                B. Agricultural Builder’s Risk Policy
the claimant – and that because insurers generally must prove
prejudice in order to bar coverage in reliance upon an                The only issue regarding the Agricultural builder’s risk
insured’s breach of a “notice” or “cooperation” provision, a        policy concerns the applicability of “Exclusion M,” which
similar prejudice requirement should apply to the “legally          bars coverage for:
obligated” language in the insuring agreement. Notably,
however, the district court cited no cases – from Michigan or         [l]oss or damage to property in existence at the
any other jurisdiction – that recognize or impose such a              commencement of this policy which [1] is not a part of
requirement.                                                          the construction operations insured hereunder and/or
                                                                      [2] for which the value is not included in the total insured
   We begin by noting that not even Detroit Water Team                value shown in the schedule attached to this policy.
attempts to defend the district court’s imposition of the
prejudice requirement, and our independent research leads us        Detroit Water Team appeals the district court’s determination
to conclude that the imposition of such a requirement is            that this exclusion bars coverage for the loss at issue in this
indefensible. The critical flaw in the district court’s reasoning   case.
is that it overlooks a significant distinction between the
“legally obligated” language and the “notice” and                      It is undisputed that the electrical system was “property in
“cooperation” provisions: the “legally obligated” language          existence at the commencement of th[e] policy.” Detroit
appears in the policy’s insuring agreement, whereas the other       Water Team asserts that the phrase “and/or” is ambiguous
provisions appear in the policy’s exclusions. By requiring an       and, therefore, that the exclusion should be read to apply only
insurer to prove that it suffered prejudice as a result of having   if both conditions are satisfied – i.e., if both the property “is
to provide coverage for a loss that does not even fall within       not a part of the construction operations insured hereunder”
the insuring agreement, the district court has not only             and the “value [of the property] is not included in the total
sanctioned an absurd result, it has relieved the insured of its     insured value shown in the schedule attached to this policy.”
Nos. 02-1324/1419                     Detroit Water Team v.              11   12   Detroit Water Team v.                 Nos. 02-1324/1419
                                  Agricultural Ins. Co., et al.                    Agricultural Ins. Co., et al.

Detroit Water Team also asserts that, regardless of how                       this case – indicates that the “Total Insured Value” does not
“and/or” is interpreted, neither condition specified in                       include the value of the electrical system contained within the
exclusion M is satisfied in this case. We find both assertions                manhole.
unpersuasive.
                                                                                 Because the value of the electrical system was “not
   First, we hold that the use of the “and/or” language in                    included in the total insured value shown in the schedule
exclusion M unambiguously means that the exclusion applies                    attached to th[e] policy,” the district court properly held that
if either or both of the two specified conditions are met. See,               exclusion M bars coverage under the Agricultural policy.
e.g., Michigan Pub. Serv. Co. v. City of Sheboygan, 37
N.W.2d 116, 129 (Mich. 1949) (“There are occasions where                                          III. CONCLUSION
intent may properly be expressed by ‘and/or,’ indicating
‘both, or either.’”); Local Div. 589, Amalgamated Transit                       For all the foregoing reasons, we REVERSE the district
Union, AFL-CIO, CLC v. Commonwealth, 666 F.2d 618, 627                        court’s award of summary judgment in favor of Detroit Water
(1st Cir. 1981) (“the words ‘and/or’ commonly mean ‘the one                   Team and REMAND this case to the district court with
or the other or both’”).                                                      instructions to award summary judgment in favor of
                                                                              American National, and we AFFIRM the district court’s
   Second, we hold that the second condition specified in                     award of summary judgment in favor of Agricultural.
exclusion M has been satisfied – i.e., the “value” of the
electrical system was “not included in the total insured value
shown in the schedule attached to th[e] policy.” The schedule
attached to the policy provides as follows:
  (a) Estimated Contract Price . . . . . . . . . . $214,542,000
  (b) Soft Costs . . . . . . . . . . . . . . . . . . . . . . . .$2,500,000
  (c) Value of Owner Furnished Material . . . .$ Included
  (d) Total Insured Value . . . . . . . . . . . . . . $217,042,000
The record reveals that the “Total Insured Value” figure is
equivalent to the amount of the actual cash replacement value
of the insurable work, or the amount that would be necessary
to redo the entire project if everything were somehow
destroyed. The undisputed deposition testimony of David
May, Vice President and General Counsel of Walsh
Construction Company of Illinois – a general contractor that
participated in the joint venture with Detroit Water Team in
