The insured subcontractor sought coverage under its Builder's Risk policy for loss despite already being paid under contract the amount sought under the policy. MKB Constr. v. Am Zurich Ins. Co., 2014 U.S. Dist. LEXIS 136096 (W.D. Wash. Sept. 24, 2014). 

   MKB contracted with the Lower Yukon School District (LYSD) to place gravel fill for a new building pad upon which a school building would be placed in Emmonak, Alaska. The project site was built on tundra that melted in the summer, becoming marshy and pocketed by pools of standing water. LYSD provided the bidding contractors with information stating that settlements of 3 to 9 inches could be expected in areas with 30 inches of fill. 

   The contract was awarded to MKB, who subsequently realized it had under bid the amount of gravel fill that would be required. The estimated difference in the amount bid and the amount that would be needed was 6,583 cubic yards. LYSD refused to increase the contract price. 

   When it began placing the fill, MKB found that the settlement was much greater than what LYSD had indicated. MKB was forced to have additional gravel barged from Nome, Alaska, at a higher cost. At the end of the summer season, the MKB had not completed its work. LYSD terminated MKB's contract and withheld the final contract payment of $1.4 million.

   The parties went to arbitration and settled for $1.4 million. MKB later stated in a Rule 30 (b) (6) deposition that this settlement was for the contract balance owed by LYSD.

   MKB then sought indemnity for its losses on the project under its policy with Zurich. The policy provided coverage for "direct physical loss or damage to Covered Property caused by or resulting from a Covered Cause of Loss." Zurich denied the claim because the shortage of gravel fill did not constitute "physical loss or damage."

      MKB sued and sought the contract balance of $1.4 million under the policy. The parties filed motions for summary judgment. 

   The court decided the contract balance issue in favor of Zurich. There was no dispute that LYSD paid MKB $1.4 million in the arbitration settlement. This was the precise amount of the contract balance that MKB claimed in the arbitration and later in its claim letter to Zurich. MKB did not suffer loss for this amount. An insured could receive only that amount that would indemnify actual loss, not an additional windfall above this amount.