Travelers Indemnity v. Tower-Dawson, LLC

Filing 920081031

Opinion

UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

No. 07-1525

TRAVELERS INDEMNITY INDEMNITY COMPANY,

COMPANY

OF

AMERICA;

THE

TRAVELERS

Plaintiffs - Appellees, COLONY INSURANCE COMPANY; DONEGAL GROUP, INCORPORATED, Defendants ­ Appellees, and FOUNDATIONS WHITE, UNLIMITED, INCORPORATED; NICHOLAS JOHN ALAN

Defendants, v. TOWER-DAWSON, LLC, Defendant ­ Appellant.

Appeal from the United States District Court for the District of Maryland, at Baltimore. William D. Quarles, Jr., District Judge. (1:05-cv-02644-WDQ)

Argued:

September 24, 2008

Decided:

October 31, 2008

Before WILKINSON, Circuit Judge, HAMILTON, Senior Circuit Judge, and James C. CACHERIS, Senior United States District Judge for the Eastern District of Virginia, sitting by designation.

Affirmed by unpublished per curiam opinion.

ARGUED: Michael Evan Jaffe, THELEN, REID, BROWN, RAYSMAN & STEINER, L.L.P., Washington, D.C., for Appellant. Lee Hedgecock Ogburn, KRAMON & GRAHAM, Baltimore, Maryland, for Appellees. ON BRIEF: Todd J. Wagnon, THELEN, REID, BROWN, RAYSMAN & STEINER, L.L.P., Washington, D.C., for Appellant. Stuart M. G. Seraina, KRAMON & GRAHAM, Baltimore, Maryland, for Appellees Travelers Indemnity Company of America and The Travelers Indemnity Company; Laura Campbell Walters, DRECHSLER, LARKIN & WALTERS, P.C., Baltimore, Maryland, for Appellee Colony Insurance Company; Michael B. Mann, MANN & CASEY, P.A., Towson, Maryland, for Appellee Donegal Group, Incorporated.

Unpublished opinions are not binding precedent in this circuit.

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PER CURIAM: Tower-Dawson, LLC (Tower), the developer of The Villages at Tower Oaks (Tower Oaks), a residential development in Rockville, Maryland, appeals the district court's grant of summary judgment on its claim that Travelers Company, Indemnity Colony Company of America, and

Travelers

Indemnity

Insurance

Company,

Donegal Group (collectively the Insureds) had an obligation to indemnify Foundations Unlimited, Inc. (Foundations) for the

costs incurred by Tower in installing a new retaining wall in front of the defective one Foundations installed in Tower Oaks and for the costs to repair federally-protected wetlands located adjacent to Tower Oaks which were damaged by Tower during its installation of the new retaining wall. follow, we affirm. For the reasons that

I The Insureds issued commercial general liability (CGL)

policies (the Policies) to Foundations, covering a time period beginning on August 28, 1995 and ending on August 28, 2003. Policies because provided of coverage for damages caused that by Foundations an The owed

"property

damage"

"occurrence."

Property damage is defined as either a "[p]hysical injury to tangible property, including all resulting loss of use of that property" or "[l]oss of use of tangible property that is not - 3 -

physically injured."

Occurrence is defined as "an accident,

including continuous or repeated exposure to substantially the same general harmful conditions." The Policies' grant of coverage for property damage caused by an occurrence is limited by a "your work" exclusion.

Specifically, the your work exclusion provides that coverage to the named insured, in this case Foundations, does not apply to "`property damage' [due] to `your work' arising out of it or any part of it." In August 1995, Tower contracted with Foundations to

construct a 770-foot retaining wall at Tower Oaks. began shortly thereafter, and Foundations

Construction the

completed

retaining wall some time in 1996. In 2001, the retaining wall began to show signs of failure, and eventually in and a seventy-foot causing section damage of to the retaining wall

collapsed property

2003,

several

homeowners' to the

federally-protected

wetlands

adjacent

development. In order to prevent further damage to the homeowners'

property and the federally-protected wetlands adjacent to the development, Tower stabilized the area around the retaining wall by installing wood and gravel bracing. Once the slope was

stabilized, Tower constructed a new retaining wall immediately in front of the defective one. With the two retaining walls in

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place, the land both above and below the walls was stabilized. To construct the new retaining wall, Tower decided to access the site through the federally-protected wetlands, but this caused further damage to those wetlands. Following the construction of

the new retaining wall, Tower repaired the homeowners' property and remediated the federally-protected wetlands. it incurred, Tower instituted arbitration For the costs against

proceedings

Foundations, which resulted in an award to Tower in the sum of $2,015,603, an amount which has not been paid. Travelers Indemnity Indemnity Company of America and Travelers this

Company

(collectively

Travelers)

instituted

declaratory judgment action, seeking a declaration that it had no duty under the CGL policies it issued to Foundations to

indemnify Tower for any portion of the arbitration award Tower obtained against Foundations. Travelers joined as defendants

Colony Insurance Company and Donegal Group, each of whom filed counterclaims seeking a declaration that their policies did not require them to indemnify Tower in connection with the

arbitration award. On cross-motions for summary judgment, the district court held that the Insureds were obligated to indemnify Tower for some of its costs, but not others. More specifically, the

district court held that the damage to the homeowners' property and the federally-protected wetlands caused by the collapse of - 5 -

the

original

retaining

wall

was

a

covered

loss

under

the

Policies.

The district court also held that the cost of the

emergency bracing was a covered loss as well, concluding that the cost was incurred to prevent imminent or further damage to third party property. The district court held that the cost of

installing the new retaining wall was not a covered loss under the Policies because it was not caused by an occurrence or, alternatively, the loss was barred by the "your work" exclusion. Finally, the district court held that the cost of repairing the further damage to the federally-protected wetlands brought about by the installation of the new retaining wall was not a covered loss because the loss was not accidental. Tower appeals the portion of the district court's decision adverse to its interests. The Insureds have not challenged any

portion of the district court's decision.

II We review de novo the district court's grant of summary judgment. Ellis v. Metro. Life Ins. Co., 126 F.3d 228, 232 (4th We will affirm the district court's decision "if

Cir. 1997).

the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). - 6 We view the record and

all

reasonable

inferences

drawn

therefrom

in

the

light

most

favorable to the nonmoving party, here Tower. Food Inc., 370 F.3d 423, 428 (4th Cir. 2004).

Williams v. Giant

On appeal, Tower argues that the district court erred when it determined that the cost of installing the new retaining wall and the cost of repairing the damage to the federally-protected wetlands brought about by the installation of the new retaining wall were not covered losses under the Policies. In resolving

this argument, we apply Maryland's substantive law regarding the interpretation of an insurance policy, which the parties agree applies to this case. French v. Assurance Co. of Am., 448 F.3d Under Maryland law,

693, 700 (4th Cir. 2006).

[a]n insurance policy is interpreted in the same manner as any other contract. Maryland courts do not follow the rule that an insurance policy must be strictly construed against the insurer. The principal rule in the interpretation of contracts is to effect the intentions of the parties. When a contract's wording is clear, the court will presume that the parties intended what they expressed, even if the expression differs from the parties' intentions at the time they created the contract. If reasonably possible, effect must be given to every clause and phrase of a contract, so as not to omit an important part of the agreement. Nationwide Ins. Co. v. Rhodes, 732 A.2d 388, 390-91 (Md. Ct. Spec. App. 1999) (citations and internal quotation marks

omitted). The Policies provided coverage for damages that Foundations owed because of "property damage" caused by an "occurrence."

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The Policies define an "occurrence" as "an accident, including continuous or repeated exposure to substantially the same

general harmful conditions." Under Maryland law, in order for there to be an occurrence under a CGL policy, there must be an accident. Lerner Corp. v.

Assurance Co. of Am., 707 A.2d 906, 911 (Md. Ct. Spec. App. 1998). accident. Typically, a CGL policy does not define there term

French, 448 F.3d at 698.

However, under Maryland

law, "an act of negligence constitutes an `accident' under a liability insurance policy when the resulting damage takes place without the insured's actual foresight or expectation." Id.

Our decision in French is instructive on the question of what constitutes built an a accident single under Maryland home for law. the There, a

contractor

family

appellants.

Pursuant to the parties' contract, the exterior of the home was clad with a synthetic stucco system known as the Exterior

Insulating Finishing System (EIFS).

Id. at 696.

Nearly five

years after the home was completed, the appellants discovered extensive moisture and water damage to the walls of their home, resulting from the defective cladding of the home with the EIFS. Id. The appellants spent over $500,000 to correct the defects

in the EIFS exterior of the home and to remedy the resulting damage to the otherwise nondefective structure and walls of the home. Id. The appellants brought an action against the

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contractor, and the question before this court was whether the contractor's insurer was required to cover the claim under the contractor's CGL policy. Id.

Applying Maryland law, we concluded that the insurer was required to cover any unexpected property damage that occurred to something other than the defective object as a result of the defective object, but the insurer was not required to cover any damage to the defective object itself: [I]f the defect causes unrelated and unexpected property damage to something other than the defective object itself, the resulting damages . . . may be covered. For example, if a collapse of [a] veneer had injured a user of the facility or damaged property other than the veneer itself, these may well be covered. Id. at 702 (alterations and internal quotation marks omitted). Thus, when there is no property damage "to otherwise

nondefective parts of [a] building," there is no "accident" or "occurrence." remedy Id. at and 703. Thus, coverage property exists damage only to "to the

unexpected

unintended

contractor's otherwise nondefective work-product caused by the . . . defective workmanship." Id. at 706. And if a product

does not meet the contract requirements of a sale, it should not be unforeseen that "the purchaser will be entitled to correction of the defect." Id. at 702.

The Maryland Court of Appeals' decision in Woodfin Equities Corp. v. Harford Mutual Insurance Co., 678 A.2d 116 (Md. Ct.

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Spec. App. 1996), overruled in part on procedural grounds, 687 A.2d 652 (Md. 1997), also is instructive on the question of what constitutes an accident under Maryland law. In that case, a

hotel hired the insured to install a Heating, Ventilation, and Air Conditioning (HVAC) system. Id. at 118-19. The HVAC system

was defective, and carpeting and drywall had to be destroyed to remedy the defect. the Id. at 121, 131. The and insured drywall. sought The

coverage

for

costs

of

the

carpeting

Maryland Court of Special Appeals found that the insurer was not required to cover the property damage because pulling up

carpeting and breaking through drywall to access the HVAC system was not property damage, but rather the "cost incurred in The up

replacing and repairing the HVAC systems." Woodfin court further explained:

Id. at 132 n.8. pulling

"Voluntarily

carpeting or breaking through dry-wall to access the HVAC units is not property damage. . . . Even if it could be considered

`property damage,' we would hold that it was not caused by an `occurrence,' because the so-called damage was not accidental." Id. Under these authorities, it is evident that the cost of installing the new retaining wall and the cost of repairing the Even though Woodfin was overruled on procedural grounds, Maryland courts continue to find "Woodfin instructive on the interpretation of CGL policies generally." Lerner Corp., 707 A.2d at 910. - 10

damage to the federally-protected wetlands brought about by the installation of the new retaining wall are not covered losses under the Policies. With regard to the installation of the new

retaining wall, Foundations' contractual obligation to Tower was to furnish a retaining wall, one capable of protecting the land both above and below the retaining wall. wall did not fulfill this purpose and The original retaining needed to be either

repaired or replaced. wall, either by

The correction of the defective retaining the original retaining wall or

replacing

installing a new one, simply was not unforeseen, just like it was not unforeseen in French that the EIFS exterior would have to be replaced as it was not capable of keeping moisture and water out of the appellants' home. With regard to the cost of repairing the damage to the federally-protected wetlands brought about by the installation of the new retaining wall, these costs are not covered losses as well. This damage was not caused by an accident; rather, it was Just like the carpeting

caused by the intentional act of Tower.

and drywall that had to be removed or destroyed in Woodfin to remedy the defect in the HVAC units, the further damage to the federally-protected wetlands was necessary to correct the defect (inability to protect the land both above and below the

retaining wall) in the original retaining wall.

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In

an

attempt

to

make

an

end-run

around

these

well-

established authorities, Tower states that the outcome of this case is controlled by Aetna Ins. Co. v. Aaron, 685 A.2d 858 (Md. Ct. Spec. App. 1996). In that case, the Maryland Court of

Special Appeals addressed whether remediation expenses incurred in connection with the insured homeowner's own property were covered losses under a homeowner's insurance policy covering

property damages, even though the policy contained an "owned property" exclusion, which provided that coverage did not apply if the property damage was to "property owned by the insured." Id. at 860. did The not Aaron court held that the for owned the property costs of

exclusion

preclude

coverage

preventative measures undertaken on the insured's property to prevent imminent damage to third-party property. Aaron is of no help to Tower. Id. at 866-70.

Aaron did not involve a CGL

policy that provided for coverage for damages that were caused by an "occurrence." The inclusion of the occurrence provision

brings into play the well-settled Maryland law construing what constitutes an accident in the construction context. to accept Tower's invitation to apply Aaron If we were of the

outside

homeowner's context and in the construction context, we would turn the Maryland law on what constitutes an occurrence on its head, as redoing the insured contractor's work routinely has the effect of preventing further or imminent damage to third-party - 12 -

property.

We also note that the Court of Appeals of Maryland

has rejected a claim for coverage under a similar CGL policy to the one in our case for measures taken to avoid imminent

property damage in the construction context.

See W.M. Schlosser

Co., Inc. v. Ins. Co. of North America, 600 A.2d 836, 840 (Md. 1992) ("We conclude that under Maryland law, the liability

policy at issue here [which defines occurrence as an accident] did not provide coverage for the preventive costs incurred by Schlosser.").

III For the reasons stated herein, the judgment of the district court is affirmed. AFFIRMED

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