Harleysville Mutual Insurance Company v. Dapper, LLC

Filing 31

MEMORANDUM OPINION granting 24 MOTION for Summary Judgment and Memorandum Brief in Support Thereof. Signed by Honorable Terry F. Moorer on 7/21/2010. (wcl, )

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Harleysville Mutual Insurance Company v. Dapper, LLC (CONSENT) Doc. 31 IN THE DISTRICT COURT OF THE UNITED STATES F O R THE MIDDLE DISTRICT OF ALABAMA N O R T H E R N DIVISION H A R L E Y S V IL L E MUTUAL IN S U R A N C E COMPANY P la in tif f , v. D A P P E R , LLC, D e f e n d a n t. ) ) ) ) ) ) ) ) ) ) Case No. 2:09-cv-794-TFM [w o] M E M O R A N D U M OPINION T h is action is assigned to the undersigned magistrate judge to conduct all proceedings a n d order entry of judgment by consent of all the parties (Docs. 9-10, filed November 18, 2 0 0 9 ) and 28 U.S.C. 636(c). Pending before the Court is Harleysville Mutual Insurance C o m p a n y 's Motion for Summary Judgment and Memorandum Brief in Support Thereof (Doc. 2 4 , filed February 23, 2010). The motion has been fully briefed and is now ripe for review. Upon consideration of the motion, the Court finds it is due to be GRANTED. I. PARTIES Plaintiff is Harleysville Mutual Insurance Company ("Harleysville" or "Plaintiff"), a n insurance company incorporated and organized under the laws of the State of P e n n sylv a n ia having its principal place of business in the State of Pennsylvania. D e f e n d a n t is Dapper LLC ("Dapper" or "Defendant"), a limited liability company in c o rp o ra te d and organized under the laws of the State of Alabama having its principal place Page 1 of 18 Dockets.Justia.com of business in the State of Alabama. II. JURISDICTION T h e district court has subject matter jurisdiction over the claims in this action pursuant to 28 U.S.C. 133 (diversity jurisdiction) and 28 U.S.C. 2201 (Declaratory Judgment A c tio n s ). Dapper does not contest citizenship, but does contest the amount in controversy a v e rrin g this court lacks subject matter jurisdiction. The Court will address subject-matter ju ris d ic tio n below. The parties do not contest personal jurisdiction or venue, and there are a d e q u a te allegations to support both. III. NATURE OF THE CASE T h e underlying facts of this case are necessarily viewed in favor of nonmovant D a p p e r. Harleysville filed this action seeking a declaration that it is not contractually required to defend or indemnify its insured, Dapper. In October 2008, Fantail, Inc. ("Fantail") filed a lawsuit in Circuit Court for Elmore County, Alabama against three defendants including D a p p e r. See Doc. 1, Exhibit A. The suit, styled Fantail, Inc. v. Kishor Desai, Shital D e s a i,a n d Dapper LLC, is currently pending in the Circuit Court for Elmore County as Civil A c tio n Number CV-2008-358. Id. The complaint seeks to recover damages for damage to p ro p e rty owned by Fantail allegedly caused by work performed by Dapper on land it owns d ire c tly adjacent to the Fantail property. Id. S u b s e q u e n t to the filings of the above referenced suits, Dapper requested Harleysville p ro v id e a defense pursuant to general liability policy number MPA 2J9198 and the umbrella Page 2 of 18 policy under BE 2J9198. Harleysville told Dapper that it would not defend the lawsuits. Harleysville admits it had a contractual obligation to insure Dapper, but argues the knownlo s s exclusion in the policy precludes coverage. Specifically, Harleysville avers it is not c o n tra c tu a lly obligated to provide a defense to the underlying state court action nor is it c o n tra c tu a lly obligated to indemnify Dapper should Plaintiff win in the underlying state a c tio n . See Doc. 24. H a rle ys v ille submitted its motion for summary judgment on February 23, 2010. See D o c . 24. Dapper timely filed its response on May 3, 2010 and Harleysville filed its reply on M a y 10, 2010. See Docs. 29-30. The motion for summary judgment is fully briefed and now rip e for this Court's review. IV. SUMMARY JUDGMENT STANDARD A party in a lawsuit may move a court to enter summary judgment before trial. FED. R . CIV. P. 56(a) and (b). Summary judgment is appropriate when the moving party e s ta b lis h e s that there is no genuine issue of material fact and the moving party is entitled to ju d g m e n t as a matter of law. FED. R. CIV. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 3 2 2 -2 4 , 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Gonzalez v. Lee County Housing Authority, 1 6 1 F.3d 1290, 1294 (11th Cir. 1998). "[T]he substantive law will identify which facts are m a te ria l." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L .E d .2 d 202 (1986). At the summary judgment juncture, the court does not "weigh the e v id e n c e and determine the truth of the matter," but solely "determine[s] whether there is a Page 3 of 18 genuine issue for trial." Id. at 249, 106 S.Ct. at 2511. Only disputes about the material facts w ill preclude the granting of summary judgment. Id. A material fact is one "that might a f f e c t the outcome of the suit under governing law," and a dispute about a material fact is " g e n u in e " "if the evidence is such that a reasonable jury could return a verdict for the n o n m o v in g party." Id.; accord Greenberg v. Bell-South Telecomms., Inc., 498 F.3d 1258, 1 2 6 3 (11th Cir. 2007); see also Slomcenski v. Citibank, N.A., 432 F.3d 1271, 1277 (11th Cir. 2 0 0 5 ) (quoting Hudgens v. Bell Helicopters/Textron, 328 F.3d 1329, 1344-45 (11th Cir. 2 0 0 3 )) ("In determining whether an issue of fact is `genuine' for the purpose of defeating s u m m a ry judgment, we ask whether the evidence is `such that a reasonable jury could return a verdict for the nonmoving party.'"). Thus, the initial burden of proof rests on the movant. Celotex, 477 U.S. at 325, 106 S.Ct. at 2554; Gonzalez, 161 F.3d at 1294. This burden is s a tis f ie d when the movant shows that if the evidentiary record were reduced to admissible e v id e n c e at trial, it would be insufficient to permit the non-movant from carrying its burden o f proof. Celotex, 477 U.S. at 322-23; 106 S.Ct. at 2552-53. The admissibility of evidence is subject to the same standards and rules that govern admissibility of evidence at trial. Clemons v. Dougherty County, Georgia, 684 F.2d 1365, 1369 n.5 (11th Cir. 1982) (citing P a n -Is la m ic Trade Corp. v. Exxon Corp., 632 F.2d 539, 556 (5th Cir. 1980)). Once the movant meets its burden under Rule 56, the non-movant must designate s p e c if ic facts showing there is a genuine issue for trial. Matsushita Elec. Indus. Co., Ltd. v. Z e n ith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Page 4 of 18 Conclusory assertions, unsupported by specific facts, presented in affidavits opposing the m o tio n for summary judgment are likewise insufficient to defeat a proper motion for s u m m a ry judgment. Lejaun v. Nat'l Wildlife Federation, 497 U.S. 871, 888, 110 S.Ct. 3177, 1 1 1 L.Ed.2d 695 (1990); see also Holifield v. Reno, 115 F.3d 1555, 1564 n.6 (11th Cir. 1997) (c o n c l u s o ry assertions in absence of supporting evidence are insufficient to withstand s u m m a ry judgment). "Speculation does not create a genuine issue of fact." Cordoba v. D illa rd 's , Inc., 419 F.3d 1169, 1181 (11th Cir. 2005) (citation omitted) (emphasis in o rig in a l). The party opposing summary judgment must respond by setting forth specific e v id e n c e in the record and articulating the precise manner in which that evidence supports h is or her claim, and may not rest upon the mere allegations or denials of the pleadings. FED. R . CIV. P. 56(e); Johnson v. Board of Regents of University of Georgia, 263 F.3d 1234, 1264 (1 1 th Cir. 2001). If the evidence is merely colorable or is not significantly probative, s u m m a ry judgment may be granted. See Anderson, 477 U.S. at 249-50, 106 S.Ct. at 2511 (c ita tio n s omitted). Thus, to avoid summary judgment, the nonmoving party "must do more th a n simply show that there is some metaphysical doubt as to the material facts." Matsushita E le c . Indus., 475 U.S. at 586 106 S.Ct. at 1356 (citations omitted). In determining whether a genuine issue for trial exists, the court must view all the e v id e n c e in the light most favorable to the nonmovant. McCormick v. City of Fort L a u d e rd a le , 333 F.3d 1234, 1243 (11th Cir. 2003); Johnson, 263 F.3d at 1242-43. Further, " a ll justifiable inferences are to be drawn in [that party's] favor." Anderson, 477 U.S. at 255; Page 5 of 18 106 S.Ct. at 2513; see also McCormick, 333 F.3d at 1243 (the evidence and all reasonable in f e re n c e s from the evidence must be viewed in the light most favorable to the nonmovant). If the non-moving party fails to make a showing sufficient to establish the existence of an e le m e n t essential to its case on which it will bear the burden of proof at trial, summary ju d g m e n t must be granted. Celotex, 477 U.S. at 322-23, 106 S.Ct. at 2552-53. In other w o rd s, summary judgment is proper after adequate time for discovery and upon motion a g a in s t a party who fails to make a showing sufficient to establish the existence of an element e s s e n tia l to that party's case. Id. at 322, 106 S.Ct. at 2552. V. FEDERAL JURISDICTION - AMOUNT IN CONTROVERSY D a p p e r avers that the amount in controversy does not exceed $75,000.00 ergo no d iv e rsity jurisdiction. Dapper relies on Harleysville's expert report estimating the re m e d ia tio n costs to be between $7,500.00 and $73,055.60. See Doc. 29 at p. 3 and Ex. A. Dapper fails to note that while this expert report states the remediation efforts may be valued a t less than $75,000.00, the potential judgment from the underlying state court lawsuit could b e significantly higher especially when considering the underlying suit unequivocally d e m a n d s judgment of $250,000. See Doc. 1, Ex. A. The Court cannot say with certainty that F a n ta il could not recover the amount sought and therefore, the amount in controversy e x c e e d s $75,000.00. "A diversity suit should not be dismissed unless it is apparent, to a legal c e rta in ty, that the plaintiff cannot recover the requisite amount in controversy." Deen v. E g le s to n , 597 F.3d 1223, 1228 (11th Cir. 2010) (internal quotations and citations omitted); Page 6 of 18 see also Williams v. Best Buy, 269 F.3d 1316, 1319 (11th Cir. 2001)) (A party may show that th e amount in controversy requirement is met when it is facially apparent from the complaint th a t the amount in controversy exceeds the jurisdictional requirement). As such, this Court d o e s retain jurisdiction over this matter. V I . RIPENESS A. D u ty to Indemnify In cases involving insurance coverage, courts treat the duty to defend and the duty to in d e m n if y as distinct and analyze them separately. See Allstate Indem. Co. v. Lewis, 985 F .S u p p . 1341, 1349 (M.D. Ala. 1997). The existence of a duty to defend may be established b y the allegations in the underlying state court complaints, but the duty to indemnify cannot b e determined at a preliminary stage in the proceedings. Specifically, a determination of the d u ty to indemnify cannot be made at a preliminary stage in the proceedings, when it is still p o s s ib le for the plaintiff in the underlying lawsuit to change the theory of liability and assert a claim that is covered by the policy at issue." Id. (citations omitted); accord Ladner & Co., In c . v. Southern Guaranty Ins. Co., 347 So. 2d 100, 104 (Ala. 1977); Home Ins. Co. v. Rice, 5 8 5 So.2d 859, 861 (Ala. 1991). That is "the duty to indemnify is not ripe for adjudication u n t il the insured is in fact held liable in the underlying suit." Lewis, 985 F.Supp. at 1349 (q u o tin g Nationwide Ins. v. Zavalis, 52 F.3d 689, 693 (7th Cir. 1995)). Page 7 of 18 Ripeness is now an issue as this lawsuit has been brought in federal court under the D e c la ra to ry Judgment Act.1 Guaranty Nat'l Ins. Co. v. Beeline Stores, Inc., 945 F.Supp. 1 5 1 0 , 1515 (M.D. Ala. 1996). Courts may decline to exercise their discretion under the D e c la ra to ry Judgment Act to decide questions about the duty to indemnify when the u n d e rlyin g action is pending. See Employers Mut. Cas. Co. v. All Seasons Window & Door M fg ., Inc., 387 F.Supp.2d 1205, 1211-12 (S.D. Ala. 2005) ("It is simply inappropriate to e x e rc ise jurisdiction over an action seeking a declaration of the plaintiff's indemnity o b lig a tio n s absent a determination of the insureds' liability."). Until the underlying suit is re s o lv e d , the duty to indemnify is an abstract, academic issue which presents "nice and in trig u in g questions which today may readily be imagined, but may never in fact come to p a s s ." Am. Fid. & Cas. Co. v. Pennsylvania Threshermen & Farmers' Mut. Cas. Ins. Co., 2 8 0 F.2d 453, 461 (5th Cir. 1960).2 Further, the Declaratory Judgment Act, "in its limitation 1 The Declaratory Judgment Act provides: In a case of actual controversy within its jurisdiction, except with respect to Federal taxes other than actions brought under section 7428 of the Internal Revenue Code of 1986, a proceeding under section 505 or 1146 of title 11, or in any civil action involving an antidumping or countervailing duty proceeding regarding a class or kind of merchandise of a free trade area country (as defined in section 516A(f)(10) of the Tariff Act of 1930), as determined by the administering authority, any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such. For limitations on actions brought with respect to drug patents see section 505 or 512 of the Federal Food, Drug, and Cosmetic Act. (a) (b) 2 See Bonner v. City of Prichard, 661 F.2d 1206 (11th Cir. 1981, en banc) (adopting as binding precedent all of the decisions of the former Fifth Circuit handed down prior Page 8 of 18 to `cases of actual controversy,' manifestly has regard to the constitutional provision." AutoO w n e r s Ins. Co. v. Toole, 947 F.Supp. 1557, 1565 (M.D. Ala. 1996) (citing Aetna Life Ins. C o . v. Haworth, 300 U.S. 227, 240-41, 57 S.Ct. 461, 463, 81 L.Ed. 617 (1937)). D a p p e r may still prevail in the underlying suit. If Dapper wins, the indemnification is su e is moot and the Court would never reach the issue. To resolve the duty to indemnify b e f o r e the underlying state case concludes risks wasting judicial resources. See Beeline S t o r e s , Inc., 945 F.Supp. at 1515. As such, the Court declines to look to the duty to in d e m n if y until after determines the duty to defend. Cf. Universal Underwriters Ins. Cor. v . Stokes Chevrolet, Inc., 990 F.2d 598, 605 (11th Cir. 1993) (duty to defend may be broader th a n duty to indemnify); Employers Mut. Cas. Co. v. Evans, 76 F.Supp.2d 1257 (N.D. Ala. 1 9 9 9 ) (a determination that there is no duty to defend may well determine the duty to in d e m n if y issue). B. D u ty to Defend In contrast to the duty to indemnify, courts recognize a justiciable controversy exists w h e n the insurance company denies is has an obligation to defend the insured under the p o lic y. See Am. Fid., 280 F.2d at 461. The decision whether an insurance company is o b lig a te d to defend must be made at the preliminary stage of the proceedings. See AutoO w n e r s Ins. Co. v. Toole, 947 F.Supp. 1557, 1566 n. 25 (M.D. Ala. 1996) (citations omitted). "An insurance company's duty to defend its insured is determined by the language of the to the close of business on September 30, 1981). Page 9 of 18 insurance policy and by the allegations in the complaint giving rise to the action against the in s u re d ." Ajdarodini v. State Auto Mut. Ins. Co., 628 So. 2d 312, 313 (Ala. 1993). Here, c o n tro v e rsy exists as to whether Harleysville is obligated to provide a defense to Dapper u n d e r the insurance policy - making the duty to defend ripe for review. The Court will now lo o k to the merits of the declaratory judgment action for the duty to defend. V I I . KNOWN LOSS G e n e ra l rules of contract law govern an insurance contract. Lamberts v. Coregis Ins. C o ., Inc., 950 So.2d 1156, 1161 (Ala. 2006) (quoting Safeway Ins. Co. of Ala., Inc. v. H e r r e r a , 912 So.2d 1140, 1143 (Ala. 2005)). Thus, the court must enforce the policy as w ritte n if the terms are unambiguous and whether a provision is ambiguous is a question of la w . Id. "A term in a contract is ambiguous only if, when given the context, the term can re a s o n a b ly be open to different interpretations by people of ordinary intelligence." Id. at 1 1 6 2 . Hence, the Court first looks to the terms of the insurance contract. H a rle ys v ille properly identifies the pertinent sections of the insurance policy and D a p p e r does not dispute the language - merely the application of it. Harleysville Commercial G e n e ra l Liability Policy MPA 2J9198 and Harleysville Commercial Liability Umbrella P o lic y BE 2J9198 provide, in pertinent part, as follows: Page 10 of 18 SECTION I - COVERAGES C O V E R A G E A - BODILY INJURY AND PROPERTY DAMAGE L IA B IL IT Y 1 . Insuring agreement. b. *** This insurance applies to "bodily injury" and "property damage" only if: (1 ) The "bodily injury" or "property damage" is caused by an "occurrence" th a t takes place in the "coverage territory"; The "bodily injury" or "property damage" occurs during the policy p e rio d ; and P rio r to the policy period, no insured listed under Paragraph 1. of S e c tio n II Who Is An Insured and no "employee" authorized by you to give or receive notice of an "occurrence" or claim, knew that the " b o d ily injury" or "property damage" had occurred, in whole or in part. If such a listed insured or authorized "employee" knew, prior to the p o lic y period, that the "bodily injury" or "property damage" occurred, th e n any continuation, change or resumption of such "bodily injury" or " p ro p e rty damage" during or after the policy period will be deemed to h a v e been known prior to the policy period. (2 ) (3 ) c. " B o d ily injury" or "property damage" which occurs during the policy period a n d was not, prior to the policy period, known to have occurred by any insured lis te d under Paragraph 1. of Section II Who Is An Insured or any "employee" a u th o riz e d by you to give or receive notice of an "occurrence" or claim, in c lu d e s any continuation, change or resumption of that "bodily injury" or " p ro p e rty damage" after the end of the policy period. "Bodily injury" or "property damage" will be deemed to have been known to h a v e occurred at the earliest time when any insured listed under Paragraph 1. o f Section II Who Is An Insured or any "employee" authorized by you to g iv e or receive notice of an "occurrence" or claim: (1 ) R e p o rts all, or any part, of the "bodily injury" or "property damage" to u s or any other insurer; d. Page 11 of 18 (2) R e c e iv e s a written or verbal demand or claim for damages because of th e "bodily injury" or "property damage"; or B e c o m e s aware by any other means that "bodily injury" or "property d a m a g e " has occurred or has begun to occur. *** B o th policies define certain terms as follows: (3 ) S E C T I O N V - DEFINITIONS 3. *** " B o d ily injury" means bodily injury, sickness or disease sustained by a person, in c lu d in g death resulting from any of these at any time. *** " O c c u rre n c e " means an accident, including continuous or repeated exposure to substantially the same general harmful conditions. *** " P ro p e rty damage" means: a. P h ysic a l injury to tangible property, including all resulting loss of use o f that property. All such loss of use shall be deemed to occur at the tim e of the physical injury that caused it; or L o s s of use of tangible property that is not physically injured. All such lo s s of use shall be deemed to occur at the time of the "occurrence" that c a u s e d it. *** T h e crux of the issue before this Court is when Dapper "knew" of the damage to F a n ta il's property. As noted above, under the terms of the policy, property damage is d e e m e d to be known in three instances. The third definition is the one relevant to this case. Specifically, when the insured "[b]ecomes aware by any other means that `bodily injury' or `p ro p e rty damage' has occurred or has begun to occur." Thus, the Court first looks to the c h ro n o lo g y of events involving the Dapper and Fantail properties, drawing all reasonable in f e re n c e s in favor of Dapper. Page 12 of 18 13. 17. b. A. C h r o n o lo g y of Events O n August 5, 2003, Dapper purchased the 4.346 acre tract of property. The tract of la n d is directly adjacent to the land owned by Fantail. At this time, Dapper was not insured b y Harleysville, though William Palmer ("Palmer"), Dapper's managing member, used H a r le ysv ille as his insurance company for Palmer LLC - one of his other companies. On A p ril 12, 2006, counsel for Fantail contacted Palmer to inform him that excavation done on th e Dapper property created erosion issues on the Fantail property. See Doc. 24, Ex. C. The c o n v e rs a tio n was confirmed in a subsequent e-mail in May 2006. See Doc. 24, Ex. D. Dapper began remediation of the properties in late May and June 2006 by moving dirt to the a f f e c te d area. See Doc. 29, Ex. A. Additionally, in June 2006, Dapper received notice from th e Alabama Department of Environmental Management ("ADEM") that erosion was o c c u rrin g on the Dapper property which would require remediation. Throughout this time, P a lm e r negotiated with Fantail to resolve the matter. It was Palmer's belief that the matter h a d been resolved to the satisfaction of both parties. In July 2006, Palmer spoke with his insurance agent to review his insurance coverage. At that meeting, Palmer requested Dapper be added as a named insured to his current policies - specifically the ones identified in this declaratory action. He further requested that the c o v e ra g e be applied retroactively to the beginning of the current policy period. Dapper was a d d e d to the policy, effective July 26, 2006 with the retroactivity to September 20, 2005. See D o c . 1, Ex. B & C. On or about August 22, 2006, ADEM approved Dapper's plan of Page 13 of 18 remediation. Sometime in early October 2006, Fantail contacted Palmer to demand a change in the p ro p o s e d agreement and by November 6, 2006, the deal fell apart. See Doc. 29, Ex. A-6. In F e b ru a ry 2007, Dapper subdivided the tract of land and sold the 4.139 acre parcel to Kishor D e s a i and Shital Patel. Dapper retained the remaining 0.238 acre tract. See Doc. 24, Ex. B. On October 10, 2008, Fantail filed the underlying state court complaint against Dapper and th e two individuals for the erosion and property damage. See Doc. 1, Ex. A. B. D is c u s s io n and Analysis D iv e rs ity jurisdiction requires this court to apply Alabama substantive law. The p a rtie s agree and the Court finds that it is presented with a novel issue apparently not a d d re s s e d in any reported Alabama cases. Correct resolution of the dispute at bar requires th e Court to examine basic principles of insurance contracts and apply those principles to the f a c ts . As previously noted, the general rules of contracts govern an insurance policy and the c o u rt must enforce the policy as written if the terms are unambiguous. T u rn in g to the unambiguous policy terms, Dapper is deemed to have known about th e property damage when it learned that it had occurred or had begun to occur. Based on th e chronology of events, it is clear that Dapper knew of erosion issues between the Dapper la n d and the Fantail land when it was contacted by Fantail's counsel in April 2006. Dapper h ire d a person to fix the erosion to the Fantail property and thought the repairs were adequate to remedy the damage and prevent future damage. Dapper then sought and bought Page 14 of 18 retroactive insurance coverage for their land. Though Dapper may have believed it had re s o lv e d the issue with its tentative agreement with Fantail, that does not negate its k n o w le d g e of the erosion event, but instead confirms it. Dapper cites to Essex Ins. Co. v. H&H Land Dev. Corp., 525 F.Supp.2d 1344 (M.D. G a . 2007) as support for its contention that it did not have knowledge. In Essex, the insured (H & H ) was sued for property damage by two parties (Malone and Blair). Essex - the in s u ra n c e company - denied coverage based on the known-loss provision of the policy. Id. a t 1345. The Court denied summary judgment because it determined the issue of H&H's k n o w le d g e was materially disputed. See id. at 1347-48. However, as aptly noted by H a rle ysv ille , this case is readily distinguishable. In Essex, the Court determined that Essex's o n ly evidence that H&H knew of the property damage related entirely to complaints by a n e ig h b o rin g landowner (Carter) and not the complaints by Malone and Blair of damage to th e ir respective properties. Id. That evidence did not conclusively establish that H&H was a w a re of the alleged property damage to the Malone and Blair properties, but only the Carter p ro p e rty. Such is not the case with Dapper. It is undisputed that Dapper received notice of th e Fantail property damage directly from Fantail at least two months before the Dapper p ro p e rty was added to the Harleysville policies. The fact Palmer thought his remediation e f f o rts would resolve the situation does not belie his knowledge of the damage. Rather, this c a s e is more like the ones presented by Harleysville. See Keenan Hopkins Schmidt and S to w e ll Contractors, Inc. v. Continental Cas. Co., 653 F.Supp.2d 1255 (M.D. Fla 2009) Page 15 of 18 (known-loss provision relieved insurance company from liability for amounts arising out of p ro p e rty damage known by the insured prior to the inception of the policy); Quanta Indem. C o . Davis Homes, LLC, 606 F.Supp.2d 941 (S.D. Ind. 2009) (the known claim exclusion was e n f o rc e a b le because the insured had knowledge of at least some of the damage prior to the in c e p tio n of the policy period). While Dapper is correct in that none of these cases are b in d in g on this court, the Court - applying its own independent reasoning and judgment f in d s these cases persuasive and their reasoning sound. The sine qua non of insurance is that an insurance company is free, absent some law o r regulation to the contrary, to accept or reject the risks the company chooses to insure and t o set a corresponding premium. To assess the risk and set a corresponding premium, the in s u ra n c e company will examine the risk either on its own, by means of a third party, or most c o m m o n ly by a certification from the potential insured that there is no known existing loss, c la im , or grounds for a loss or claim which the company must pay if they undertake the risk o f loss. Contractual known-loss provisions serve a valuable societal interest inasmuch as th e y keep the costs of insurance lower by avoiding the costs of examinations by third parties a n d the insurance company which would be passed on to policy holders. To strike a correct b a la n c e in the societal interests Courts must strictly construe the known-loss provisions in a c c o rd a n c e with insurance and contract law. While the general rule is to interpret exceptions to coverage as narrowly as possible in order to provide maximum coverage for the insured, E ss e x Ins. Co. v. Avondale Mills, Inc., 639 So.2d 1339, 1341 (Ala. 1994), the Court must also Page 16 of 18 enforce unambiguous terms. Safeway, 912 So.2d at 1143. Thus, while the Court should c o n s tru e exclusions as narrowly as possible against Harleysville as the insurance company, th e Court must also just as strictly enforce unambiguous clauses when they work against the in s u re d - i.e. Dapper. An insurance company relies upon representations by the customer w h e n making its decisions on whether to insure a property. Full disclosure shields legitimate p o lic y holders from premium increases which would follow when benefits are paid to those w h o deliberately hid pertinent matters from the insurer. While the court credits Dapper that it had no nefarious motives in keeping the potential loss from Harleysville, the important m a tte r is that Dapper, under the law, knew of the potential for a claim and chose not to tell H a rle ysv ille about the claim or potential claim when Harleysville explicitly put the burden to report squarely upon Dapper. The Court further credits that Dapper did not change its in s u ra n c e to Harleysville because of the issues with Fantail. The reality is that while there w a s no nefarious intent by Palmer/Dapper, no good reason in law or equity exists to shield D a p p e r from the unambiguous known-loss provision of the insurance contract. To hold o th e rw is e would lead to unnecessary litigation in other cases. Based on all the above, the Court finds that the "known-loss" endorsement in the P o lic y applies. As the property damage at issue manifested prior to the Policies' inception, Harleysville is relived of any duty to defend and entitled to summary judgment in its favor. VIII. CONCLUSION T h e Court earlier stated that it would look to the duty to indemnify once a Page 17 of 18 determination was made on the duty to defend. Now that the Court had made its d e te rm in a tio n , it is axiomatic that if there is no duty to defend then there is also no duty to in d e m n if y. "Logic and common sense dictate that if there is no duty to defend, then there m u s t be no duty to indemnify." American States Ins. Co. v. Bailey, 133 F.3d 363, 368 (5th C ir. 1998) (citing Western Heritage Ins. Co. v. River Entertainment, 998 F.2d 311, 315 (5th C ir. 1993)). As such, summary judgment is appropriate as to both the duty to defend and the d u ty to indemnify. Pursuant to the foregoing Memorandum Opinion, the Court grants Harleysville M u tu a l Insurance Company's Motion for Summary Judgment and Memorandum Brief in S u p p o rt Thereof (Doc. 24). An appropriate judgment will be entered. DONE this 21st day of July, 2010. /s/ Terry F. Moorer T E R R Y F. MOORER U N IT E D STATES MAGISTRATE JUDGE Page 18 of 18

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