SUA Insurance Company v. S&O Investments, LLC et al
ORDER granting in part and denying in part 45 Motion for Summary Judgment. Signed by Chief Judge William H. Steele on 10/28/2011. (tgw)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ALABAMA
SUA INSURANCE COMPANY,
S&O INVESTMENTS, LLC, et al.,
) CIVIL ACTION 10-0313-WS-M
This matter is before the Court on the plaintiff’s motion for summary judgment.
(Doc. 45). The parties have filed briefs and evidentiary materials in support of their
respective positions, (Docs. 46-49, 54-56), and the motion is ripe for resolution. After
carefully considering the foregoing, the Court concludes that the motion is due to be
granted in part and denied in part.
The plaintiff issued two policies of insurance to the entity defendant (“S&O”),
pursuant to which defendants Shewmake and Odom (collectively, “the insureds”) were
also insured. The first policy (“Policy 1”) covered the term May 25, 2006 to May 25,
2007. The second policy (“Policy 2”) covered the term May 25, 2007 to May 25, 2008.
(Doc. 48, Exhibits 8, 9).
S&O built two houses in 2006, which it sold the same year. (Doc. 46 at 5-6). One
house was re-sold to defendants Charles and Rachel Parker on April 23, 2008. (Id. at 6).
The other was re-sold to defendant Joseph Fernandez in November 2008. (Id.).
Unfortunately for all concerned, the houses were constructed using Chinese
drywall. The Parkers and Fernandez eventually became class representatives in a suit
naming numerous defendants, including S&O. (Doc. 46 at 3). The plaintiff filed this
declaratory judgment action seeking a declaration that it has no duty to defend or
indemnify S&O in connection with the class lawsuit. (Doc. 1 at 30). The plaintiff
recently voluntarily dismissed five counts of the complaint, (Docs. 44, 53), leaving three.
Count III argues there was no bodily injury or property damage within the policy period.
Count V asserts a pollution exclusion, and Count VII addresses a tract housing exclusion.
The plaintiff seeks summary judgment on all three grounds.
Summary judgment should be granted only if “there is no genuine dispute as to
any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ.
P. 56(a). The party seeking summary judgment bears “the initial burden to show the
district court, by reference to materials on file, that there are no genuine issues of material
fact that should be decided at trial.” Clark v. Coats & Clark, Inc., 929 F.2d 604, 608
(11th Cir. 1991) (explaining Celotex Corp. v. Catrett, 477 U.S. 317 (1986)). The moving
party may meet its burden in either of two ways: (1) by “negating an element of the nonmoving party’s claim”; or (2) by “point[ing] to materials on file that demonstrate that the
party bearing the burden of proof at trial will not be able to meet that burden.” Id. “Even
after Celotex it is never enough simply to state that the non-moving party cannot meet its
burden at trial.” Id.; accord Mullins v. Crowell, 228 F.3d 1305, 1313 (11th Cir. 2000).
“When the moving party has the burden of proof at trial, that party must show
affirmatively the absence of a genuine issue of material fact: it must support its motion
with credible evidence ... that would entitle it to a directed verdict if not controverted at
trial. [citation omitted] In other words, the moving party must show that, on all the
essential elements of its case on which it bears the burden of proof, no reasonable jury
could find for the nonmoving party.” United States v. Four Parcels of Real Property,
941 F.2d 1428, 1438 (11th Cir. 1991) (en banc) (emphasis in original); accord Fitzpatrick
v. City of Atlanta, 2 F.3d 1112, 1115 (11th Cir. 1993).
“If the party moving for summary judgment fails to discharge the initial burden,
then the motion must be denied and the court need not consider what, if any, showing the
non-movant has made.” Fitzpatrick, 2 F.3d at 1116; accord Mullins, 228 F.3d at 1313;
Clark, 929 F.2d at 608.
“If, however, the movant carries the initial summary judgment burden ..., the
responsibility then devolves upon the non-movant to show the existence of a genuine
issue of material fact.” Fitzpatrick, 2 F.3d at 1116. “If the nonmoving party fails to
make ‘a sufficient showing on an essential element of her case with respect to which she
has the burden of proof,’ the moving party is entitled to summary judgment.” Walker v.
CSX Transportation, Inc., 650 F.3d 1392, 1402 (11th Cir. 2011) (quoting Celotex, 477
U.S. at 323); see also Fed. R. Civ. P. 56(e)(2) (“If a party fails to properly support an
assertion of fact or fails to properly address another party’s assertion of fact as required
by Rule 56(c), the court may … consider the fact undisputed for purposes of the motion
In deciding a motion for summary judgment, “[t]he evidence, and all reasonable
inferences, must be viewed in the light most favorable to the nonmovant ….”
McCormick v. City of Fort Lauderdale, 333 F.3d 1234, 1243 (11th Cir. 2003); accord Fils
v. City of Aventura, 647 F.3d 1272, 1292 n.24 (11th Cir. 2011).
“There is no burden upon the district court to distill every potential argument that
could be made based upon the materials before it on summary judgment.” Resolution
Trust Corp. v. Dunmar Corp., 43 F.3d 587, 599 (11th Cir. 1995). Accordingly, the Court
limits its review to those arguments the parties have expressly advanced.
The parties agree that Alabama law controls. Under Alabama law, the insured
bears the burden of showing coverage, while the insurer has the burden of establishing an
exclusion to coverage. North River Insurance Co. v. Overton, 59 So. 3d 1, 5 (Ala. 2010);
Twin City Fire Insurance Co. v. Alfa Mutual Insurance Co., 817 So. 2d 687, 697 (Ala.
2001); accord Pennsylvania National Mutual Casualty Insurance Co. v. Roberts
Brothers, Inc., 550 F. Supp. 2d 1295, 1303 (S.D. Ala. 2008).
“It is well settled that any ambiguity in the policy is to be construed against the
drafter and in favor of the insured.” First Mercury Syndicate, Inc. v. Franklin County,
623 So. 2d 1075, 1077 (Ala. 1993). Whether an undefined policy term is ambiguous “is a
question of law for a court to decide.” State Farm Fire & Casualty v. Slade, 747 So. 2d
at 308. “The terms of an insurance policy are ambiguous only if the policy’s provisions
are readily susceptible to two or more constructions or there is reasonable doubt or
confusion as to their meaning.” Id. at 308-09.
I. Bodily Injury or Property Damage during the Policy Period.
The Policies extend coverage to “bodily injury” and “property damage,” but only
if such injury or damage: (a) is caused by an “occurrence” within the coverage territory;
and (b) occurs “during the policy period.” (Doc. 48, Exhibit 8 at 4, 27; id., Exhibit 9 at
8). The plaintiff contends that the Alabama Supreme Court has construed such
provisions to offer coverage only for bodily injury or property damage occurring between
the dates the Parkers and Fernandez took possession of the houses and the date Policy 2
expired. Because Fernandez took possession after Policy 2 expired, the plaintiff argues
there is no coverage at all as to him. Because the Parkers took possession after Policy 1
expired, the plaintiff argues there is no coverage under that policy as to the Parkers. The
plaintiff would limit the potential coverage as to the Parkers to any bodily injury and
property damage occurring between April 23, 2008 (when it admits the Parkers began
their residency) and May 25, 2008, when Policy 2 expired. The plaintiff acknowledges
there was bodily injury within this window but denies there was property damage during
this time. (Doc. 45 at 3-4; Doc. 46 at 2, 14-18; Doc. 56 at 4-6). Thus, success on its
argument would limit the plaintiff’s exposure to the bodily injury experienced by the
Parkers in a discrete 33-day period.
The defendants do not contest the proposition that the only bodily injury as to
which coverage could lie is bodily injury to the Parkers and Fernandez occurring after
they took possession of their respective houses. Nor do they disagree that Fernandez
took possession of his house after Policy 2 expired. They thereby concede that the
plaintiff has no responsibility for bodily injury to Fernandez. (Doc. 54 at 17). The
defendants also agree with the plaintiff that one or both Parkers experienced bodily injury
before Policy 2 expired.
The defendants, however, do challenge the plaintiff’s argument as to property
damage. They disagree both with the plaintiff’s interpretation of Alabama law and with
its position that there was no property damage to either house before Policy 2 expired.
The plaintiff points to nothing in the language of the insuring agreement that
precludes coverage for property damage occurring before the Parkers and Fernandez took
possession of the houses. Instead, it clings to the Alabama Supreme Court’s
pronouncement that, “‘as a general rule the time of an ‘occurrence’ of an accident within
the meaning of an indemnity policy is not the time the wrongful act was committed but
the time the complaining party was actually damaged.’” United States Fidelity &
Guaranty Co. v. Warwick Development Co., 446 So. 2d 1021, 1024 (Ala. 1984)
(emphasis added) (quoting Muller Fuel Oil Co. v. Insurance Company of North America,
232 A.2d 168, 175 (N.J. App. Div. 1967)). According to the plaintiff, the highlighted
language means that property damage occurring during the policy period while the
original purchaser holds the property is covered only if the original purchaser complains
of the damage but not if a subsequent purchaser of the damaged property complains.
(Doc. 46 at 16; Doc. 56 at 1, 4-6).
Warwick will not support the weight the plaintiff assigns it. The issue in Warwick
was not whether coverage extends to property damage occurring before the complaining
party receives the property (there was not, as here, a succession of property owners) but
whether coverage can be based on an insured’s wrongful act within the policy period
when the only injury from the wrongful act occurs outside the policy period.1 The phrase
“complaining party” was only a convenient means of denominating someone injured by
the insured’s wrongful act, not a term of art deliberately chosen to artificially limit an
insurer’s responsibility. Indeed, the Warwick Court did not even select the term but
simply imported it unexamined from the New Jersey opinion on which the Court relied
for the proposition in which it was actually interested.2 The three cases cited by the
plaintiff as following Warwick did so only for the purpose intended by Warwick and did
not employ it in the limiting sense the plaintiff desires.3 The plaintiff has failed to show
“At the time of the alleged act or omission of the insured, USF & G’s liability policy
was in effect, but it had expired at the time of the accrual of the cause of action, i.e., at the time
the damage occurred.” 446 So. 2d at 1026 (Jones, J. and Shores, J., concurring specially).
Muller involved the parallel issue of coverage when the insured’s wrongful act (a
malicious prosecution) and the damage therefrom precede the policy’s effective date but the final
element of the cause of action (favorable termination of the criminal proceedings) occurs during
the policy period. 232 A.2d at 174-76. As in Warwick, no issue was presented or addressed
concerning coverage for property damage occurring within the policy period but before the
underlying plaintiff receives the damaged property.
In American States Insurance Co. v. Martin, 662 So. 2d 245 (Ala. 1995), the Court held
only that there was no coverage for bodily injury where the insured’s fraud against certain
investors occurred during the policy period but the investors’ mental anguish did not occur until
after the policies were cancelled. Id. at 247, 249-50.
Likewise, in State Farm Fire & Casualty Co. v. Gwin, 658 So. 2d 426 (Ala. 1995), the
Court held only that there was no coverage for bodily injury where the insureds’ fraud against
their purchasers occurred during the policy period but the purchasers’ mental anguish occurred
only after the policy expired. Id. at 428. If anything, Gwin argues against the plaintiff’s
position. The insureds sold the purchasers a house with pre-existing property damage and
dropped their insurance on the house the same day as closing. Id. at 427. The purchasers later
sued the insureds for this pre-existing property damage. The Gwin Court, however, did not rule
that Warwick precluded coverage for property damage that already existed when the purchasers
acquired the property; instead, it ruled that the insureds’ misrepresentations did not cause the
pre-existing property damage. Id. at 428. That the Gwin Court did not rely on Warwick to rule
out coverage for pre-existing property damage even though it did rely on Warwick to rule out
coverage for mental anguish amply underscores that Warwick did not in fact create the rule for
which the plaintiff contends.
that the Policies unambiguously limit coverage for property damage to that which
occurred after the Parkers and Fernandez purchased the property. On the contrary, the
Policies may reasonably be read as providing coverage for property damage preceding
their acquisition and, under Alabama law, that is enough to require that this construction
The plaintiff appears to argue that, even if Warwick does not preclude coverage for
property damage occurring before the Parkers and Fernandez acquired the property, there
was in fact no property damage before their acquisition. The plaintiff offers no evidence
to negate such property damage, and it does not point to materials in the file showing that
the defendants cannot show such property damage. Instead, the plaintiff simply declares
that no “evidence exists on this point.” (Doc. 56 at 5). This ipse dixit is inadequate as a
matter of law to carry the plaintiff’s initial burden on motion for summary judgment.4
The plaintiff also argues that the Parkers experienced no additional property
damage in the period between April 23, 2008 (when they purchased the property) and
May 25, 2008 (when Policy 2 expired). (Doc. 45 at 4; Doc. 46 at 8, 16-17).5 The
In Liberty Mutual Fire Insurance Co. v. Sahawneh, 2001 WL 530424 (S.D. Ala. 2001),
the Court ruled only that there was no coverage for property damage where the insureds’ fraud
(concerning the property’s history of flooding) occurred while the policy was in place but the
only property damage alleged by the purchasers – from post-sale incidents of flooding – occurred
after the insureds sold the property and cancelled the policy. Id. at *1-3.
The defendants argue there is record evidence of property damage occurring before the
Parkers and Fernandez purchased their respective houses. (Doc. 54 at 17; Doc. 55 at 6). They
cite generally to several lengthy documents but fail to quote any helpful material or provide
pinpoint citations. The Court is not required to scour this mass of material in an effort to find
support for the defendants’ position, and it declines to do so. See Fed. R. Civ. P. 56(c)(1)(A) (a
party “must” cite to “particular parts of materials in the record”); id. 56(c)(3) (court “need
consider only the cited materials”). Because the plaintiff failed to meet its threshold burden, the
defendants’ failure is immaterial.
Since, as discussed in text, property damage preceding the Parkers’ purchase is also
covered, and since the plaintiff has not shown the absence of property damage during that period,
deposition pages on which the plaintiff relies do not support this proposition. At most,
they reflect that, in mid-July 2008, the Parkers’ air-conditioning unit went out and the
repairman told them the copper coils were blackened and corroded. (Doc. 48, Exhibit 3
at 56-58, 83-84). Nothing in this testimony comes close to negating damage to the coils –
or to anything else in the house – occurring between April 23 and May 25, 2008.
Finally, the plaintiff denies that the Parkers and Fernandez are even suing for
property damage preceding their purchase. (Doc. 56 at 5). This argument, raised for the
first time in a reply brief, comes too late to be considered.6 Nor has the plaintiff, which
again offers only its ipse dixit, met its burden of directing the Court to specific points in
the record that support its position.7
In summary, the parties agree there is no coverage under either policy with respect
to Fernandez’ claims of bodily injury and no coverage under Policy 1 with respect to the
Parkers’ claims of bodily injury. To this limited extent only, the plaintiff is entitled to
summary judgment under Count III.
II. Pollution Exclusion.
the value to the plaintiff of arguing there was no additional property damage after the purchase
“In order to avoid a scenario in which endless sur-reply briefs are filed, or the Court is
forced to perform a litigant’s research for it on a key legal issue because that party has not had an
opportunity to be heard, or a movant is incentivized to save his best arguments for his reply brief
so as to secure a tactical advantage based on the nonmovant’s lack of opportunity to rebut them,
this Court does not consider arguments raised for the first time in a reply brief.” Hardy v. Jim
Walter Homes, Inc., 2008 WL 906455 at *8 (S.D. Ala. 2008); see Park City Water Authority v.
North Fork Apartments, L .P., 2009 WL 4898354 at *1 n.2 (S.D. Ala. 2009) (citing cases from
over 40 districts applying this rule in 2009 alone).
The class complaint is 591 pages long and includes 2,770 numbered paragraphs. (Doc.
1, Exhibit A). The Court will not review this tome on the plaintiff’s behalf, especially given that
the plaintiff does not cite to it, not even generally.
With respect to Policy 2 only,8 the plaintiff invokes a pollution exclusion. The
parties disagree as to the interpretation of the exclusion, but the threshold question is
whether the exclusion even applies to the coverage implicated by the class action.
The defendants seek coverage based on products/completed operations (“PCO”)
and do not seek coverage based on commercial general liability (“CGL”). According to
Parker and Fernandez, the former coverage is not part of Policy 2 at all but constitutes a
separate policy. (Doc. 55 at 2). The Court can find nothing in the record supporting this
contention, especially given that the declarations page of Policy 2 includes a
“products/completed operations aggregate limit” of $2 million. (Doc. 48, Exhibit 9 at 4).
But the question remains whether the pollution exclusion applies to the PCO
portion of Policy 2. The exclusion is set forth in an endorsement, which states that it
modifies “Commercial General Liability Part” and replaces “Exclusion f. under
Paragraph 2, Exclusions of Section 1 – Coverage A – Bodily Injury And Property
Damage Liability.” (Doc. 48, Exhibit 9 at 28). This describes precisely the location of
the original pollution exclusion in the Commercial General Liability Coverage Form. (Id.
at 8, 10).
Switch for a moment to Policy 1. This policy contains an apparently identical
CGL coverage form, an apparently identical pollution exclusion located in sub-paragraph
f of Paragraph 2’s list of exclusions, and an apparently identical replacement pollution
exclusion endorsement. (Doc. 48, Exhibit 8 at 4, 6, 42). Policy 1 also contains a
separate, ten-page “Products/Completed Operations Liability Form.” (Id. at 27-36). This
form does not reference a “Coverage A” as do the CGL forms, and its Exclusion f
addresses not pollution but war. (Id. at 28). Moreover, the plaintiff concedes that a CGL
“part” is synonymous with a CGL “form.” (Doc. 56 at 8-9). There would appear to be
no defensible basis for arguing that the pollution exclusion endorsement in Policy 1
(Doc. 45 at 4-6; Doc. 46 at 2, 10, 18).
extends beyond the CGL form to the PCO form, and the plaintiff offers none. This is
presumably the reason the plaintiff does not argue that the Policy 1 pollution exclusion
endorsement applies in this case.
But, says the plaintiff, the situation is completely different with respect to Policy 2
because it, unlike Policy 1, contains no PCO form. (Doc. 56 at 1-2, 7-9). It is correct
that Exhibit 9 to the plaintiff’s motion for summary judgment includes no such form, but
the plaintiff has not established that Exhibit 9 represents the entirety of Policy 2. Exhibit
9 has been plopped in the record on its own, without any affidavit or declaration from a
representative of the plaintiff stating, much less swearing on personal knowledge, that
Exhibit 9 is the entire policy. The plaintiff says the defendants do not contend there is a
PCO form missing from Exhibit 9, (Doc. 56 at 3), but the insureds expressly point out
that the absence of a PCO form from Exhibit 9 is “inexplicabl[e].” (Doc. 54 at 7).
The plaintiff suggests that no PCO form was needed for Policy 2 because the CGL
form itself addresses PCO coverage. (Doc. 56 at 7-8). And so it does, (Doc. 48, Exhibit
9 at 12, 17, 21), but this was equally true for Policy 1, (id., Exhibit 8 at 8, 13, 17), yet
Policy 1 contains a PCO form. While the plaintiff may be able ultimately to establish
that Policy 2 contains no such form, it has yet to do so. It therefore has not established a
necessary predicate to its argument – as to which it bears the burden – that the pollution
exclusion endorsement excludes coverage in this case. The Court therefore pretermits
discussion of the parameters of the pollution exclusion vis-à-vis Chinese drywall. The
plaintiff is not entitled to summary judgment under Count V.
III. Tract Housing Exclusion.
Policy 2 contains an exclusion, roughly speaking, for damages related to the
operations, work or product of an insured or its sub-contractor “that are incorporated into
a ‘tract housing project or development.’” (Doc. 48, Exhibit 9 at 49). By its terms, the
endorsement containing this exclusion modifies only the CGL form. (Id.). Because, as
discussed in Part II, the plaintiff has not met its burden of establishing that Policy 2 has
no PCO form, it has not shown that this exclusion potentially applies in this case.
For the reasons set forth above, the plaintiff’s motion for summary judgment is
granted in part. The Court declares that Policy 1 does not potentially or actually cover
the claims of Fernandez and the Parkers against S&O for bodily injury and that Policy 2
does not potentially or actually cover the claims of Fernandez against S&O for bodily
injury. In all other respects, the motion for summary judgment is denied.9
DONE and ORDERED this 28th day of October, 2011.
s/ WILLIAM H. STEELE
CHIEF UNITED STATES DISTRICT JUDGE
This opinion goes far towards establishing at least the plaintiff’s duty to defend under
Policy 1 as to property damage. The plaintiff’s complaint raises only three grounds to the
contrary, as discussed herein. As discussed in Part I, neither Policy unambiguously limits
coverage to property damage occurring after the Parkers and Fernandez acquired the property
and, under Alabama law, that is tantamount to a determination that the Policies extend coverage
to property damage occurring during the Policy periods but before the property’s acquisition.
There is no tract housing exclusion under Policy 1, and the pollution exclusion endorsement
under Policy 1 is limited to the CGL form, while coverage is sought under the PCO form (which
contains no pollution exclusion). As long as the defendants can show “property damage”
occurring during the period of Policy 1, it appears that S&O would be entitled to a defense.
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