Columbia Insurance Group Inc et al v. Arkansas Infrastructure Inc et al
OPINION AND ORDER granting the motion for summary judgment filed by AII and Barron, 54 . Columbia has a duty to defend. The motions for summary judgment filed by Columbia, 47 , and the Property Owners, 57 , are denied without prejudice. Signed by Judge Susan Webber Wright on 9/23/2015. (jak)
IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF ARKANSAS
COLUMBIA INSURANCE GROUP, INC.,
and COLUMBIA MUTUAL INSURANCE
CENARK PROJECT MANAGEMENT
SERVICES, INC., ET AL.,
No. 4:14CV00512 SWW
Opinion and Order
This declaratory judgment action arises out of an underlying state court breach of
contract and fraud action filed by Michael Collings, Janice Collings, Kim Collings, Debra
Collings, Kenneth Winberg, Marianne Winberg, Guy Collings, Catherine Collings, William
Miles, Kaye Miles, and George Collings (collectively “the Property Owners”) against Arkansas
Infrastructure, Inc. (“AII”), David Barron, and Cenark Project Management Services, Inc. The
dispute before this Court concerns whether the plaintiffs, Columbia Insurance Group, Inc. and
Columbia Mutual Insurance Company, Inc. (“Columbia”), have a duty to defend or indemnify
the defendants, AII and Barron, in the state court proceeding. The Court has reviewed the
motions for summary judgment, the responses to those motions, and the replies to the responses.
The Court held a hearing on the motions on August 19, 2015. For the reasons stated below, the
Court finds that the motion for summary judgment filed by AII and Barron should be granted to
the extent that Columbia has a duty to defend them. For the reasons stated in the Certification
Order, the Court finds the motions of Columbia and the Property Owners should be denied.
AII is an Arkansas corporation; Barron is AII’s president and sole shareholder.1 The
Property Owners hired AII to construct earthwork pads for foundations for lakehouses they built
in Van Buren County, Arkansas. Cenark Project Management Services, Inc. (“Cenark”)
developed the engineering plans and specifications for the pads.2 On June 13, 2012, the Property
Owners filed a complaint in the Circuit Court of Van Buren County against AII, Barron, and
Cenark, styled Michael Collings, et al. v. Arkansas Infrastructure, Inc. et al. (hereinafter the
“underlying action”). The Property Owners allege that AII failed to construct the pads in
accordance with the engineering plans and specifications of Cenark and that Cenark failed to
provide oversight of the work performed by AII.3 They seek compensation for the money paid to
AII and Cenark pursuant to their contracts plus damages for the cost of the work that has been
done and will need to be done in the future to repair, replace, or correct the faulty work. The
Property Owners allege they have sustained permanent loss of value of their property and the
structures built upon the property.
As a part of the contractual agreement with the Property Owners, AII agreed to obtain
Commercial General Liability (CGL) insurance to protect AII and the Property Owners “from
claims for damages . . . to property that may arise out of and during operations under this
AII has been dissolved.
Although a named defendant, Cenark Project Management Services, Inc. did not enter an
appearance and is not a party to the case before this Court.
Ex. A to Complaint [ ECF No. 1-1].
contract.”4 Columbia issued a CGL Policy (“Policy”) to AII and Barron for the policy period of
September 23, 2005, through September 23, 2006, subject to the terms, conditions, and
exclusions set forth in that policy. The Policy was renewed in 2007, 2008, and 2009, with the
last effective date of coverage being September 23, 2009. The relevant terms, conditions, and
exclusions of the Policy and each renewal policy are the same; thus, they are collectively
referred to hereafter as the Policy.5
The Policy provides that Columbia will “pay those sums that [AII] becomes legally
obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this
insurance applies.’”6 Coverage only applies if “‘property damage’ is caused by an ‘occurrence’
that takes place in the ‘coverage territory’ and occurs during the coverage period.7
Policy defines “property damage” as “Physical injury to tangible property, including all resulting
loss of use of that property” and “Loss of use of tangible property that is not physically injured.”8
Occurrence means “an accident, including continuous or repeated exposure to substantially the
same general harmful conditions.”9
After they were served, AII and Barron tendered the complaint to Columbia to represent
them. On July 9, 2012, Columbia sent a letter to Attorney Jerry Lovelace, asking him to “defend
and protect” AII and Barron. By letter dated July 18, 2012, Columbia notified AII and Barron
AII’s and Barron’s Statement of Material Facts, Ex. 1 to Ex. A. ECF No. 61-1 at 12.
Pls.’ Rule 56.1(a) Statement of Undisputed Material Facts, ¶ 9.
Id., Ex. D at 22 (ECF No. 49-4).
Id. at 36.
Id. at 35.
that it had asked Lovelace to proceed with AII’s defense. Columbia acknowledged in the letter
that it is possible that damages could be awarded in excess of the policy limits. Attorney
Lovelace filed an answer on AII’s behalf, and discovery commenced. Neither Columbia nor
Lovelace filed an answer on Barron’s behalf. Columbia did not advise Barron or AII of any
further defense to coverage under their policies prior to filing the declaratory judgment action in
this Court. At the time Columbia filed this action, the parties in the underlying action had
exchanged written discovery and had conducted numerous depositions.10
On August 29, 2014, Columbia filed a Complaint for Declaratory Judgment, asserting:
27. The “damages incurred by the [Property Owners] are alleged to have occurred due to
a breach of contract by AII and/or Barron. This breach of contract claim does not constitute
“property damage” arising out of an “occurrence” as those terms are defined in the Policy and
therefore no coverage is afforded under the Policy.
28. With respect to the fraud claim asserted against AII and Barron, the Policy also
includes what is commonly referred to as an “intentional acts exclusion,” which provides, in
SECTION I - COVERAGES
COVERAGE A BODILY INJURY AND PROPERTY DAMAGE LIABILITY
This insurance does not apply to:
a. Expected or Intended Injury
“Bodily injury” or “property damage expected or intended from the standpoint of
the insured. This exclusion does not apply to “bodily injury” resulting from the
use of reasonable force to protect persons or property.11
AII and Barron filed a counterclaim, alleging Columbia breached the Policy by not
Collings’s liability expert was deposed in January 2015. AII’s and Barron’s Statement of
Undisputed Facts (ECF No. 55) at ¶¶ 2-10.
Compl. at 6-7.
paying attorney’s fees and costs incurred in defending the underlying action and seeking
judgment in the amount of $62,017.71. In the alternative, AII and Barron seek a declaration that
Columbia has a duty to defend them.
Columbia argues it is entitled to summary judgment on its claim for declaratory relief in
the form of a declaration that it is not contractually bound to provide coverage or indemnity to
AII and/or Barron nor is it contractually required to provide AII and/or Barron with a defense in
the underlying action. AII and David Barron move for summary judgment on their counterclaim
that Columbia breached its duty to defend. The Property Owners move for summary judgment
on the issue of coverage by Columbia to AII and Barron, under the “Product-Completed
Operations Hazard” Coverage of the Policy.
Summary judgment is appropriate when “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 a judgment as a matter of law.” Fed.R.Civ.P. 56(c). As a
prerequisite to summary judgment, a moving party must demonstrate “an absence of evidence to
support the non-moving party’s case.” Celotex Corp. V. Catrett, 477 U.S. 317, 325 (1986).
Once the moving party demonstrates that there is no genuine dispute of material fact, the nonmoving party may not rest upon the mere allegations or denials in his pleadings. Holden v.
Hirner, 663 F.3d 336, 240 (8th Cir. 2011). Instead, the non-moving party must produce
admissible evidence demonstrating a genuine factual dispute that must be resolved at trial. Id.
The inferences to be drawn from the underlying facts must be viewed in the light most favorable
to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 587 (1986).
In addition, the evidence is not weighed and no credibility determinations are made. Jenkins v.
Winter, 540 F.3d 742, 750 (8th Cir. 2008).
In the underlying complaint, the Property Owners allege:
Commencing on or about April, 2011, plaintiffs began to discover cracks and/or
separation in the foundations, patios, and other structures in their homes that were
constructed by them upon their respective lots. As the cracks and separation
continued and worsened, plaintiffs conducted an investigation and excavation of
areas around and under their foundations, and discovered in March 2012, that:
the fill material under the foundations was not of the
quality and quantity specified in the engineer’s plans and
that certain critical drains had not been installed in the
foundation pads by AII during construction as required by
the engineers’ plans and specifications;
that gabion walls and buttress walls were not constructed in
accordance with the engineer’s plans and specifications;
that other aspects of the engineers’ plans and specifications
were not followed by AII during development and
construction of the foundation pads.12
The Property Owners allege that Barron admitted he did not follow such plans and specifications
and drawings during the performance of the contract,13 and they allege the actions of AII and/or
Barron were intentional and fraudulent.14 The Property Owners claim they “have sustained
damages in the loss of the contract price paid to AII and CENARK, plus additional damages for
the cost of work required in the past and that will be required in the future to repair, replace or
remediate the faulty work done by AII, and to prevent future movement of the foundation pads,
Compl., Ex. A, at ¶ 24.
Id. at ¶ 26.
Id. at ¶ 28.
buttresses, gabion walls and structures constructed on them.”15
1. Duty to Defend
As a general rule, the duty to defend is determined by comparing the allegations in the
underlying complaint with the scope of coverage provided under the insurance policy. See
Murphy Oil USA, Inc. v. Unigard Security Ins. Co., 61 S.W.3d 807, 812-13 (Ark. 2001). Under
Arkansas law, the duty to defend is broader than the duty to indemnify, and it arises when there
is a possibility that the injury or damages may fall within the liability policy coverage. Id. In
testing the pleadings to determine if they state a claim within the policy coverage, a court must
resolve any doubt in favor of the insured. Id. at 814. Courts are not, however, required by the
rules of contractual construction to stretch their imaginations to create coverage where none
exists. Pate v. U. S. Fid. & Guar. Co., 685 S.W.2d 530, 532 (Ark. 1985). An intent to exclude
coverage in an insurance policy must be expressed in clear and unambiguous language, and the
burden is upon the insurance company to present facts that come within the stated exclusion.
See Union Bankers Ins. Co. v. Nat’l Bank of Commerce, 408 S.W.2d 898, 900 (Ark. 1966).
Citing Unigard Security Ins. Co. v. Murphy Oil, 962 S.W.2d 735 (Ark. 1988), Columbia
argues that under Arkansas law, which the parties agree applies in this case, damages resulting
from a breach of contract do not constitute “property damage” under a CGL policy. Columbia
also argues coverage for the Property Owners’s claims of breach of contract and fraud are
excluded by the “intentional acts” exclusion. AII and Barron argue that the Policy provides
coverage for consequential, or collateral damage, that is incurred to property that is not the work
product of the insured. They also assert the allegations of fraud are insufficient to find coverage
Id. at ¶ 36.
is excluded under the intentional acts exclusion.
The Policy provides:
1. Insuring Agreement
a. We will pay those sums the insured becomes legally obligated to pay as
damages because of . . . ‘property damage’ to which this insurance applies. We
will have the right and duty to defend the insured against any ‘suit’ seeking those
. . .
b. This insurance applies to . . . ‘property damage’ only if:
(1) The . . . ‘property damage’ is caused by an ‘occurrence’ that takes place in the
. . .
SECTION V - DEFINITIONS
13. “Occurrence means an accident, including continuous or repeated exposure to
substantially the same general harmful conditions.17
17. “Property damage” means:
a. Physical injury to tangible property, including all resulting loss
of use of that property. All such loss of use shall be deemed to
occur at the time of the physical injury that caused it; or
b. Loss of use of tangible property that is not physically injured.
All such loss of use shall be deemed to occur at the time of the
Compl., Ex. D at 22.
“Accident” has been defined “as ‘an event that takes place without one's foresight or
expectation-an event that proceeds from an unknown cause, or is an unusual effect of a known cause, and
therefore not expected.’” U.S. Fidelity & Guar. Co. v. Continental Cas. Co., 120 S.W.3d 556, 563
‘occurrence’ that caused it.18
Insurance contract language is to be given its common and ordinary meaning. Green v.
Farmers Ins. Co., 57 F.Supp.2d 729, 732 (W.D.Ark. 1999); Guerin Contractors, Inc. v.
Bituminous Cas. Corp., 636 S.W.2d 638, 639 (Ark. App. 1982). There is nothing in the insuring
agreement phrase “legally obligated to pay as damages” that restricts the liability for which
damages may be awarded to tort claims. As long as the damages sought fit within the Policy’s
definition of “property damage” caused by an “occurrence,” there is an initial grant of coverage.
The Court finds that under the common and ordinary meaning of the Policy’s language, the
complaint alleges facts which would possibly come within the coverage of the Policy.
Having determined there is a possibility of coverage, the Court examines whether any
exclusion precludes coverage. Deschner v. State Farm Mutual Auto. Ins. Co., 290 S.W.3d 6, 9
(Ark. 2008). Columbia argues that coverage is excluded by the “intentional acts” exclusion.
The Property Owners allege AII and Barron purposefully deviated from the plans and
specifications provided for in the contract knowing that the non-conforming components would
be covered and thus actively attempted to conceal their failure to perform. As previously stated,
the exclusion provides that insurance does not apply to “‘property damage’ expected or intended
from the standpoint of the insured.” There are no allegations that AII and Barron expected or
intended that failure to construct the pads according to the specifications would result in property
damage to the Property Owners’s homes. Applying a strict interpretation of the exclusion and
resolving all reasonable doubt in favor of AII and Barron who had no part in preparing the
contract, see Guerin, 636 S.W.2d at 232, the Court cannot find as a matter of law that the
Id. at 35-36.
intentional acts exclusion is applicable thereby negating Columbia’s duty to defend.
In making its argument that it had no duty to defend or indemnify, Columbia did not
invoke the “Contractual Liability” exclusion which provides no coverage for: “‘Bodily injury’ or
‘property damage’ for which the insured is obligated to pay damages by reason of the
assumption of liability in a contract or agreement. This exclusion does not apply to liability for
damages: (1) That the insured would have in the absence of the contract or agreement . . .19 The
Court finds this language ambiguous such that it would not operate to negate Columbia’s duty to
The Property Owners note language in the Policy that they claim may provide AII and
Barron coverage. Subsection j of the exclusions section excludes various types of property
damage. Subsection (6) of subsection j excludes “‘Property damage’ to: (6) That particular part
of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly
performed on it.” 20 “Your work:” means: (1) Work or operations performed by you or on your
behalf; and (2) materials, parts or equipment furnished in connection with such work or
operations.””21 The Policy goes on to state: “Paragraph (6) of this exclusion does not apply to
‘property damage’ included in the ‘products-completed operations hazard.’22 “Productscompleted operations hazard” is defined as including “all . . . ‘property damage’ occurring away
from premises you own or rent and arising out of ‘your product’ or ‘your work’ except: . . . (2)
Compl., Ex. 49-4 at 23.
Id. at 25.
Id. at 37.
Id. at 26.
Work that has not yet been completed or abandoned. . . . 23 This “Products-Completed
Operations Hazard’ definition, the Property Owners argue, is a description of coverage that
would encompass the allegations they make in support of their complaint against AII and Barron.
In response, Columbia repeats its argument that there is no coverage under a CGL policy for
damages based on breach of contract.
Apparently, Columbia thought it owed a duty to defend as it undertook AII’s defense
upon notification of the underlying action and continued representing AII through the
completion of discovery. Because the insuring agreement makes no distinction between the
form of the pleading, the Court finds Columbia’s argument that there is no coverage for a breach
of contract action unpersuasive. Further, the facts asserted in the complaint do not establish
AII’s and Barron’s conduct comes within the intentional acts exclusion, and the contractual
liability exclusion is ambiguous as to the contracts to which it applies. The Court finds the
underlying action alleges facts that raise the possibility that the claimed damages may fall within
the Policy’s coverage. For this reason, the motion filed by AII and Barron is granted to the
extent that the Court determines Columbia has a duty to defend them.
2. Questions of Coverage
Columbia vigorously argues that the Policy as a matter of law does not cover the
damages alleged because they arise from a claim for breach of contract and, as such, the property
damages cannot meet the definition of an “occurrence.” For the reasons stated in the
Certification Order filed on this date, the Court denies the motions for summary judgment filed
by Columbia and the Property Owners.
Id. at 36.
IT IS THEREFORE ORDERED that the motion for summary judgment filed by AII and
Barron [ECF No. 54] is granted. Columbia has a duty to defend. The motions for summary
judgment filed by Columbia [ECF No. 47] and the Property Owners [ECF No. 57] are denied
DATED this 23rd day of September, 2015.
/s/Susan Webber Wright
UNITED STATES DISTRICT JUDGE
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