State Auto Insurance Companies v. Harrison County Commercial Lot, LLC et al

Filing 64

ORDER denying 57 Motion for Summary Judgment Signed by Chief District Judge Louis Guirola, Jr on 07/09/2012 (Guirola, Louis)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF MISSISSIPPI
SOUTHERN DIVISION

STATE AUTO INSURANCE
COMPANIES

PLAINTIFF

V.

CAUSE NO. 1:11CV125-LG-RHW

HARRISON COUNTY COMMERCIAL
LOT, LLC; H. GORDON MYRICK,
INC.; H. GORDON MYRICK, JR.,
individually and SHOEMAKE
PAINTING SERVICES, INC.

DEFENDANTS

MEMORANDUM OPINION AND ORDER
BEFORE THE COURT is the Motion for Summary Judgment [57] filed by
Plaintiff, State Auto Insurance Companies, in this declaratory judgment action. State
Auto seeks a finding that it is not required to provide coverage or pay for a defense for
H. Gordon Myrick, Inc. in a state court action brought against it by Defendant
Harrison County Commercial Lot, LLC. State Auto asserts that the language of the
insurance policy that it issued to Defendant Shoemake Painting Services, Inc., clearly
and unambiguously provides that there is no coverage for Myrick, Inc., and, therefore,
no duty to defend it in the state court action. State Auto contends that there are no
genuine issues of material fact that preclude judgment in its favor, and, therefore, that
summary judgment is appropriate.

The Court has reviewed the pleadings, the

memoranda of counsel, and the record and is of the opinion that, when considered as
a whole, the policy does provide coverage for Myrick, Inc. for liability created by
Shoemake’s work. Since there is a genuine issue as to whether the state court

complaint includes a claim based on Shoemake’s work, the Court is of the opinion that
the Motion for Summary Judgment should be denied.
FACTS
On July 30, 2008, Defendants Myrick, Inc. and Shoemake entered into a
Subcontract Agreement related to work on the Cain Office Building in Gulfport,
Mississippi. The building was being built for Defendant Harrison County Commercial
Lot.

Myrick, Inc. was the general contractor, and Shoemake was the painting

contractor. As part of the Subcontract Agreement, Shoemake agreed to secure and
maintain commercial general liability coverage, with Myrick, Inc. being named as an
additional insured. Shoemake procured the policy from State Auto.
On September 1, 2009, Harrison County Commercial Lot sued Myrick, Inc. and
Myrick individually for damages related to the failure to complete the building contract
on time and for defective workmanship on the building. One of the specific deficiencies
alleged was that the sheet rock needed extensive repairs. Myrick, Inc. contends that
the complaint about the sheetrock was based on Shoemake’s negligence.
DISCUSSION
The familiar standard for the entry of summary judgment comes from Federal
Rule of Civil Procedure 56(a), which requires its entry “if the movant shows that there
is no genuine dispute as to any material fact and the movant is entitled to judgment
as a matter of law.” Summary judgment is appropriate “against a party who fails to
make a sufficient showing to establish the existence of an element essential to that
party’s case, and on which that party will bear the burden of proof at trial.” Celotex
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Corp. v. Catrett, 477 U.S. 317, 322 (1986). The moving party “bears the burden of
identifying those portions of the record it believes demonstrate the absence of a
genuine issue of material fact.” Lincoln Gen. Ins. Co. v. Reyna, 401 F.3d 347, 349 (5th
Cir. 2005).
The parties agree that the interpretation of an insurance policy involves a
question of law, not fact, and that summary judgment may be appropriate where the
policy is unambiguous as to the coverage question at issue. Roy Anderson Corp. v.
Transcontinental Ins. Co., 358 F. Supp. 2d 553, 560 (S.D. Miss. 2005); Noxubee Cty.
Sch. Dist. v. United Nat’l Ins. Co., 883 So. 2d 1159, 1165 (Miss. 2004). State Auto
argues that its policy does not provide coverage to Myrick, Inc. for three reasons. First,
it argues that coverage exists, if at all, only with regard to work performed by
Shoemake. Second, State Auto contends that none of the claims in the state court
complaint relate to Shoemake’s work because they do not specifically reference
“painting.” Finally, State Auto maintains that, because Shoemake would not have
been covered under the policy for its work, there was no coverage that could be
extended to Myrick, Inc. as an additional insured.
Myrick, Inc. appears to accept State Auto’s first argument that coverage is
limited to Shoemake’s work, although there is some authority that would extend
coverage to Myrick’s negligence, as well. See, e.g., Roy Anderson, 358 F. Supp. at 56162. Shoemake contends, however, and the Court agrees, that its work has, arguably,
been implicated in the state court suit. That suit clearly includes as a defect the

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drywall preparation, which could have been done by the subcontractor in charge of
painting. During discovery, Myrick, Inc. propounded this Request for Admission to
State Auto: “Please admit that HCCL [Harrison County Commercial Lot] has included
in its litigation filed against HGM [H. Gordon Myrick] a claim for negligence relative
to the painting work performed by Shoemake Painting.” State Auto admitted this
contention. In its rebuttal brief in support of this Motion for Summary Judgment,
State Auto also admitted that the question of whether Shoemake’s work was an issue
in the state court litigation “is a disputed material fact.”
The only issue remaining for the Court to address is whether State Auto’s third
argument entitles it to summary judgment. The policy issued by State Auto excludes
from coverage:
l.

Damage to Your Work
“Property damage” to “your work” arising out of it or any
part of it and included in the “products-completed
operations hazard”.
This exclusion does not apply if the damaged work or the
work out of which the damage arises was performed on your
behalf by a subcontractor.

Elsewhere in the policy, “your work” is defined as “(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.” State Auto maintains that this exclusion would prevent
Shoemake from recovering under the policy for damages caused by its own work. It
further contends that, because Myrick, Inc. is an “additional insured,” it stands in place
of, and receives no greater benefit under the policy, than Shoemake. Based on these
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arguments, State Auto concludes that Myrick, Inc. has no coverage for liability created
by Shoemake’s work.
In making this assertion, State Auto does not address its incompatibility with
the language of the endorsement to the policy, which modified it by providing for
additional insureds. Specifically, the endorsement added as an insured “any person
or organization for whom you are performing operations when you and such person or
organization have agreed in writing in a contract or agreement that such person or
organization be added as an additional insured on your policy.” The endorsement goes
on to provide that such person or organization is an additional insured only with
respect to liability for “bodily injury,” property damage” or “personal and advertising
injury” caused, in whole or in part, by:
1.

Your acts or omissions; or

2.

The acts or omissions of those acting on your behalf;

In the performance of your ongoing operations for the additional insured.
A person’s or organization’s status as an additional insured under this
endorsement ends when your operations for that additional insured are
completed.
The endorsement specifically excludes coverage for bodily injury or property damage
occurring after:
a.

All work, including materials, parts or equipment furnished in
connection with such work on the project (other than service,
maintenance or repairs) to be performed by or on behalf of the
additional insured(s) at the location of the covered operations has
been completed; or

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b.

That portion of “your work” out of which the injury or damage
arises has been put to its intended use by any person or
organization other than another contractor or subcontractor
engaged in performing operations for a principal as a part of the
same project.

State Auto interpreted that coverage, in making its first argument in its Memorandum,
as affording “liability coverage for acts or omissions either committed by or on behalf
of Shoemake for which HGM [Myrick, Inc.] may be vicarious [sic] liable.”
In this argument, however, State Auto asserts that Myrick would not be covered
for liability for work performed by Shoemake, because Shoemake would not be covered
for the same work. Arguing that Myrick cannot have greater rights under the policy
than Shoemake, State Auto claims further that “your work” exclusions such as this one
are common and enforceable. The cases it cites for this proposition are inapposite,
however. American Home Assur. Co. v. Cat Tech L.L.C., 660 F.3d 216, 221 (5th Cir.
2011), involved a claim made by the named insured for coverage for claims made by the
company for whom it had done work. The court agreed with the insurer that the “your
work” exception precluded coverage for the cost of repairing the named insured’s own
work. Id. (citing Wilshire Insurance Co. v. RJT Constr., 581 F.3d 222, 226 (5th Cir.
2009). Citing Texas law, the court went on to hold that, while damages directly
resulting from the insured’s work were not covered, damages to other property that
resulted from the insured’s work could be covered under the policy. Id. at 221-22
(citing Travelers Ins. Co. v. Valentine, 578 S.W.2d 501, 503-05 (Tex. Civ. App. 1979).
The other case cited by State Auto, which interpreted the question under Mississippi

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law, also involved a claim made by the named insured. Lafayette Ins. Co. v. Peerboom,
813 F. Supp. 823, 829-30 (S.D. Miss. 2011).
State Auto has cited only one case in which an additional insured was denied
coverage for damages caused by the work of the named insured. In Wyner v. N. Am.
Specialty Ins. Co., 78 F.3d 752, 755-56 (1st Cir. 1996), the court interpreted a policy
that excluded coverage for “property you own, rent or occupy.” The underlying cause
of action was brought by a lessor for damages to property caused by its lessee. The
lessee was an additional insured; however, the court interpreted the term “you” to
include additional insureds, thereby precluding coverage. Id. Notably, the opinion
stated, “Where, as here, the endorsement naming the additional insured contains no
language suggesting that the nature of coverage, declarations or exclusions were thereby
altered, we see no reason to deviate from the ‘well-settled [rule] that the policy does not
extend any greater coverage to an additional insured.” Id. at 756 (emphasis added)
(quoting Sunoco Prod. Co. v. Travelers Indem. Co., 315 F.2d 126, 128 (10th Cir. 1963)).
Wyner has been since limited to “the rather idiosyncratic posture of the case.”
Wright-Ryan Const., Inc. v. AIG Ins. Co. of Canada, 647 F.3d 411, 418 (1st Cir. 2011).
In Wright-Ryan, the court noted, “The mainstream of opinions interpreting this or
similar definitions has held ‘you’ to be unambiguous and to refer solely to the
individual or organization identified as the ‘Named Insured’ in the policy declarations.
Id. at 417-18. One of the “mainstream” opinions cited is Nat’l Union Fire Ins. Co. of
Pittsburgh, Penn. v. Liberty Mutual Ins. Co., 234 F. App’x 190, 193 (5th Cir. 2007) (“We

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take as a given that ‘you’ in this policy only means [the named insured], according to
the policy’s definition of that word.”).
The court in Nat’l Union ultimately concluded that the exclusion for “your work”
included all claims related to the named insured’s work, whether liability was imposed
on the named insured or an additional insured. That court did not, however, review
an endorsement like the one here that, by its express language, “modifies insurance
provided” under general liability coverage. The endorsement recognizes, as additional
insureds, “any . . . organization for whom you are performing operations when you and
such . . . organization have agreed in writing that . . . such . . . organization be added
as an additional insured on your policy.” Clearly, the endorsement contemplates that
the additional insured will become so because of a business relationship in which the
named insured is working for the additional insured. The endorsement states that the
additional insured is covered for liability caused by “your acts or omissions.” It also
provides that the additional insured’s status ends when the named insured’s work is
completed. It seems apparent from the plain language of the endorsement that
Shoemake’s work is the focus of the endorsement and the basis for Myrick, Inc. to be
added as an additional insured. It is also apparent that a modification to the original
policy was intended.
This policy must be construed, insofar as possible, under Mississippi law. Roy
Anderson Corp., 338 F. Supp. 2d at 557. The Mississippi Supreme Court recently
summarized Mississippi’s law on construction of insurance contracts as follows:

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If a contract is clear and unambiguous, then it must be interpreted as
written. A policy must be considered as a whole, with all relevant clauses
together. If a contract contains ambiguous or unclear language, then
ambiguities must be resolved in favor of the non-drafting party.
Ambiguities exist when a policy can be logically interpreted in two or
more ways, where one logical interpretation provides for coverage.
However, ambiguities do not exist simply because two parties disagree
over the interpretation of a policy. Exclusions and limitations on
coverage are also construed in favor of the insured. Language in
exclusionary clauses must be “clear and unmistakable,” as those clauses
are strictly interpreted. Nevertheless, “a court must refrain from altering
or changing a policy where terms are unambiguous, despite resulting
hardship on the insured.
U.S. Fid. & Guar. Co. v. Martin, 998 So. 2d 956, 963 (Miss. 2008) (internal citations
omitted); see also Architex Assoc., Inc. v. Scottsdale Ins. Co., 27 So. 3d 1148, 1157 (Miss.
2010). In this case, the endorsement is clear and unambiguous in providing coverage
to the described additional insureds for liability caused by “your acts or omissions.”
The Court interprets “your” in this context as it was originally defined, there being no
indication in the endorsement to the contrary. Thus, “your” continues to relate to
Shoemake. With regard to the remaining argument offered by State Auto, the Court
finds that its interpretation of the policy would render the endorsement meaningless.
If Shoemake’s preclusion of coverage for its own acts is extended to Myrick, Inc., then
there was no reason for the endorsement to provide coverage for “your acts.” There
was, likewise, no reason for the endorsement to terminate coverage once Shoemake’s
work was complete. In essence, there would be no reason for the endorsement at all.
Reading all of the provisions of the policy together, the Court finds that the
endorsement for additional insureds modified the original policy to create coverage for
Myrick, Inc. for any liability resulting from Shoemake’s work. Since there is a
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legitimate issue of whether the state court complaint seeks damages for work
performed by Shoemake, summary judgment is inappropriate in this case. State Auto’s
motion will be denied.
IT IS THEREFORE ORDERED AND ADJUDGED that Defendant’s Motion
for Summary Judgment [57] is DENIED.
SO ORDERED AND ADJUDGED this the 9th day of July, 2012.

s/

Louis Guirola, Jr.

LOUIS GUIROLA, JR.
CHIEF U.S. DISTRICT JUDGE

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