Greenwich Insurance Company et al v. Capsco Industries, Inc. et al
ORDER denying 127 Motion for Summary Judgment; granting 131 Motion for Partial Summary Judgment Signed by Chief District Judge Louis Guirola, Jr on 08/18/2017 (Guirola, Louis)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF MISSISSIPPI
COMPANY and INDIAN HARBOR
CAUSE NO. 1:14CV297-LG-JCG
CAPSCO INDUSTRIES, INC., and
GROUND CONTROL, LLC
GROUND CONTROL, LLC
COMPANY and INDIAN HARBOR
MEMORANDUM OPINION AND ORDER CONCERNING THE
PARTIES’ CROSS-MOTIONS FOR SUMMARY JUDGMENT
BEFORE THE COURT are the Motion for Summary Judgment  filed
by Defendant/Counter-Plaintiff Ground Control and the Motion for Partial
Summary Judgment  filed by Plaintiffs/Counter-Defendants Greenwich
Insurance Company and Indian Harbor Insurance Company (hereafter collectively
referred to as “the Insurers”). The parties dispute whether the Insurers have a duty
to defend Capsco Industries in a state court lawsuit filed by Ground Control. After
reviewing the submissions of the parties, the record in this matter, and the
applicable law, the Court finds that the Insurers do not have a duty to defend
Capsco in Ground Control’s state court action. The Insurers’ Motion for Partial
Summary Judgment is granted, and Ground Control’s Motion for Summary
Judgment is denied.
This insurance coverage dispute arose out of the Margaritaville Spa and
Hotel construction project in Biloxi, Mississippi. The Insurers issued commercial
general liability policies to one of the project’s subcontractors, Capsco Industries,
Inc. W.G. Yates & Sons Construction Company served as the project’s general
contractor, and Harrah’s Entertainment was the project owner. Capsco retained a
sub-subcontractor, Ground Control, “to provide labor and materials for removal or
capping of existing structures and piping, installation of storm drainage piping and
structures, potable water lines and structures, and sanitary sewer lines and
structures . . . .” (Supp. Compl. at 4, ECF No. 20-2). Yates terminated Ground
Control’s involvement with the project due to alleged safety violations and failed
drug tests. Ground Control, LLC v. Capsco Indus., Inc., 120 So. 3d 365, 367 (Miss.
A. UNDERLYING STATE COURT ACTION
Ground Control filed a lawsuit in state court against Capsco, Yates, Harrah’s,
and others involved with the project. The state court granted summary judgment in
favor of Capsco, Yates, and Harrah’s, and Ground Control appealed. The
Mississippi Supreme Court reversed and remanded the case to the Circuit Court
holding that: (1) Miss. Code Ann. § 31-3-15 rendered the subcontract between
Ground Control and Capsco null and void due to the parties’ failure to obtain
certificates of responsibility; (2) Ground Control should be permitted to proceed with
a claim against Capsco for the value of what it expended in labor and supplies on
the project pursuant to the doctrine of unjust enrichment and/or quantum meruit;
and (3) the grant of summary judgment in favor of Yates and Harrah’s was
improper due to the Circuit Court’s failure to give proper notice pursuant to Miss.
R. Civ. P. 12(b). See generally Ground Control, LLC v. Capsco Indus., Inc., 120 So.
3d 365 (Miss. 2013).
On remand, the state trial court initially granted Ground Control permission
to file a supplemental complaint raising numerous tort, contractual, and statutory
claims but later determined that Ground Control should only be permitted to
present evidence under a quantum meruit theory of recovery at trial. A jury
awarded Ground Control $862,228 and apportioned fault as follows: 95.75% liability
to Capsco, 4.25% liability to Yates, and 0% liability to Harrah’s. The parties, who
disputed whether Ground Control should be permitted to pursue additional claims,
filed numerous post-trial motions that caused the judgment to be entered eleven
months after the jury’s verdict. The parties appealed, and the Mississippi Supreme
Court determined that: (1) Ground Control could only pursue quantum meruit
damages from Capsco; (2) Ground Control’s claims against Yates and Harrah’s
should be dismissed; (3) Capsco was entitled to a remittitur because the jury’s
verdict was not supported by the evidence; and (4) the parties could either agree to
a $199,096 damages award in favor of Ground Control or proceed to a new trial on
quantum meruit damages. Ground Control has indicated that it wishes to proceed
with a new trial in state court.
B. DECLARATORY JUDGMENT ACTION
While the case was on remand in state court, Capsco’s insurers Greenwich
and Indian Harbor filed this declaratory judgment action, alleging that they do not
owe a defense or indemnity to Capsco and three additional insureds in the state
court action. Ground Control filed a Motion to Dismiss alleging, inter alia, that the
declaratory judgment action was not ripe, because a final judgment had not been
entered in state court. The Court denied the Motion to Dismiss, because the
question of whether the insurers owe a duty to defend can be determined based on
the allegations of the complaint and the terms of the insurance policy. The Court
also noted that the insurers may be able to demonstrate that there is no duty to
indemnify the insureds by demonstrating that they have no duty to defend.
The parties filed cross-motions for summary judgment that solely addressed
the duty to indemnify. Because it was then unclear which claims Ground Control
would be permitted to pursue in state court and it appeared that the insurers no
longer disputed the duty to defend, this Court found that the parties’ cross-motions
for summary judgment should be denied without prejudice and the declaratory
judgment action should be stayed pending the conclusion of the state court action.
Now that the Mississippi Supreme Court has definitively ruled that Ground
Control can only pursue a quantum meruit claim against Capsco in state court, the
Insurers claim that they do not have a duty to defend Capsco in the upcoming
second trial. This Court granted the Insurers’ Motion to Lift the Stay so that the
parties could file Motions concerning the Insurers’ duty to defend Capsco.
I. SUMMARY JUDGMENT STANDARD
A motion for summary judgment may be filed by any party asserting that
there is no genuine issue of material fact and that the movant is entitled to prevail
as a matter of law on any claim. Fed. R. Civ. P. 56. The movant bears the initial
burden of identifying those portions of the pleadings and discovery on file, together
with any affidavits, which it believes demonstrate the absence of a genuine issue of
material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). Once the movant
carries its burden, the burden shifts to the non-movant to show that summary
judgment should not be granted. Id. at 324-25. The non-movant may not rest upon
mere allegations or denials in its pleadings but must set forth specific facts showing
the existence of a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 256-57 (1986).
II. CHOICE OF LAW
Since the parties agree that Alabama law governs the insurance policies at
issue, the Court will apply Alabama law to determine whether the Insurers have a
duty to defend Capsco. (See Ground Control’s Mem. at 8, ECF No. 136; Insurers’
Reply at 4, ECF No. 137).1
In prior Orders [112, 121], this Court has held that there was no conflict between
Alabama law and Mississippi law concerning the issue of when duty to defend and
indemnity claims become ripe for review, but the Court has not previously
III. DUTY TO DEFEND
Under Alabama law, an insurer’s duty to defend is broader than the duty to
indemnify. Mid-Continent Cas. Co. v. Advantage Med. Elec., LLC, 196 So. 3d 238,
243 (Ala. 2015). The question of whether an insurer owes a duty to defend is
governed primarily by the allegations contained in the complaint filed against the
insured. Id. “If the allegations of the injured party’s complaint show an accident or
an occurrence within the coverage of the policy, then the insurer is obligated to
defend, regardless of the ultimate liability of the insured.” Id. “Where facts are
alleged in the complaint to support a cause of action, it is the facts, not the legal
phraseology, that determine whether an insurer has a duty to defend its insured in
the action.” Hartford Cas. Ins. Co. v. Merchants & Farmers Bank, 928 So. 2d 1006,
1012 (Ala. 2005).
“If the complaint against the insured does not, on its face, allege a covered
accident or occurrence, other facts which did exist but were not alleged could be
taken into consideration to establish coverage because the policy should be liberally
construed in favor of the insured.” Tanner v. State Farm Fire & Cas. Co., 874 So. 2d
1058, 1064 (Ala. 2003) (internal quotation marks omitted). “The insurer owes no
duty to defend only if neither does the complaint against the insured allege a
considered whether Mississippi law and Alabama law conflict as to the issue of
whether an insurer owes a duty to defend. Since the parties agree that Alabama
law should be applied to this issue, it is not necessary to conduct analysis
concerning conflicts of law.
covered accident or occurrence nor does the evidence in the litigation between
insurer and insured prove a covered accident or occurrence.” Id. at 1065.
While deciding whether an insurer has a duty to defend its insured, the court
must construe the policy “liberally in favor of the insured and strictly against the
insurer.” Am. States Ins. Co. v. Martin, 662 So. 2d 245, 247 (Ala. 1995).
“Exclusions are to be interpreted as narrowly as possible, so as to provide maximum
coverage for the insured, and are to be construed most strongly against the
insurance company that drafted and issued the policy.” Id.
The Insurers argue that they do not owe a duty to defend Capsco in the
lawsuit filed by Ground Control because Ground Control’s remaining claim for
quantum meruit does not seek recovery for “property damage” or “bodily injury” as
required by the insurance policies at issue. The Insurers also argue that Ground
Control’s remaining claim does not constitute an “occurrence” under the policies. It
is undisputed that no “bodily injury” is alleged in Ground Control’s Supplemental
Complaint, but Ground Control claims that it has alleged “property damage” caused
by an “occurrence.”
The policies at issue are commercial general liability (CGL) policies
that require the Insurers to “pay those sums that the insured becomes legally
obligated to pay as damages because of ‘bodily injury’ or ‘property damage’”
caused by an “occurrence.” (Insurers’ Mot., Ex. G at 36, Ex. H at 35, ECF
Nos. 131-7, 131-8). The policies further provide that the Insurers “will have
the right and duty to defend the insured against any ‘suit’ seeking those
damages.” (Id.) “Property damage” under the policies means “[p]hysical
injury to tangible property, including all resulting loss of use of that
property[,]” as well as the “[l]oss of use of tangible property that is not
physically injured.” (Insurers’ Mot., Ex. G at 49, Ex. H at 48, ECF Nos. 1317, 131-8). The Alabama Supreme Court has held that “[i]n this context,
tangible property (like real estate) is property that is capable of being
handled, touched, or physically possessed.” Am. States Ins. Co., 662 So. 2d at
248. “Purely economic losses are not included in this definition.” Id.
“[S]trictly economic losses like lost profits, loss of an anticipated benefit or a
bargain, and loss of an investment, do not constitute damage or injury to
‘tangible’ property.” Id. at 249.
Ground Control argues that portions of its remaining claim against Capsco
arose out of property damage, because it is seeking to recover payment for work and
materials required to repair property damage to work it had performed on the
project. In addition, Ground Control is once again attempting to amend its
complaint in the state court action.2 In its proposed amended complaint, Ground
Control claims that it is seeking recovery for loss of use of property that Capsco
purchased with funds that belonged to Ground Control. This Court will first
consider whether Ground Control has alleged damage to tangible property.
Although the Motion to Amend the state court complaint has been pending since
May, no ruling has been entered and no hearing has been scheduled on the Motion.
A. DAMAGE TO TANGIBLE PROPERTY
In its Supplemental Complaint filed in the state court action, Ground Control
alleges that it has not been compensated for repairs it performed to its work.
Ground Control also claims that it was required to perform other work that was not
included in the original project plans. Ground Control is seeking to recover from
Capsco for these alleged repairs and additional work. It claims that Capsco
received payment from Yates for change orders related to the repairs made by
Ground Control, but Capsco never paid Ground Control for the repairs. Ground
Control also argues that Capsco is legally obligated to pay for the repair work
because it agreed to indemnify Yates and other contractors who caused the damage.
The parties and this Court have not located any Alabama cases addressing
the specific question of whether a contractor’s failure to pay a subcontractor for
repairing damaged work is covered by a CGL policy like the policies at issue here.
Nevertheless, cases from other jurisdictions are instructive. For example, in
Westfield Insurance Co. v. Nautilus Insurance Co., rain damaged the interior of a
school while a subcontractor was installing structural steel and steel decking.
Westfield Ins. Co. v. Nautilus Ins. Co., 154 F. Supp. 3d 259, 262 (M.D.N.C. 2016).
The project’s general contractor hired a company called Afterdisaster to remediate
the water damage. Id. Afterdisaster sued after the general contractor failed to pay
Afterdisaster for the remediation work it performed. Id. The general contractor’s
primary insurer, Westfield, sued the subcontractor’s insurer, Nautilus, seeking
subrogation for the defense and indemnity it provided to the general contractor. Id.
Westfield claimed that the water intrusion constituted an occurrence that
caused property damage under the CGL policy at issue. Id. at 267. The court
rejected this argument because Afterdisaster’s lawsuit against the general
contractor did not stem from the water intrusion but from the general contractor’s
“unilateral decision to contract with Afterdisaster for remediation services, and
subsequently failing to pay for such services, which caused the state suit against
[the general contractor].” Id. The court also noted that “Afterdisaster did not suffer
property damage and therefore was not seeking damages because of property
damage,” and the damages Afterdisaster “sought arose out of [the general
contractor’s] non-accidental failure to honor its contractual obligations, which are
purely economic losses in nature.” Id. Although the contract between Afterdisaster
and the general contractor could be traced to property damage, the court found that
the general contractor’s “subsequent breach of that contract represents a separate
and independent act severing the causal connection with the water intrusion event.”
Id. at 271. Therefore, the court held that “[s]uch an indirect connection between
Afterdisaster’s claims and the rain event [was] insufficient to trigger Nautilus’s
duty to defend.” Id.
Similarly, in Woodcraft Manufacturing Inc. v. Charter Oak Fire Insurance
Co., a general contractor sued its subcontractor to obtain reimbursement of benefits
paid to the subcontractor’s employee who was injured on the job. Woodcraft Mfg.
Inc. v. Charter Oak Fire Ins. Co., No. 3:08cv455-MCR-EMT, 2009 WL 1329138, at *3
(N.D. Fla. May 12, 2009). The general contractor had been required to pay the
benefits as a result of the subcontractor’s failure to obtain workers’ compensation
coverage as required by the parties’ subcontract. Id. at *1-*2. The subcontractor
sought coverage from its insurer, claiming that the general contractor was seeking
damages for bodily injuries. Id. at *3. The court explained that while the
employee’s “physical injury formed the background for” the general contractor’s
lawsuit, the general contractor sued “because it was forced to pay the workers’
compensation benefits . . . the subcontractor had been contractually obligated to
cover with insurance but failed to obtain.” Id. As a result, the court held that the
general contractor’s claims were based on economic loss rather than bodily injury.
According to Ground Control’s Supplemental Complaint, Capsco, Yates, and
Harrah’s directed Ground Control to perform repairs on work that had previously
been completed at the project site. (Insurers’ Mot., Ex. A at 7-8 (¶¶ 12-14), ECF No.
131-1). Ground Control further asserts that it has not been compensated for these
repairs. (Id.) Ground Control’s proposed amended complaint contains similar
allegations. (Ground Control’s Mot., Ex. C at 6-8 (¶¶ 9-13), ECF No. 127-3).
Ground Control also asks the Court to consider testimony given by its
president Frank Beaton and its field supervisor Kenneth Kossow. Beaton testified
that Ground Control only agreed to repair the damaged work because Yates
promised to pay Ground Control for performing the repairs.3 (See generally Ground
The Insurers argue that Capsco is not liable for the repairs directed by Yates or
the damage caused by other contractors. As that is a matter for the state court to
Control’s Mot., Ex. E, ECF No. 127-6). He testified that Ground Control was not
otherwise obligated to perform the repairs. (Id.) Both Kossow and Beaton testified
that Ground Control’s repair work was accepted by Yates, but Ground Control was
never paid as promised by Yates. (See generally Ground Control’s Mot., Ex. D, E, F,
G, ECF Nos. 127-4, 127-5, 127-6, 127-7, 127-8).
The allegations of Ground Control’s complaints as well as the testimony of
Beaton and Kossow indicate that Ground Control did not suffer any damages as a
result of the property damage. Ground Control suffered damages as a result of acts
committed by Capsco and/or Yates after the property damage occurred. Since
Ground Control is seeking payment for work it performed for Yates and/or Capsco,
its alleged damages are purely economic in nature. Thus, Ground Control’s claims
that it did not receive payment for repairing damaged work or performing other
extra-contractual work do not constitute covered “property damage” under the
policy language. Ground Control itself suffered no “damage to tangible property”; it
merely suffered an economic loss when Yates and/or Capsco allegedly failed to pay
Ground Control as agreed. Yates’ and/or Capsco’s alleged breach of the agreement
to pay Ground Control for performing the repairs “represents a separate and
independent act severing the causal connection” between the property damage and
Ground Control’s claims. See Westfield, 154 F. Supp. 3d at 271. As a result, the
decide, this Court will assume for the purposes of this Motion that Capsco is liable
for the repairs and damages at issue.
connection between the property damage and Ground Control’s claims is too
tenuous to create a duty to defend under the policies.
B. LOSS OF USE
Ground Control also alleges that it has asserted claims for covered loss of use
under the policies. The policies’ definitions of “property damage” include “[l]oss of
use of tangible property that is not physically injured.” (Insurers’ Mot., Ex. G at 49,
Ex. H at 48, ECF Nos. 131-7, 131-8). Ground Control’s Supplemental Complaint
does not specifically mention any loss of use of tangible property. However, Ground
Control relies on testimony given by Beaton, as well as allegations in its proposed
At trial, Beaton testified that Capsco deducted funds from checks paid to
Ground Control to purchase pipe from a company called Ferguson and laser
sighting equipment from a company called ICM. (Ground Control’s Mot., Ex. E at
677-78, 684, ECF No. 127-5). Beaton testified that Ground Control did not have an
agreement with Capsco to pay for the pipe and Ground Control did not purchase the
pipe from Ferguson. (Id. at 678). He also testified that the funds for the laser were
taken without Ground Control’s permission, and as far as he knew, Capsco retained
possession of the laser. (Id.) In an affidavit, Beaton claims that Capsco told him
that Ground Control is the owner of the laser and promised to deliver the laser to
Ground Control’s office. (Ground Control’s Mot., Ex. D at 11, (¶15), ECF No. 127-4).
He also testified that Capsco’s representatives had assured Beaton that Ground
Control would retain an ownership interest in the pipe and other materials Capsco
purchased from Ferguson and “that Capsco would pay Ground Control for its
interest in these materials once the outstanding pay applications were paid by
Yates.” (Id. at 9 (¶9)).
In its proposed amended complaint, Ground Control alleges that “Capsco
arbitrarily and without consent deducted from these vested earnings the sum of
$358,367.98 for the purchase of the piping material.” (Ground Control’s Mot., Ex. C
at 8 (¶14), ECF No. 127-3). It further alleges that “Ground Control suffered the loss
of this piping material and its use when its [sic] was transferred by Capsco without
any compensation or reimbursement to Ground Control for its interest in these
materials.” (Id. at 9 (¶14)). The proposed amended complaint contains similar
allegations concerning the laser sighting device. (Id. at 9 (¶15).
Even if allegations of this nature could be considered “loss of use of tangible
property” under the policies, these allegations do not constitute an “occurrence”
under the policies. The policies provide that an “occurrence” is “an accident,
including continuous or repeated exposure to substantially the same general
harmful conditions.” (Insurers’ Mot., Ex. G at 48, Ex. H at 48, ECF Nos. 131-7, 1318). The Alabama Supreme Court has utilized the following definitions of “accident”
for determining whether facts alleged constitute an occurrence: (1) “[a]n unintended
and unforeseen injurious occurrence; something that does not occur in the usual
course of events or that could be reasonably anticipated;” and (2) “something
unforeseen, unexpected, or unusual.” Hartford Cas. Ins. Co., 928 So. 2d at 1012. It
is completely foreseeable that if Capsco deducted funds without permission and
failed to reimburse those funds that Ground Control would be expected to suffer
damages. Capsco’s alleged action in deducting funds from Ground Control’s checks
without permission and then failing to either return the funds or the property to
Ground Control is intentional conduct that cannot be considered an “occurrence”
under the policies. Therefore, Ground Control’s allegations of loss of use, even when
supplemented by testimony from Beaton, do not pertain to a covered “occurrence”
under the policies, and the Insureds do not have a duty to defend Capsco in the
upcoming trial to determine the amount of quantum meruit damages owed to
For the foregoing reasons, the Court finds that the Insurers do not have a
duty to defend Capsco in the state court lawsuit filed by Ground Control. To the
extent the Court has not addressed any of the parties’ arguments, it has considered
them and determined that they would not alter this result.
IT IS, THEREFORE, ORDERED AND ADJUDGED that the Motion for
Partial Summary Judgment  filed by Plaintiffs/Counter-Defendants Greenwich
Insurance Company and Indian Harbor Insurance Company is GRANTED.
IT IS, FURTHER, ORDERED AND ADJUDGED that the Motion for
Summary Judgment  filed by Defendant/Counter-plaintiff Ground Control is
SO ORDERED AND ADJUDGED this the 18th day of August, 2017.
Louis Guirola, Jr.
LOUIS GUIROLA, JR.
CHIEF U.S. DISTRICT JUDGE
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