Clarinet, LLC v. Essex Insurance Company

Filing 30

MEMORANDUM AND ORDER IT IS HEREBY ORDERED that the motion of defendant Essex Insurance Corporation to dismiss (Doc. 19 ) is denied. Signed by Magistrate Judge David D. Noce on 04/19/2011. (DJO) Modified on 4/20/2011 (KXS).

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
CLARINET, LLC,

)
)
)
)
)
)
)
)
)

Plaintiff,
v.
ESSEX INSURANCE COMPANY,
Defendant.

No. 4:10 CV 1686 DDN

MEMORANDUM AND ORDER
This action is before the court on the motion of defendant Essex
Insurance Company to dismiss.

(Doc. 19.)

The parties have consented to

the exercise of plenary authority by the undersigned United States
Magistrate Judge pursuant to 28 U.S.C. § 636(c).
I.

BACKGROUND

On July 20, 2010, plaintiff Clarinet, LLC (“Clarinet”) commenced
this action against defendant Essex Insurance Company (“Essex”) in the
Circuit Court of the City of St. Louis, Missouri.

In its petition,

Clarinet seeks a declaratory judgment (Count 1), damages for breach of
contract (Count 2), and damages for vexatious and bad faith refusal to
pay (Count 3).

On September 10, 2010, Essex removed the action to this

court pursuant to 28 U.S.C. § 1441, based on diversity of citizenship
subject matter jurisdiction, 28 U.S.C. § 1332.
Clarinet’s allegations in this suit
Clarinet alleges the following facts in its petition:
In 2005, Clarinet purchased real property located at 612 N. 1st
Street, St. Louis, Missouri 63102, which was the form location of the
Switzer Building.

(Petition, Doc. 1-1 at ¶¶ 5-6.)

The Switzer Building

was a turn-of-the-century masonry structure, consisting of six stories
above grade, one story below grade, and an annex building. It was listed
as a historical building with the National Register of Historic Places
as part of the Laclede’s Landing Historic District.

(Id. at ¶¶ 7-8.)

On July 7, 2006, Essex issued a Commercial General Liability
insurance policy (No. 3CM5800) to Clarinet, effective July 7, 2006
through October 7, 2006.

(Id. at ¶ 9.)

Essex provided Clarinet with

insurance under renewal policies, consisting of substantially similar
terms and conditions as the first policy.

(Id. at ¶ 10.)

The last

policy was effective from April 24, 2007 through July 24, 2007 (No.
3V2139).
(Id.)

All versions of the policy are referred to as “the Policy”.

Clarinet paid all premiums that were due.

(Id.)

The Policy, which is attached to the petition as Exhibit A,
provided coverage to Clarinet, its members, managers, and any person or
organization acting as Clarinet’s real estate manager.

(Id. at ¶ 11.)

The Policy provided the following coverage:
COVERAGE A BODILY INJURY AND PROPERTY DAMAGE LIABILITY
I.

Insuring Agreement
a. We will pay those sums that the insured becomes
legally obligated to pay as damages because of
“bodily injury” or “property damage” to which this
insurance applies. We will have the right and duty
to defend the insured against any “suit” seeking
those damages. However, we will have no duty to
defend the insured against any “suit” seeking
damages for “bodily injury” or “property damage” to
which this insurance does not apply. We may, at
our discretion, investigate any “occurrence” and
settle any claim or “suit” that may result.
* * *
b. This insurance applies to “bodily injury” and
“property damage” only if:
(1) The “bodily injury” or “property
damage” is caused by an “occurrence”
that takes place in the “coverage
territory”; and
(2) The “bodily injury” or “property
damage”
occurs
during
the
policy
period.

(Id. at pp. 3, 33.)
The policy defines “property damage” as:
(a) Physical injury to tangible property, including all
resulting loss or use of that property. All such loss
- 2 -

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 “occurrence” that
caused it.
(Id. at pp. 4, 45-46.)
The

policy

defines

“occurrence”

as

“an

accident,

including

continuous or repeated exposure to substantially the same general harmful
conditions.”

(Id. at pp. 4, 45.)

On July 19, 2006, a severe windstorm struck the City of St. Louis
and its metropolitan area (“the Storm”).

(Id. at ¶ 16.)

The Storm

caused a portion of the Switzer Building to collapse, and blew bricks and
debris from the Switzer building into the immediately adjacent Eads
Bridge.

This caused property damage to the bridge and to an electrical

substation.

(Id. at ¶¶ 16-17.)

The Eads Bridge was and is owned by the

City of St. Louis or one of its political subdivisions.

(Id. at ¶ 17.)

The Storm extensively damaged the Switzer Building, rendering it
structurally unsound and an imminent threat of harm to third party
property and persons, in that the Storm: destroyed major portions of the
south and east walls of the Switzer Building; destroyed substantial
portions of the building’s roof and floor area; destroyed or shifted
interior structural members of the building; left large portions of the
east and north walls of the building with no support; and further exposed
the

building’s

deterioration.

interior

to

the

(Id. at ¶¶ 18-19.)

weather,

which

caused

continued

The partially destroyed south wall

of the Switzer Building was immediately adjacent to the Eads Bridge, the
electrical substation, and other St. Louis City property that had been
damaged by the Switzer Building’s partial collapse.
Following

the

Storm,

Clarinet

completed

(Id. at ¶ 20.)

various

stabilization

efforts in order to abate the hazardous condition and avoid further
damage to third party property.

(Id. at ¶¶ 21-22.)

The stabilization

efforts lasted several months and cost over $500,000.

(Id. at ¶ 23.)

Despite Clarinet’s stabilization efforts, the Switzer Building continued
to endanger persons and property.

(Id. at ¶ 24.)

As of late April,

2007, the Switzer Building remained structurally unsound, unstable, and
- 3 -

constituted a continuing hazard and immediate threat to public safety.
(Id. at ¶ 25.)

Due to its dangerous condition, the Switzer Building

needed to be demolished.

(Id.)

However, because of its listing as a

historic landmark, Clarinet had to obtain the approval of various St.
Louis City agencies before demolition.

(Id. at ¶ 26.)

St. Louis City

initially resisted Clarinet’s demolition attempts, and sought to preserve
some or all of the structure.

(Id. at ¶¶ 27-28.)

On June 6, 2007, St. Louis City building inspectors issued a Notice
of Emergency Condemnation, which required immediate demolition of the
Switzer Building to abate the dangers posed to persons and third party
property.

(Id. at ¶ 29.)

Essex hired Paric Corporation (“Paric”) to

demolish the Switzer Building, which it did on June 18, 2007. (Id.)
demolition costs exceeded $650,000.

The

(Id. at ¶ 32.)

On December 31, 2008, the City of St. Louis filed suit against
Clarinet and its members for the damage to Eads Bridge when the Storm
caused the Switzer Building to partially collapse and blew bricks and
debris from the Switzer Building into the bridge (“City Suit”).
¶ 33.)

(Id. at

Although Essex acknowledged coverage for this claim, and is

providing Clarinet and its members with a defense and indemnity in the
City Suit, Essex has denied coverage for Clarinet’s stabilization and
demolition costs.

(Id. at ¶¶ 34-36.)

In Count I of its petition in the instant action, Clarinet seeks a
declaratory

judgment

that

it

is

entitled

to

coverage

for

the

stabilization and demolition costs of the Switzer Building from Essex.
(Id. at ¶¶ 37-40.) In Count II, Clarinet alleges that Essex breached the
Policy by failing to pay for the stabilization and demolition costs of
the Switzer Building. (Id. at ¶¶ 41-45.) In Count III, Clarinet alleges
Essex’s refusal to provide coverage was made in bad faith, and was
unreasonable, vexatious, and without reasonable cause, and therefore
Essex is liable for interest, penalties, costs, and Clarinet’s attorneys’
fees.

(Id. at ¶¶ 46-51.)
In its amended counterclaim in this action, Essex seeks payment for

its costs and attorneys’ fees incurred by defending this suit.
17.)

- 4 -

(Doc.

II.

MOTION TO DISMISS

Essex moves to dismiss Clarinet’s claims under Fed. R. Civ. P. 12.
It argues that it filed a federal declaratory judgment action against
Clarinet on October 15, 2007, and in that action, Clarinet filed and
argued as counterclaims that it was entitled to payment for expenses
related to the stabilization and demolition of the Switzer Building.
Essex argues that the court granted it summary judgment on Clarinet’s
counterclaims and as a result, Clarinet’s current claims are barred by
the doctrines of res judicata and collateral estoppel.

(Docs. 19, 20.)

Clarinet responds that its claims are not barred because the earlier
federal suit concerned whether Essex had a duty under its contract with
Clarinet to defend Paric’s breach of contract claim against Clarinet for
Clarinet’s

alleged

failure

to

pay

Paric

for

its

demolition

work.

Clarinet also argues that the present suit concerns the costs Clarinet
incurred in stabilizing and demolishing the Switzer Building, and not
Clarinet’s performance of its obligations under the contract with Paric.
(Doc. 22.)
Essex replies that the court granted summary judgment in its favor
for

Clarinet’s

counterclaims,

which

are

the

same

arguments on which Clarinet brings in this law suit.

allegations

and

Essex also argues

that the court found that the “occurrence” was the damage to third party
property, not the windstorm, and thus Clarinet’s claims against it are
barred.

(Doc. 26.)

III.

DISCUSSION

The parties agree that Missouri law provides the substantive rules
of decision for deciding whether res judicata and collateral estoppel
apply to Clarinet’s claims.

A.

The earlier federal lawsuit--Essex v. Paric Corporation, et al.
On October 15, 2008, Essex filed suit in this federal district court

against

Paric

and

Clarinet

(including

its

members)

(collectively

“Clarinet”), Essex Insurance Company v. Paric Corporation, et al., No.
4:08 CV 1595 ERW.

In that lawsuit Essex sought a declaratory judgment

that:
- 5 -

1.
Policy No. 3CV2139 provides no coverage to
CLARINET, or any of CLARINET’S members . . . or to any other
person for the claims asserted against CLARINET in the PARIC
lawsuit, Case No. 0822-CC02140;
2.
ESSEX INSURANCE shall have no duty or obligation to
defend CLARINET, or any of CLARINET’S members . . . in the
PARIC lawsuit, Case No. 0822-CC02140; and
3.
ESSEX INSURANCE shall have no duty or obligation to
indemnify CLARINET, or any of its members . . . any sum which
CLARINET, or any of its members . . . may become obligated to
pay by way of settlement or judgment in connection with the
PARIC lawsuit, Case No. 0822-CC02140.
(See Case No. 4:08 CV 1595 ERW, Doc. 3 at 10.)

In Case No. 0822-CC02140,

in the Missouri Circuit Court, Paric sued Clarinet and its members for
their failing to pay Paric for its demolition work, described above.
Clarinet filed a three counterclaims against Essex:
Count I sought a declaratory judgment that (a) the Policy issued by
Essex covered the claims made by Paric in its state court lawsuit against
Clarinet for the balance due for its work demolishing the Switzer
Building; (b) Essex is liable under the Policy to defend and indemnify
those defendants for the Paric claims; (c) Essex is liable for attorneys’
fees and costs incurred by defendants in defending against Paric’s claims
and in prosecuting the instant action; and (d) Essex is liable for
interest and costs.

(Id. Doc. 44 at 4-5.)

Count II sought damages for breach of contract by Essex’s failure
to pay Clarinet’s attorney’s fees and costs expended in the Paric lawsuit
and in bringing the current lawsuit.
Count III sought damages for Essex’s alleged vexatious and bad faith
refusal to pay under the Policy relating to the Paric lawsuit.
On July 6, 2010, the district court, in Case No. 4:08 CV 1595 ERW,
granted Essex summary judgment on its claim for a declaratory judgment
against Paric, Clarinet, and its members, holding that Essex had no duty
under the Policy to defend Clarinet in the Paric Suit.
ERW, Doc. 109.).

(No. 4:08 CV 1595

The court framed the issues in that suit as:

Both Plaintiff and Defendants seek a declaratory judgment with
respect tot eh issue of whether the insurance policy issued by
Plaintiff to Defendant Clarinet provides coverage for the
claims asserted against the Clarinet Defendants in the Paric
- 6 -

lawsuit. Additionally, the breach of contract and vexatious
and bad faith refusal to pay counterclaims asserted by the
Clarinet Defendants depend on this Court’s finding that
Plaintiff had a duty to defend or indemnify the Clarinet
Defendants with respect to the breach of contract claims
asserted by Defendant Paric in the state court lawsuit.
Accordingly, the Court must first examine the duty to defend
or indemnify contained in the Policy at issue in this case.
(Id. at 11-12.)
The court held that Essex did not have a duty under the Policy to
defend Clarinet and its members in the breach of contract suit brought
in state court by Paric:
The plain language of the Policy at issue in this case
establishes that the insurer does not have the duty or the
right to defend the insured in a lawsuit, unless the lawsuit
alleges an occurrence, or an accident. The breach of contract
allegations that form the basis for the Paric Lawsuit are
based on intentional acts, that cannot be interpreted to be
accidental in any way.
* * *
Because a breach of contract cannot amount to an “accident” or
an “occurrence,” and because the Paric lawsuit involves only
claims related to Defendant Clarinet’s alleged failure to
comply with the terms of its contract with Defendant Paric,
the Court must conclude that Plaintiff has no potential or
possible liability to pay at the outset of the Paric lawsuit,
and thus, there was no duty to defend.
(Id. at 12.)
The court then addressed Clarinet’s arguments that the “occurrence”
under the Policy that triggered Essex’s duty to defend was the Storm,
based on Essex’s agreement to defend Clarinet in the City Suit.
court rejected Clarinet’s arguments:
The problem with Defendants’ argument is that the claims made
against the Clarinet Defendants in the Paric Lawsuit are not
connected to the July 19, 2006 windstorm; rather, the claims
are based on Defendant Paric’s demolition of the Switzer
Building in 2007, and the Clarinet Defendants’ alleged
subsequent refusal to pay. Moreover, as Defendants themselves
stated, the “occurrence” in the City Lawsuit was “the July 19,
2006 windstorm that partially collapsed the Switzer Building
and blew bricks and debris onto the adjacent City property,
causing damage to City Property.” Thus, the “occurrence” was
not the windstorm itself, rather, it was damage to third party
property that was caused by the windstorm. The Paric Lawsuit
involves entirely different facts, namely, the voluntary
demolition of Defendant Clarinet’s own property.
Thus,
- 7 -

The

Plaintiff’s assumption of the defense in the City Lawsuit is
irrelevant to whether Plaintiff has a duty to defend the
Clarinet Defendants in the Paric Lawsuit.
(Id. at 14-15) (emphasis in original).
The court then expressly declined to consider whether Essex was
obligated under the Policy to repay Clarinet for the costs it incurred
in demolishing the Switzer Building:
[B]oth Plaintiff and Defendants have requested that the Court
issue a declaratory judgment as to whether the Policy provides
coverage for the breach of contract claims asserted against
the Clarinet Defendants in the Paric Lawsuit. The Court has
not been asked to determine whether Plaintiff is somehow
obligated to pay the costs of the demolition of the Switzer
Building. Defendants’ arguments as to why Plaintiff should
have to pay for the demolition costs are simply not relevant
to the Court’s determination of whether Plaintiff is obligated
to provide a defense in the Paric Lawsuit.
(Id. at 15.)
The

court

applicability

of

also

noted

Policy

that,

although

the

which

would

provisions

parties

argued

“establish

the

certain

circumstances in which claims that would otherwise be covered are
excluded from coverage,” the exclusions were not relevant to the dispute
before the court:
These exclusions would certainly be relevant to the issue of
whether Plaintiff is contractually obligated to pay for
demolition costs, but they have little, if any, relevance to
the issue of whether Plaintiff must provide the Clarinet
Defendants with a defense against breach of contract claims.
Moreover, because this Court has determined that there was no
“occurrence,” and thus there is no coverage, it is not
necessary to examine whether any of the coverage exclusions
apply.
(Id. at 16.)
B.

Res Judicata
“Under Missouri law, [t]he doctrine of res judicata, or claim

preclusion, bars relitigation of the same cf the same cause of action by
the same parties or privities in a case if the two actions have the
following common ‘identities’: ‘(1) identity of the thing sued for; (2)
identity of the cause of action; (3) identity of the persons and parties
to the action; and (4) identity of the quality of the person for or
- 8 -

against whom the claim is made.’ ” Niere v. St. Louis County, Missouri,
305 F.3d 834, 837 (8th Cir. 2002) (quoting Williams v. Finance Plaza,
Inc., 78 S.W.3d 175, 183 (Mo. Ct. App. 2002).
Essex argues that the federal district court decided in Essex v.
Paric Corporation that it was not liable for the stabilization and
demolition costs incurred by Clarinet, thereby satisfying the first
element of res judicata. Essex points to Clarinet’s counterclaim in that
suit, and Clarinet’s motion for summary judgment.
Although Clarinet sought a declaratory judgment and brought breach
of contract and vexatious and bad faith refusal to pay counterclaims
against Essex in the earlier suit, these claims concerned Essex’s duty
to provide Clarinet with a defense in the Paric lawsuit.
4:08 CV 1595 ERW, Doc. 20-1 at ¶ 21-35.)

(See Case No.

These claims did not concern

the costs Clarinet incurred in stabilizing and demolishing the Switzer
Building.
Clarinet did, however, argue that Essex had a duty under the Policy
to provide coverage for the costs Clarinet incurred in stabilizing and
demolishing the Switzer Building. (Id. Doc. 20-2.) But, the court found
these arguments irrelevant to the issues presented before it:
Defendants repeatedly frame the issue in this case as whether
the Policy at issue covers Defendant Clarinet’s “efforts to
prevent further collapse and resulting damage to third party
property, including the Eads Bridge.” However, this is not a
proper statement of the issue before the Court at this time.
(Id. Doc. 109 at 15.)

The court then stated that it had “not been asked

to determine whether Plaintiff is somehow obligated to pay the costs of
the demolition of the Switzer Building.”

(Id.) (emphasis in original).

Essex also points to language in the court’s July 6, 2010 Memorandum
and Order:
Moreover, because this Court has determined that there was no
“occurrence,” and thus there is no coverage, it is not
necessary to examine whether any of the coverage exclusions
apply.
(Doc. 22-1 at 16.) However, reading this passage in context reveals that
the court was referring to why Policy exclusions were not relevant to
determining whether Essex had a duty to defend Clarinet in the Paric

- 9 -

Lawsuit.

Because the court had found that Clarinet’s alleged breach of

its contract with Paric was not an “occurrence” under the Policy, the
court did not need to determine whether a coverage exclusion under the
Policy applied.
Based on the Essex v. Paric Corporation court’s express statements
that it was not asked and did not decide whether Essex had a duty under
the

Policy

stabilizing

to
and

provide

coverage

demolishing

the

for

Clarinet’s

Switzer

costs

Building,

incurred

this

court

in
now

concludes that this issue was neither presented nor decided in the
earlier federal suit.
Therefore, because Essex v. Paric Corporation and the current suit
do not have the same identity of the thing sued for, the doctrine of res
judicata does not bar the current suit.
C.

Collateral Estoppel
Under Missouri law, collateral estoppel applies when “(1) the issue

in the present action is identical to the issue decided in the prior
adjudication; (2) the prior adjudication resulted in a judgment on the
merits; (3) the party against whom issue preclusion is asserted was a
party or is in privity with a party to the prior adjudication; and (4)
the party against whom collateral estoppel is asserted had a full and
faith opportunity to litigate the issue in the prior suit.”

American

Home Assur. Co. v. Pope, 487 F.3d 590, 600 (8th Cir. 2007) (quoting James
v. Paul, 49 S.W.3d 786, 682 (Mo. 2001) (en banc).
As discussed above, because the issue in the instant action is not
identical to the issue in the earlier federal action, the current suit
is not barred by the doctrine of collateral estoppel.

IV.

CONCLUSION

For the reasons set forth above,
IT IS HEREBY ORDERED that the motion of defendant Essex Insurance
Corporation to dismiss (Doc. 19) is denied.

/S/
David D. Noce
UNITED STATES MAGISTRATE JUDGE
Signed on April 19, 2011.
- 10 -