Clarinet, LLC v. Essex Insurance Company
Filing
50
MEMORANDUM : For the reasons discussed above, the motion of plaintiff Clarinet, LLC for summary judgment (Doc. 37 ) is denied and the motion of defendant Essex Insurance Company (Doc. 40 ) for summary judgment is sustained. An appropriate Judgement Order is issued herewith.. Signed by Magistrate Judge David D. Noce on 1/23/12. (KKS)
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
This action is before the court on the motions of plaintiff
Clarinet, LLC for partial summary judgment as to coverage (Doc. 37) and
of defendant Essex Insurance Company for summary judgment (Doc. 40). The
parties have consented to the exercise of plenary authority by the
undersigned
§ 636(c).
United
States
(Doc. 13.)
Magistrate
Judge
pursuant
to
28
U.S.C.
Oral arguments were heard on October 17, 2011.
I.
BACKGROUND
On July 20, 2010, plaintiff Clarinet, LLC commenced this action
against defendant Essex Insurance Company in the Circuit Court of the
City of St. Louis, Missouri.
(Doc. 1-1.)
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.
(Doc. 1 at ¶ 1.)
According to the complaint, Essex denied coverage under an insurance
contract with Clarinet (Policy) for stabilization and demolition costs
incurred by Clarinet when the Switzer Building was damaged by a windstorm
(Storm).
Clarinet raises three claims for relief in its complaint.
(Doc. 1-1 at ¶ 36.)
In Count I, it alleges that it is entitled to a
declaratory judgment that the costs associated with shoring, stabilizing,
and demolishing the Switzer Building are covered under the Policy.
at ¶¶ 37-40.)
(Id.
In Count II, it alleges that Essex breached the Policy by
denying coverage for the shoring, stabilization, and demolition costs.
(Id. at ¶¶ 41-45.)
In Count III, it alleges that Essex’s refusal to
provide coverage was vexatious, made in bad faith, and without reasonable
cause. (Id. at ¶¶ 46-51.) Clarinet seeks monetary damages for the costs
it
incurred
in
shoring,
stabilizing,
and
demolishing
the
Switzer
Building, plus interest, costs, penalties, and attorney’s fees.
(Id. at
¶¶ 40, 45, 51.)
II.
MOTIONS FOR SUMMARY JUDGMENT
Clarinet argues that it is entitled to partial summary judgment on
the issue of coverage because the Storm and damage to the Switzer
Building were “occurrences” under the Policy.
Clarinet argues that no
Policy exclusions apply because the City of St. Louis (City) ordered
demolition, because the Switzer Building threatened immediate damage to
City property, and because partial collapse of the Switzer Building was
caused by the Storm.
Clarinet further argues that its failure to seek
Essex’s consent before incurring the costs was immaterial and that the
vacancy of the Switzer Building should not preclude coverage. (Docs. 38,
42, 45.)
Essex argues that it is entitled to summary judgment because there
was no “occurrence” under the Policy and because Clarinet was not
“legally obligated” to incur the costs.
Essex also argues that certain
Policy exclusions apply because the costs were related to Clarinet’s
property and were incurred to prevent future damage to third parties.
Essex further argues that demolition and construction costs and damage
to rented and leased equipment are excluded, and that Clarinet’s failure
to give notice before agreeing to incur the costs precludes coverage.
(Docs. 41, 44, 47.)
Essex seeks a determination by the court that there
is no coverage under the Policy, and that it has no duty to indemnify
Clarinet,
for
the
stabilization
Clarinet.
(Doc. 40, at 3.)
III.
and
demolition
costs
incurred
by
STATEMENT OF UNDISPUTED FACTS
In 2005, Clarinet purchased real property located at 612 N. 1st
Street in the City of St. Louis, Missouri, which was formerly known as
the Switzer Building.
(Doc. 41-1 at ¶ 1.)
The Switzer Building was a
turn-of-the-century masonry structure, consisting of six stories above
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grade, one story below grade, and an annex building.
(Doc. 39 at ¶ 3.)
It was listed as an historical building with the National Register of
Historic Places as part of the Laclede’s Landing Historic District. (Id.
at ¶ 4.)
Clarinet purchased the Switzer Building with the intent to
develop it into luxury condominiums, street level retail stores, and
commercial space.
(Id. at ¶ 2; Doc. 41-1 at ¶ 2.)
The Policy
On July 7, 2006, Essex issued a Commercial General Liability Policy
(Policy No. 3CM5800) to Clarinet, effective July 7, 2006 through October
7, 2006.
(Doc. 41-1 at ¶ 3; Doc. 41-3; Doc. 41-4).
Essex issued renewal
policies to Clarinet, the last of which was effective April 24, 2007
through July 24, 2007 (Policy No. 3CV2139).
paid all premiums that were due.
(Doc. 39 at ¶ 6.)
(Id. at ¶ 7.)
The Policy provided the
following coverage:
Section I - COVERAGES
COVERAGE A BODILY INJURY AND PROPERTY DAMAGE LIABILITY
1.
a.
Insuring Agreement
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 might result.
(1)
The amount we will pay for damages is
limited as described in Section III Limits of Insurance; and
(2)
Our right and duty to defend ends when
we have used up the applicable limit of
insurance in the payment of judgments
or settlements under Coverages A or B
or medical expenses under Coverage C.
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Clarinet
No other obligation or liability to pay sums or
perform acts or services is covered unless
explicitly
provided for under Supplementary
Payments - Coverages A and B.
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”;
(2) The “bodily injury” or “property damage” occurs
during the policy period; . . .
* * *
(Doc. 41-3 at 18.)
The
Policy
defines
“occurrence”
as
“an
accident,
including
continuous or repeated exposure to substantially the same general harmful
conditions.”
(Id. at 30.)
The Policy defines
“property damage” as:
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 “occurrence” that caused it.
(Id. at 30, 31.)
Coverage under the Policy is limited by exclusions, including:
2.
Exclusions
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.
j.
Damage To Property
“Property damage” to:
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(1)
Property you own, rent, or occupy,
including
any
costs
or
expenses
incurred by you, or any other person,
organization or entity, for repair,
replacement, enhancement, restoration
or maintenance of such property for any
reason, including prevention of injury
to a person or damage to another’s
property;
* * *
(3)
Property loaned to you;
(4)
Personal property in the care, custody
or control of the insured;
* * *
(Id. at 18-21) (emphasis added).
Coverage under the Policy is also limited by other provisions:
VACANT BUILDING ENDORSEMENT
THIS ENDORSEMENT CHANGES THE POLICY.
This policy does not provide insurance coverage or defense for
claims, loss, costs, and/or expenses for claims arising from
any renovation, demolition, or construction operations or any
owner or tenant occupancy at any building, or part of a
building, classified on this policy as vacant.
* * *
SECTION IV - COMMERCIAL GENERAL LIABILITY CONDITIONS
* * *
2.
Duties In The Event Of Occurrence, Offense, Claim Or Suit
* * *
d.
No insured will, except at that insured’s own cost,
voluntarily make a payment, assume any obligation,
or incur any expense, other than for first aid,
without our consent.
(Id. at 17, 26, 27) (emphasis added).
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In
a
Commercial
General
Liability
Coverage
Part
Supplemental
Declarations form, the Switzer Building was listed as “VACANT BUILDING NOT FACTORIES.”
(Id. at 5; Doc. 41-4.)
The Windstorm
On July 19, 2006, a severe windstorm struck the City of St. Louis.
(Doc. 41-1 at ¶ 15.)
The Storm caused a portion of the Switzer Building
to collapse.
Specifically, the Storm destroyed portions of the
(Id.)
south and east walls; destroyed substantial portions of the roof and the
floor; and shifted or destroyed interior structural members.
at ¶ 18; Doc. 39-3, Forsyth Aff. at ¶ 4.)
(Doc. 39
The Storm left large portions
of the east and north walls unsupported and exposed the interior of the
Switzer Building to the weather, thereby causing continued deterioration.
(Doc.
39
at
¶¶
19,
20.)
The
partially-destroyed
south
wall
was
immediately adjacent to the Eads Bridge and an electrical substation,
which were owned by the City.
(Id. at ¶ 21; Doc. 41-1 at ¶ 30.)
The
Storm blew bricks and debris from the Switzer Building onto and near the
Eads Bridge, thereby damaging the Bridge and the substation.
(Doc. 39
at ¶ 16.)
After the Storm, Clarinet began efforts to stabilize the Switzer
Building.
(Doc. 41-1 at ¶ 16.)
These efforts included installing 20
aluminum bracing towers, bracing between the Switzer Building and the
Eads Bridge, and netting on the outside of the Switzer Building to
prevent bricks and other debris from falling onto the Bridge or other
adjacent property.
(Id. at ¶ 16; Doc. 39 at ¶ 23.)
Clarinet’s
stabilization and shoring efforts continued over several months.
41-1 at ¶ 17.)
(Doc.
Clarinet, through its agent, Richard Darragh, leased
additional stabilization equipment from Patent Construction under the
account of “VM Contracting.”
(Id. at ¶ 18, Doc. 41-6 at ¶ 6.)
Demolition
Some time prior to June 6, 2007, Clarinet decided to demolish the
Switzer Building.
(Doc. 46 at ¶ 43.)
On January 23, 2007, Clarinet
entered into a demolition contract with Paric Corporation.
¶ 36; Doc. 41-1 at ¶ 19; Doc. 41-7.)
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(Doc. 39 at
Because the Switzer Building was
listed as an historic landmark, Clarinet had to obtain approval from
various City agencies before demolition.
(Doc. 39 at ¶ 27.)
On March
6, 2007, Clarinet, through Bill Buell of Premier Demolition, applied for
a permit from the City to machine-wreck the Switzer Building. (Doc. 41-1
at ¶ 20; Doc. 41-8.)
Clarinet informed the City that it could not abate
the dangerous condition of the Switzer Building, and that demolition of
the Switzer Building and adjacent structures was necessary.
¶ 29.)
(Doc. 39 at
On March 8, 2007, Darragh gave permission to Premier Demolition
to demolish the Switzer Building.
(Doc. 41-1 at ¶ 21; Doc. 41-9.)
On
May 10, 2007, the City gave permission that the Eads Bridge be closed
from May 14, 2007 through May 23, 2007 to demolish the Switzer Building.
(Doc. 41-1 at ¶ 22; Doc. 41-10.)
On May 10, 2007, Darragh accepted the
City’s terms and conditions for granting the demolition permit.
(Doc.
41-1 at ¶ 23; Doc. 41-11.)
On May 11, 2007, Clarinet notified Essex that bricks and debris had
fallen from the Switzer Building and caused damage to the Eads Bridge.
(Doc. 41-1 at ¶ 30; Doc. 46 at ¶ 44.)
On June 6, 2007, the City issued Clarinet a Notice of Emergency
Condemnation, which required immediate demolition of the Switzer Building
to abate dangers to persons and third-party property, including the Eads
Bridge and other City property.
at ¶ 30.)
(Doc. 41-1 at ¶ 25; Doc. 41-12; Doc. 39
The Notice explained that the City had inspected the Switzer
Building and determined that demolition was required because it could not
be made safe.
(Doc. 39 at ¶ 31.)
Three years prior, on August 27, 2004,
the City had issued a Notice of Condemnation to the prior owner of the
Switzer Building, Jumer’s of St. Louis Inc., ordering Jumer’s to repair
or remove the Switzer Building no later than September 7, 2004.
(Doc.
41-1 at ¶ 26; Doc. 41-13.)
On June 18, 2007, demolition of the Switzer Building was complete.
(Doc. 41-1 at ¶ 27.)
sometime
after
Essex did not learn of the demolition until
demolition
was
complete.
(Id.
at
¶
31.)
The
stabilization and shoring equipment that had been installed in the
Switzer Building was not removed prior to demolition.
Clarinet
was
charged
$184,205.34
by
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Patent
(Id. at ¶ 28.)
Construction
for
the
demolition.
(Id. at ¶ 29; Doc. 41-15.)
exceeded $660,000.
The total demolition costs
(Doc. 39 at ¶ 36.)
On December 31, 2008, the City commenced an action against Clarinet
and its members for damage from the bricks and debris falling onto and
near the Eads Bridge.
this action.
(Id. at ¶ 37.)
(Id. at ¶ 38.)
Essex is defending Clarinet in
However, Essex has denied coverage for
Clarinet’s stabilization and demolition costs.
IV.
(Id. at ¶ 39.)
MOTION FOR SUMMARY JUDGMENT STANDARD
Summary judgment must be granted when the pleadings and proffer of
evidence demonstrate that no genuine issue of material fact exists and
that the moving party is entitled to judgment as a matter of law.
Fed.
R. Civ. P. 56(c); Celotex Corp. v. Citrate, 477 U.S. 317, 322 (1986);
Torgerson v. City of Rochester, 643 F.3d 1031, 1042 (8th Cir. 2011) (en
banc).
A fact is “material” if it could affect the ultimate disposition
of the case, and a factual dispute is “genuine” if there is substantial
evidence to support a reasonable jury verdict in favor of the nonmoving
party.
Rademacher v. HBE Corp., 645 F.3d 1005, 1010 (8th Cir. 2011).
The court must view the evidence in the light most favorable to the
nonmoving party and accord it the benefit of all reasonable inferences.
Scott v. Harris, 550 U.S. 372, 379 (2007).
Initially, the moving party must demonstrate the absence of an issue
for trial.
Celotex, 477 U.S. at 323.
Once a motion is properly made and
supported, the nonmoving party may not rest upon the allegations in its
pleadings or in general denials of the movant’s assertions, but must
instead proffer admissible evidence that demonstrates a genuine issue of
material fact. Fed. R. Civ. P. 56(e); Conseco Life Ins. Co. v. Williams,
620 F.3d 902, 910 (8th Cir. 2010); Howard v. Columbia Pub. Sch. Dist.,
363 F.3d 797, 800-01 (8th Cir. 2004).
V.
DISCUSSION
The parties agree that Missouri law applies in this diversity case.
Under Missouri law, the interpretation of an insurance contract is a
question of law.
Schmitz v. Great Am. Assur. Co., 337 S.W.3d 700, 705
(Mo. 2011) (en banc).
When interpreting insurance contract terms, the
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court should apply meanings understood by ordinary people purchasing the
insurance.
Id. at 705-06.
The court should interpret the policy “so as
to afford rather than defeat coverage.”
Murray v. Am. Fam. Mut. Ins.
Co., 429 F.3d 757, 764 (8th Cir. 2005) (citation omitted) (applying
Missouri law).
Ambiguities in the insurance contract must be construed
against the insurer.
Id.
However, if the policy is unambiguous, the
court should enforce the policy according to its terms.
S.W.3d at 706.
Schmitz, 337
The insured bears the burden of proving coverage, while
the insurer bears the burden of establishing the applicability of an
exclusion.
State Farm Mut. Auto. Ins. Co. v. Stockley, 168 S.W.3d 598,
600 (Mo. Ct. App. 2005).
A.
Coverage under the Policy
Clarinet
asserts
that
it
is
entitled
to
coverage
for
the
stabilization and demolition costs because the Policy provides coverage
when Clarinet becomes “legally obligated” to pay for “property damage”
caused by an “occurrence.”
(Doc. 41-3 at 18.)
Essex challenges whether
the property damage was caused by an “occurrence” and whether Clarinet
was “legally obligated” to incur the costs.1
The Policy defines an “occurrence” as “an accident, including
continuous or repeated exposure to substantially the same general harmful
conditions.”
(Doc. 41-3 at 30.)
The Policy does not define “accident.”
When an insurance policy is silent as to the meaning of a term or phrase,
Missouri courts look to the plain meaning of the term or phrase, “as it
would have been understood by an ordinary person of average intelligence
when buying the policy.”
Jones v. Mid-Century Ins. Co., 287 S.W.3d 687,
690 (Mo. 2009) (en banc).
In the absence of a definition within the
policy, Missouri courts have defined “accident” broadly as:
An event that takes place without one’s foresight or
expectation; an undesigned, sudden and unexpected event.
Hence, often, an undesigned and unforeseen occurrence of an
afflictive or unfortunate character; a mishap resulting in
injury to a person or damage to a thing; a casualty; as, to
die by accident.
1
Essex does not challenge whether the stabilization and demolition
costs were “property damage” within the meaning of the Policy.
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Columbia Mut. Ins. Co. v. Epstein, 239 S.W.3d 667, 672 (Mo. Ct. App.
2007) (citation omitted); Am. States Ins. Co. v. Mathis, 974 S.W.2d 647,
650 (Mo. Ct. App. 1998).
“The focus of the definition is the insured’s
foresight or expectation of the injury or damages.”
Epstein, 239 S.W.3d
at 672.
Clarinet asserts that three possible “occurrences” caused it to
incur the stabilization and demolition costs: (1) the Storm, (2) the
partial collapse of the Switzer Building, and (3) the dangerous nature
of the Switzer Building following the Storm.
Essex argues that these
were not “occurrences” because they were not caused by Clarinet’s
negligence, which Essex contends is necessary to be an “occurrence.”
In defining the scope of coverage, the Policy does not expressly
require a negligent act by Clarinet to be the cause of the property
damage; the express Policy language is broad enough to include damages
not directly caused by Clarinet’s acts.
(Doc. 41-3 at 18.)
The absence
of an express requirement of negligence in the Policy’s defined coverage
suggests that the court should not construe the scope of coverage so
narrowly.
See Lupo v. Shelter Mut. Ins. Co., 70 S.W.3d 16, 21 (Mo. Ct.
App. 2002) (noting that “the function of [the] court is to interpret and
enforce an insurance policy as written; not to rewrite the contract”).
The Policy at issue is a commercial general liability policy.
Generally, commercial general liability policies are designed “to protect
the insured against losses to third parties arising out of the operation
of the insured’s business,” that is, “to provide coverage to the insured
for tort liability for physical injury to the person or property of
others.”
9A Couch on Insurance §§ 129:2, 129:4 (3d ed. 2011); see also
id. at § 129:1 (“[A] commercial general liability insurance policy is
generally designed to provide coverage for tort liability for physical
damages to others . . . .”).
For this reason, for example, a commercial
general liability policy would not cover faulty workmanship that damages
the insured’s product, but would cover damage or injury to a third party
if caused by the faulty workmanship.
See id. at § 129:4.
Essex argues that an “occurrence” must be caused, at least in part,
by the insured’s own negligent conduct.
Florists
Mut.
Ins.
Co.,
243
S.W.3d
- 10 -
See Stark Liquidation Co. v.
385,
393
(Mo.
Ct.
App.
2007)
(recognizing that “when a liability policy defines occurrence as meaning
accident[,] Missouri courts consider this to mean injury caused by the
negligence of the insured” and that an “accident” is “an occurrence
arising from the carelessness of [people]” (citation omitted)); see also
Wood v. Safeco Ins. Co. of Am., 980 S.W.2d 43, 50 (Mo. Ct. App. 1998)
(noting that “[a] liability policy is designed to protect the insured
from fortuitous injury caused by his actions” (citation omitted)).
Stark and Wood stand for the proposition that commercial general
liability policies generally provide coverage for an insured’s negligent
acts as opposed to an insured’s voluntary acts.
See, e.g., J.E. Jones
Constr. Co. v. Chubb & Sons, Inc., 486 F.3d 337, 341 (8th Cir. 2007)
(applying Missouri law) (holding that “because the performance of a
contract is within the insured’s control, a breach of that contract
cannot qualify as an ‘accident’ and therefore cannot be an occurrence.”).
Clarinet does not allege that it incurred the stabilization and
demolition costs because of its own negligent act; the Storm was not
caused by Clarinet’s conduct, negligent or otherwise, and the Storm
caused the partial collapse of the Switzer Building, which resulted in
danger to third-party property.
Missouri courts have not directly addressed whether an event such
as a storm, partial collapse of a building, or sudden threat to thirdparty
property
however,
constitutes
supporting
“occurrence.”
an
occurrence.
Clarinet’s
position
Some
that
authority
the
Storm
exists,
was
an
See Interstate Fire & Cas. Co. v. B.T. Washington, Inc.,
CIV. A. No. 94-232, 1995 WL 273643, at *2 (E.D. Pa. May 5, 1995) (holding
that a fire, which caused structural damage to a building that ultimately
required demolition because of the damage, was arguably an “occurrence”
for which the demolition costs could be covered under the policy);2 but
see Albuquerque Gravel Prods. Co. v. Am. Emp. Inso. co., 282 F.2d 218,
221 (10th Cir. 1960) (holding that flood damage was not caused by an
2
Although the policy at issue in Interstate Fire & Cas. Co. was a
“comprehensive general liability policy,” this term is “often used
interchangeably” with the term “commercial general liability policy.”
See Berletta Heavy Div., Inc. v. Layne Christensen Co., Civil Action No.
07-12084-DPW, 2011 WL 1399692, at *12 n.11 (D. Mass. Apr. 13, 2011); 9A
Couch on Insurance § 129:1 (3d ed. 2011).
- 11 -
“accident” because although the flooding was more extensive than in the
past,
it
was
a
“normal
consequence”
and
not
“unforeseeable”).
Alternatively, some courts have held that acts undertaken to prevent
damages that would be covered under the policy, although not otherwise
covered, are themselves covered under the liability policy.
See, e.g.,
State v. Allstate Ins. Co., 201 P.3d 1147, 1160 (Cal. Sup. Ct. 2009)
(recognizing that “[l]iability policies have been held to cover damages
resulting from an act undertaken to prevent a covered source of injury
from coming into action, even if that act would otherwise not be
covered.”).
As discussed further below, the Policy contains an “owned property”
exclusion, which expressly excludes from coverage property damage to
property Clarinet owns or rents, including “any costs or expenses
incurred by [Clarinet] . . . for any reason, including prevention of
injury to a person or damage to third party another’s property.”
41-3 at 18, 21.)
(Doc.
That the Policy contains this express exclusion
suggests that these costs would otherwise come within the Policy’s
defined scope of coverage.
See generally Long v. Shelter Ins. Cos., 351
S.W.3d 692, 700 (Mo. Ct. App. 2011) (“A court must interpret policy
provisions not in isolation but as a whole.”).
The court need not resolve this issue, however, because assuming the
stabilization and demolition costs were covered under the Policy,3 Essex
3
The parties also dispute another aspect of coverage: whether
Clarinet was “legally obligated” to incur the stabilization and
demolition costs. There are issues of fact, however, concerning whether
the City ordered Clarinet to demolish the Switzer Building prior to
Clarinet entering into the demolition contract and if so, what the nature
of that order was. (Doc. 44 at ¶¶ 26, 33.) See Farmland Indus., Inc.
v. Republic Ins. Co., 941 S.W.2d 505, 509 (Mo. 1997) (en banc) (holding
that “Farmland’s cost of undertaking the actions required by the
government . . . [was] a cost that Farmland [was] legally obligated to
pay as compensation or satisfaction for a wrong or injury”). Whether
this demand would make Clarinet “legally obligated” to incur the
stabilization and demolition costs is unclear. See King Louie Bowling
Corp. of Mo. v. Mo. Ins. Guar. Assoc., 735 S.W.2d 35, 40-41 (Mo. Ct. App.
1987) (holding that voluntary settlements did not satisfy the “legally
obligated” requirement). Given this fact dispute and because coverage
is ultimately precluded by Policy exclusions, the court need not resolve
(continued...)
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is entitled to summary judgment because Policy coverage is precluded by
certain Policy exclusions.
B.
Exclusions
Essex argues that even if costs incurred to prevent or mitigate
damage
to
third-party
property
are
covered
under
the
Policy,
the
stabilization and demolition costs are nonetheless excluded from coverage
by certain Policy exclusions.
Essex first argues that the “owned property” exclusion precludes
coverage.
This exclusion removes coverage for property damage to:
(1) Property you own, rent, or occupy, including any costs or
expenses incurred by you, or any other person, organization or
entity, for repair, replacement, enhancement, restoration or
maintenance of such property for any reason, including
prevention of injury to a person or damage to another’s
property;
(Doc. 41-3 at 18, 21) (emphasis added).
Essex argues that the property damage which Clarinet seeks to
recover was damage to its own property, the Switzer Building, and damage
to property that it rented, the stabilization equipment. Clarinet argues
that this exclusion is inapplicable because although the costs arose from
property it owned and property it rented, the costs were ultimately
incurred to prevent damage to City property.
The parties dispute the holding of Castle Village Owners Corp. v.
Greater New York Mutual Insurance Co., 64 A.D.3d 44 (N.Y.A.D. 2009).
In
Castle Village, the court addressed whether an “owned property” exclusion
that expressly excluded costs incurred to prevent damage to third-party
property
precluded
coverage
of
costs
incurred
by
the
insured
stabilize, repair, and rebuild its collapsed retaining wall.
to
Castle
Village, 64 A.D.3d at 45-47.
The court recognized that “[t]here are .
.
‘owned
.
circumstances
where
an
property’
exclusion
may
not
be
enforceable because of a legal obligation to prevent damage to another’s
property” and that whether the exclusion is enforceable depends on “the
3
(...continued)
whether Clarinet’s duty to prevent damage to third-party property made
it “legally obligated” to incur the costs.
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nexus between the condition of the insured’s property and the existence
of ongoing and immediate harm to the property of others.” Id. at 48, 51.
“Where the harm cannot be cured without performing work on the insured’s
property, the exclusion is not applicable[;] where the immediate danger
has been corrected, the restorative work to the insured’s property will
not be covered.”4
Id. at 51.
The court summarized that “work on the
insured’s property which is necessary to cure (as opposed to prevent)
imminent and recurring damage to adjoining property falls outside the
exclusion.”
Id.
Because the immediate danger to third-party property
had been corrected by initial stabilization efforts, the “owned property”
exclusion precluded coverage of subsequent ameliorative repairs.
Other courts have reach differing conclusions.
Id.
Compare Aetna Cas.
& Sur. Co. v. Dow Chem. Co., 28 F. Supp. 2d 448, 454 (E.D. Mich. 1998)
(“[A]n insured need not show actual damage to avoid the owned property
provision, so long as the insured can establish the need for remediation
to prevent imminent harm to a third party.”) and Aetna Ins. Co. v. Aaron,
685 A.2d 858, 864 (Md. Ct. App. 1996) (“[I]n order to protect third-party
property from imminent harm, the overwhelming weight of authority favors
coverage under such liability policies for remediation expenses incurred
in connection with an insured’s own property, notwithstanding an owned
property exclusion, where the concern is primarily addressed to the
premises of a third party.”) with Watertown Tire Recycles, LLC v.
Nortman, 327 Wis. 2d 800, 2010 WL 2403094, at *4 (Wis. Ct. App. 2010)
(unpublished table decision) (holding that the “owned property” exclusion
containing a clause excluding costs incurred to prevent damage to thirdparty property was not subject to an exception for costs incurred to
prevent damage to third-party property).
4
The court did not explain the differences between work done to cure
imminent damage and work done to prevent imminent damage.
- 14 -
Because the Supreme Court of Missouri has not addressed this issue,5
the court looks to similar Missouri Supreme Court and Missouri Court of
Appeals decisions to predict how the Missouri courts would rule.
Eubank
v. Kansas City Power & Light Co., 626 F.3d 424, 427 (8th Cir. 2010).
Missouri courts have consistently stated that “[i]f the policy is
unambiguous, it [must] be enforced according to its terms.”
Schmitz v.
Great Am. Assur. Co., 337 S.W.3d 700, 705-06 (Mo. 2011) (en banc).
Missouri courts “give meaning to all terms and, where possible, harmonize
those terms in order to accomplish the intention of the parties.”
Macheca Transp. v. Philadelphia Indem. Ins. Co., 649 F.3d 661, 669 (8th
Cir. 2011) (applying Missouri law).
Here, the Policy expressly precludes coverage of costs related to
the insured’s own property when the costs are incurred “for any reason,
including prevention of injury to a person or damage to another’s
property.”
(Doc. 41-3 at 18, 21.)
Given this unambiguous Policy
language, Missouri courts would likely enforce the “owned property”
exclusion according to its plain terms, thereby excluding from coverage
costs incurred to mitigate damage to third parties.
This conclusion is consistent with the Policy as a whole because
even if mitigation expenses are not generally excluded from coverage, the
stabilization and demolition costs are nonetheless excluded.
6
contains a “vacant building” exclusion,
The Policy
which precludes coverage for
5
Nor is this issue controlled by Slay Warehousing Co., Inc. v.
Reliance Ins. Co., 471 F.2d 1364 (8th Cir. 1973). The policy at issue
in Slay contained a clause requiring the insured to protect, safeguard,
and salvage the property. 471 F.3d at 1367. Absent such a provision,
the court is not persuaded that Slay demands coverage of the mitigation
expenses incurred by Clarinet here. See Die-Cutting Diversified, Inc.
v. United Nat’l Ins. Co., 353 F. Supp. 2d 1053, 1057-58 (recognizing this
distinction).
Moreover, the Policy expressly excludes from coverage
costs incurred in the “prevention of . . . damage to another’s property.”
(Doc. 41-3 at 18, 21.)
6
Clarinet’s argument that this exclusion would effectually deny all
coverage is unavailing, as the exclusion is limited to costs arising from
renovation, demolition, and construction operations of the building.
See, e.g., Saiz v. Charter Oak Fire Ins. Co., 299 F. App’x 836, 839-40
(10th Cir. 2008) (holding that “vacant building” exclusion precluded
(continued...)
- 15 -
those
“costs
.
.
.
arising
from
any
renovation,
demolition,
or
construction operations . . . at any building, or part of a building,
classified . . . as vacant.”
(Doc. 41-3 at 17.)
Because the Switzer
7
Building was vacant and the property damage arose from the stabilization
and demolition of the vacant Switzer Building, the stabilization and
demolition costs would not be covered by the Policy.
See Spirtas Co. v.
Fed. Ins. Co., 521 F.3d 833, 835-37 (8th Cir. 2008) (applying Missouri
law and reasoning that “arising from” should be construed broadly).
Similarly, the Policy states that “[n]o insured will, except at that
insured’s own cost, voluntarily make a payment,8 assume any obligation,
or incur any expense, other than for first aid, without our consent.”9
(Doc. 41-3 at 26, 27) (emphasis added).
not
attempt
to
obtain
Essex’s
stabilization and demolition costs.
Clarinet concedes that it did
consent
prior
to
incurring
the
“In Missouri, the purpose of notice
provisions in insurance policies is to prevent prejudice to the insurer,
not to provide a technical escape hatch by which to deny coverage in the
absence of prejudice.”
Billings Mut. Ins. Co. v. Cameron Mut. Ins. Co.,
229 S.W.3d 138, 148 (Mo. Ct. App. 2007).
Clarinet’s failure to notify
or at least attempt to obtain consent from Essex prejudiced Essex in that
Essex was foreclosed from investigating the extent of damage to the
Switzer Building, the need for stabilization and/or demolition prior to
6
(...continued)
coverage for water damage to vacant building caused by defective
sprinkler heads); Gas Kwick, Inc. v. United Pacific Ins. Co., 58 F.3d
1536, 1540 (11th Cir. 1995) (enforcing “vacant building” exclusion and
rejecting argument that the insurer could not issue a policy on a vacant
building and then exclude it from coverage on the basis of vacancy).
7
The parties agree that the Switzer Building was vacant.
at ¶ 12.)
(Doc. 43
8
Essex also argues that the costs are not covered because Clarinet
voluntarily agreed to incur the costs. Because there are fact disputes
concerning whether the City ordered Clarinet to take action, summary
judgment is not appropriate on this ground. (Doc. 44-1 at ¶¶ 26, 33.)
9
That the Policy required Clarinet to first obtain Essex’s consent
is also contrary to the presumption in Slay, that “the assured is acting
at the insurance company’s request.” Slay, 471 F.2d at 1367.
- 16 -
demolition,
or
contract terms.
seeking
more
favorable
demolition
or
stabilization
See Interstate Cleaning Corp. v. Comm. Underwriters
Ins., 325 F.3d 1024, 1030 (8th Cir. 2003) (applying Missouri law and
holding that the insured’s failure to notify the insurer of the lawsuit
until after the jury rendered a verdict deprived the insurer of the
opportunity to investigate facts, to defend on liability, to settle the
lawsuit, and to choose a trial strategy); Johnston v. Sweany, 68 S.W.3d
398, 402-03 (Mo. 2002) (en banc) (holding that the insurer was prejudiced
by the insured’s late notice in that the insurer was deprived of its
opportunity to investigate facts, settle a lawsuit before trial, defend
against liability at trial, and dispute the amount of damages).
In Slay, the Eighth Circuit recognized that “[every] case must be
examined in light of the specific insuring agreement and the law of the
particular jurisdiction.”
Co.,
471
F.2d
1364,
1367
Slay Warehousing Co., Inc. v. Reliance Ins.
(8th
Cir.
1973).
Given
the
number
of
unambiguous applicable exclusions,10 the Policy cannot be construed to
provide coverage for the stabilization and demolition costs, even if
those costs were incurred to prevent further damage to third-party
property.
Clarinet also argues that Essex’s refusal to pay was without
reasonable cause or excuse.
See D.R. Sherry Constr., Ltd. v. Am. Fam.
Mut. Ins. Co., 316 S.W.3d 899, 907 (Mo. 2010) (en banc) (setting forth
the elements of a claim for vexatious refusal to pay).
“An insurer is
permitted to question or contest its liability if it has reasonable cause
to believe, and does believe, that it has no liability under the policy
and that it has a meritorious defense.”
10
Legg v. Certain Underwriters at
Essex also argues that the “expected damages” exclusion, which
excludes coverage for property damage that is “expected or intended from
the standpoint of the insured,” applies. (Doc. 41-3 at 18.) Because
this exclusion is ambiguous as to when the expectation of damages is to
be evaluated, i.e. at the time of entering the Policy or at the time of
incurring the damages, and because the stabilization and demolition costs
are excluded by other exclusions, the court declines to address the
potential applicability of the “expected damages” exclusion. See, e.g.,
Mutual Serv. Cas. Ins. Co. v. Cty. Life. Ins., 859 F.2d 548, 552-53 (7th
Cir. 1988) (“[E]ven where the damages are not accomplished by design or
plan (not intended), they may be of such a nature that they should have
been reasonably anticipated (expected) by the insured.”).
- 17 -
Lloyd’s of London, 18 S.W.3d 379, 387 (Mo. Ct. App. 1999).
Essex’s
determination that the stabilization and demolition costs were not
covered by the Policy was not unreasonable.
See generally Wunsch v. Sun
Life Assur. Co. of Canada, 92 S.W.3d 146, 154 (Mo. Ct. App. 2002).
Moreover, that Essex’s denial of coverage was proper “belies a contention
that it did not have a meritorious reason for refusing to pay” the costs.
Marcomb v. Hartford Fire Ins. Co., 934 S.W.2d 17, 20 (Mo. Ct. App. 1996);
accord Hite v. Am. Fam. Mut. Ins. Co., 815 S.W.2d 19, 23 (Mo. Ct. App.
1991).
Therefore, Essex is entitled to summary judgment on Clarinet’s
vexatious refusal to pay claim.
VI.
CONCLUSION
For the reasons discussed above, the motion of plaintiff Clarinet,
LLC for summary judgment (Doc. 37) is denied and the motion of defendant
Essex Insurance Company (Doc. 40) for summary judgment is sustained.
An appropriate Judgement Order is issued herewith.
/S/
David D. Noce
UNITED STATES MAGISTRATE JUDGE
Signed on January 23, 2012.
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