Penn-Star Insurance Company v. Coyote Ridge Construction, Inc. et al
Filing
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ORDER granting in part and denying in part 15 Motion for Summary Judgment; and granting in part and denying in part 22 Motion for Partial Summary Judgment. The balance of this matter is STAYED pending resolution of the state court proceeding. The parties must file a status report 90 days after the date of this Order and every 90 days afterwards. Signed by Judge Donald W. Molloy on 2/27/2012. (dle)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
MISSOULA DIVISION
PENN-STAR INSURANCE,
COMPANY, a corporation,
)
)
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Plaintiff,
)
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vs.
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COYOTE RIDGE
)
CONSTRUCTION, INC., and
)
TIMOTHY W. FLOTRE,
)
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Defendants.
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)
___________________________________ )
CV 11–55–M–DWM
ORDER
The plaintiff, Penn-Star Insurance Company, filed this lawsuit against the
defendants, Coyote Ridge Construction, Inc., and Timothy Flotre, seeking a
declaration that it has no duty to defend or indemnify the defendants under the
terms of a commercial insurance policy that Penn-Star issued to the defendants.
Before the Court are the plaintiff’s motion for summary judgment and the
defendants’ motion for partial summary judgment. The Court also ordered the
parties to file briefs addressing the Court’s jurisdiction under the Declaratory
Judgment Act. Having considered the arguments in that briefing, as well as the
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parties’ motions for summary judgment, the Court exercises jurisdiction over this
matter. Further, Penn-Star has a duty to defend the defendants in the underlying
state-court proceeding. The motions for summary judgment as they relate to PennStar’s duty to indemnify are denied. There are too many factual disputes at this
point to resolve that issue.
BACKGROUND
When assessing whether an insurer has a duty to defend, it is necessary to
construe the facts in favor of the insured. Farmers Union Mut. Ins. Co. v. Staples,
90 P.3d 381, 385 (Mont. 2004). That principle is applied to the factual background
here.
This lawsuit arises out of a residential construction agreement entered into
between the defendants and Van and Donna Poole. In that agreement, the
defendants agreed to construct a home for the Pooles beginning in the late summer
of 2008. According to the Pooles, the defendants verbally agreed to construct the
home for a cost of no more than $750,000. When that cost estimate was
determined to be impossible to meet, the defendants signed a letter agreeing to
finish construction of the home for no more than an additional $577,000 (for a
total project price of $979,333.91). By the time this written agreement was signed
in January 2009, the Pooles had already paid $400,000 to the defendants.
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Construction of the home continued until late March or early April 2009
and, by this time, the Pooles had paid an additional $560,060.17. The Pooles had
also learned that the house was far from complete and that the flooring that had
already been paid for had yet to be installed. The defendants also informed the
Pooles that a number of costs had never been included in the pricing or estimates
and were not included in the final price agreement, including $219,484.50 in
excavation work.
The Pooles allege that, as a result of the defendants’ misrepresentations and
failure to complete the job, they suffered financial losses by hiring another
contractor to finish the job and ensuring the job was completed before winter. The
Pooles filed a state court lawsuit against the defendants in October 2010, alleging
breach of contract, breach of the covenant of good faith and fair dealing, unjust
enrichment, conversion, negligent misrepresentation, constructive fraud, and
negligence. See Poole v. Coyote Ridge Constr., Inc., Cause No. DV–10–1478A
(Mont. 11th Jud. Dist. Ct., Flathead Co.)
The Penn-Star Policy provides $1,000,000 single liability coverage per
occurrence for claims covered under the policy. Penn-Star is currently providing
the defendants with a defense in the underlying state lawsuit under a reservation of
rights. Penn-Star brought this declaratory judgment action seeking a declaration
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that it has no duty to defend or indemnify the defendants in that lawsuit.
Penn-Starr filed a motion for summary judgment on all claims, arguing that
the undisputed facts show that it has no duty to defend or indemnify because the
defendants’ acts were not a covered “occurrence,” the Pooles failed to allege a
covered injury, and the Pooles’ injuries are expressly excluded from coverage
under the Policy. The defendants filed a cross-motion for summary judgment
arguing that all the harms alleged by the Pooles were unintentional torts and that
the underlying complaint alleges both “property damage” and “bodily injury” that
are covered by the Policy. The defendants concede that not all of the Pooles’
claims, if proven, would be covered under the Policy (e.g., the breach of contract,
breach of covenant of fair dealing, conversion, and unjust enrichment). But, if an
insurer has a duty to defend one claim, it must defend them all, even if the
remaining claims would not be covered. See e.g. Home Ins. Co. v. Pinski Bros.,
Inc., 500 P.2d 945, 949–50 (Mont. 1972).
After the parties filed their motions, the Court sua sponte ordered the parties
to address the question of whether the Court should dismiss this action under the
Declaratory Judgment Act. See (dkt # 27) (citing Brillhart v. Excess Ins. Co. of
Am., 316 U.S. 491, 495 (1942); Wilton v. Seven Falls Co., 515 U.S. 277, 290
(1995)).
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SUMMARY JUDGMENT STANDARD
A party is entitled to summary judgment if it can demonstrate “that there is
no genuine dispute as to any material fact and the movant is entitled to judgment
as a matter of law.” Fed. R. Civ. P. 56(a). Summary judgment is warranted where
the documentary evidence produced by the parties permits only one conclusion.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251 (1986). Only disputes over
facts that might affect the outcome of the lawsuit will preclude entry of summary
judgment; factual disputes that are irrelevant or unnecessary to the outcome are
not considered. Id. at 248.
ANALYSIS
I.
Duty to defend
The Penn-Star Policy provides coverage for “bodily injury” or “property
damage” caused by an “occurrence,” which the Policy defines as “an accident,
including continuous or repeated exposure to substantially the same general
harmful conditions.” The Policy, however, reads, “This insurance does not apply
to . . . ‘bodily injury’ or ‘property damage’ expected or intended from the
standpoint of the insured.” Penn-Star argues that it does not have a duty to defend
because the Pooles, in the state-court proceeding, have not alleged facts giving rise
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to an “occurrence,” “bodily injury,” or “property damage.” Moreover, it claims
that any injury was expected or intended from the defendants’ standpoint.
Applying the principles of Montana insurance case law, Penn-Star has a duty to
defend.
A.
Duty-to-defend standard
To determine whether a claim triggers the duty to defend, the court must
look to the provisions of the policy and the allegations in the complaint. Farmers
Union Mut. Ins. Co., 90 P.3d at 385. An insurer’s duty to defend arises when a
complaint alleges facts, which if proven, would result in coverage under the terms
of the policy. Id.
“When a court compares allegations of liability advanced in a complaint
with policy language to determine whether the insurer’s obligation to defend was
‘triggered,’ [the] court must liberally construe allegations in a complaint so that all
doubts about the meaning of the allegations are resolved in favor of finding that
the obligation to defend was activated.” Id. “[I]t is the acts giving rise to the
complaint which form the basis for coverage, not the complaint’s legal theories or
conclusory language.” Town of Geraldine v. Mont. Mut. Ins. Auth., 198 P.3d 796,
800 (Mont. 2008). “Unless there exists an unequivocal demonstration that the
claim against the insured does not fall within the policy coverage, the insurer has a
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duty to defend.” Farmers Union Mut. Ins. Co., 90 P.3d at 386.
B.
Coverage for an “occurrence”
Penn-Star argues that the Pooles’ injuries, if any, were not caused by an
“occurrence” because the defendants acted intentionally and not by accident. The
defendants, on the other hand, maintain that the Policy covers their actions
because the underlying complaint alleges unintentional, negligent conduct, not
intentional business decisions.
The Montana Supreme Court’s decision in Northwest Natural Casualty Co.
v. Phalen, 597 P.2d 720 (Mont. 1979), provides guidance here. In Phalen, the
Court addressed an insurer’s duty to defend under a public-liability provision in a
homeowner’s policy after the insured was accused in a civil action of assaulting
and severely injuring a man outside a bar. The policy defined “occurrence” as “an
accident which results in bodily injury or property damage,” and it excluded
coverage for bodily injury, “which is either expected or intended from the
standpoint of the insured.” Id. at 721. The Montana Supreme Court held that the
insurer had a duty to defend because under the claim alleged, it was possible to
conclude that while the insured acted intentionally, the resulting bodily injury was
unintended due to intervening actions of another assailant. The Court explained:
The word “occurrence” instead of the word “accident” in the insuring
clause means that the word “occurrence” is in fact broader than the word
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“accident” and is so intended by the insurer. In such case, the intent of
the policy is to insure the acts or omissions of the insured, Including
[sic] his intentional acts, excluding only those in which the resulting
injury is either expected or intended from the insured’s standpoint.
Id. at 724; see also Grindheim v. Safeco Ins. Co. of Am., 908 F. Supp. 794 (D.
Mont. 1995) (relying on Portal Pipe Line Co. v. Stonewall Ins. Co., 845 P.2d 746,
749 (Mont. 1993); Phalen, 597 P.2d 720).
Penn-Star mistakenly relies on Blair v. Mid-Continent Casualty Co., 167
P.3d 888, 891–92 (Mont. 2007), and King v. State Farm & Casualty Co., 2010 WL
1994708, *4 (D. Mont 2010), to bolster its argument that, because the acts of the
defendants are intentional, they do not constitute an “occurrence,” even if they
resulted in accidental injuries.
The policies in Blair and King, unlike that here, did not include an
exclusion for harms expected or intended by the insured. In Blair, the insured
constructed a gravel pit in violation of zoning restrictions and was sued by a
landowners association. 167 P.3d at 890. The Montana Supreme Court concluded
the policy did not provide coverage because the “deliberate operation of removing
gravel” was intentional, rather than an “accident” as required by the policy. Id. at
891. The Blair court distinguished Phalen, explaining that in Phalen:
[T]he policy in question defined “occurrence” as an accident which
results in bodily injury or property damage. However, unlike MidContinent’s Policy in question here, that policy considered the results
of a deliberate action because in limiting coverage it said that only
injury which “[i]s either expected or intended from the standpoint of the
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insured” was excluded.
Blair, 167 P.3d at 892. Thus, the holding of Blair is confined to policies that do
not contain exclusions for harms unexpected or unintended by the insured. Based
on Blair, the Court in King reached a similar conclusion, ruling that, because the
underlying complaint did not assert an accident, but rather intentional acts and
misrepresentations as part of a business deal, the actions did not constitute an
“occurrence” under the relevant policy. 2010 WL 1994708, *5.1
Since the Penn-Star Policy expressly precludes coverage for occurrences
that result in injuries that are expected or intended, Phalen, and not Blair or King,
controls here. As a result, it is unnecessary to determine whether the defendants’
actions were intentional. Under Phalen, the defendants’ actions, intentional or
negligent, constitute an “occurrence.” But, as the Policy provides, if the injuries
were either expected or intended, the defendants’ actions are not covered.
C.
Expected or intentional harm
The Penn-Star policy provides: “This insurance does not apply to . . .
‘bodily injury’ or ‘property damage’ expected or intended from the standpoint of
the insured.” Penn-Star claims that it does not have a duty to defend because the
For similar reasons, Thomas v. Nautilus Ins. Co., 2011 WL 4369519, *6
(D. Mont. 2011) is also distinguishable from Phalen. While the policy in Thomas
did include exclusionary language, it specifically applied to work product and subcontractors and was not the general exclusionary language at issue in Phalen.
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alleged injuries were expected or intended. Construing the facts in favor of the
defendants, the Pooles’ injuries were arguably neither expected nor intended from
the defendants’ perspective.
Exclusions and words of limitations, such as the expected-or-intended
exclusion here, must be strictly construed against the insurer. Phalen, 597 P.2d at
724 (citation omitted); Farmers Union Mut. Ins. Co., 90 P.3d 385 (“The
fundamental protective purpose of an insurance policy and the obligation of the
insurer to provide a defense require that coverage exclusions be narrowly
construed.” (citations omitted)). Moreover, the facts to which those exclusions and
words of limitations apply must be construed “from the perspective of the
insured.” Farmers Union Mut. Ins. Co., 90 P.3d at 386. These rules of construction
are consistent with the broader dictate that, “[u]nless there exists an unequivocal
demonstration that the claim against the insured does not fall within the policy
coverage, the insurer has a duty to defend.” Id. at 386.
Construing the exclusion and facts in favor of the defendants, it cannot be
definitively stated that the Pooles’ alleged injuries were expected or intended from
the defendants’ standpoint. The Pooles, for example, claim that the defendants
negligently misrepresented that the house could be built for a maximum of
$750,000. The defendants deny making that representation. The defendants claim
that, from their perspective, they did not expect or intend the Pooles to experience
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any harm when the cost exceeded $750,000 because the defendants never told the
Pooles that the cost would stay below $750,000. Of course, these facts will be
resolved in the state-court proceeding, but, here, when the facts are construed in
favor of the defendants, the Pooles’ injuries were neither expected nor intended
from the defendants’ standpoint.
D.
“Bodily injury” or “property damage”
Finally, occurrences are covered under the Policy only if they result in
“bodily injury” or “property damage.” Penn-Star argues that it has no duty to
defend the underlying claim because, in the state-court proceeding, the Pooles
allege only financial harms resulting from the additional money they had to spend
in order to finish the house and protect it from winter weather. Penn-Star argues
that these injuries are not “bodily injuries” or “property damage.” The defendants,
on the other hand, argue that Penn-Star’s interpretation of the underlying
complaint is too narrow and that the Pooles suffered emotional distress amounting
to “bodily injury” and experienced “property damage” by virtue of their “loss of
use” of their house. Construing the facts in favor of the defendants, there is
enough here to conclude that the Pooles have sufficiently alleged “property
damage.”
When determining whether an insurer has a duty to defend, the court must
construe the underlying allegations in the complaint “so that all doubts about the
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meaning of the allegations are resolved in favor finding that the obligation to
defend was activated.” Farmers Union Mut. Ins. Co. v. Staples, 90 P.3d at 385
(citation omitted). “Unless there exists an unequivocal demonstration that the
claim against an insured does not fall within the insurance policy’s coverage, an
insurer has a duty to defend.” Id. (citation omitted). Even when a complaint “does
not present a claim which on its face is covered by the policy,” the insurer
nevertheless has a duty to defend if it has information that could give rise to a duty
to defend. Revelation Indus., Inc. v. St. Paul Fire & Marine Ins. Co., 206 P.3d 919,
926 (Mont. 2009).
Here, the defendants claim that the Pooles have alleged “property damage,”
which the Policy defines as “physical injury to tangible property, including all
resulting loss of use of that property” and “[l]oss of use of tangible property that is
not physically injured.” Penn-Star acknowledges that there were delays in the
construction of the Pooles’ house. The fact that there were construction delays
implies there are potential damages resulting from the Pooles’ “loss of use of that
property.” Of course, whether those damages actually occurred is a question of
fact that will be resolved in the state court proceedings. But, at this point in the
litigation, there is at least a possibility that the Pooles’ suffered “property damage”
resulting from the “loss of use” of their house. Resolving all doubts in favor of a
duty to defend, there has been no unequivocal showing that the Pooles’ claims are
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not covered by the Policy. See Farmers Union Mut. Ins. Co., 90 P.3d at 385
(citation omitted).
Penn-Star argues that any property damage suffered by the Pooles that
resulted from a loss of use is specifically excluded under the Policy. Under
Exclusion b, the Policy does not cover “‘bodily injury’ or ‘property damage’ for
which the insured is obligated to pay damages by reason of the assumption of
liability in a contract or agreement.” Under Exclusion m(2), the Policy does not
cover “‘[p]roperty damage’ to ‘impaired property’ or property that has not been
physically injured, arising out of . . . [a] delay or failure by you or anyone acting
on your behalf to perform a contract or agreement in accordance with its terms.”
The nature of the parties contractual agreement, if any, is central to the
dispute in this case. If the facts are construed in favor of the defendants and
resolved in favor of finding a duty to defend, then the defendants neither assumed
liability, as described in Exclusion b, nor violated the terms of their agreement
with the Pooles, as provided in Exclusion m(2). Again, as the facts develop in the
state-court proceeding, the opposite might be true, but, at this point, the allegations
trigger Penn-Star’s duty to defend.
The Pooles sufficiently alleged facts that could bring their claims within the
Policy’s property-damage coverage. As a result, Penn-Star has a duty to defend.
Since Penn-Star has this duty on account of the potential property damage, the
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Court need not address whether this duty also exists on account of any alleged
“bodily injury.”
II.
Duty to Indemnify
In the conclusion to its opening brief, Penn-Star remarks in passing that it
has no duty to indemnify the defendants. The defendants make no argument
regarding Penn-Star’s duty to indemnify. They simply argue that Penn-Star could
“potentially” have such a duty.
As discussed above, the Pooles have alleged facts that might bring their
claims within the Policy’s coverage. As a result, Penn-Star could potentially have
a duty to indemnify. But, as the parties are well aware, there are a number of
factual disputes in the state-court proceeding that must be resolved in order to
determine whether Penn-Star has a duty to indemnify. Accordingly, it would be
inappropriate to grant summary judgment as to the question of whether Penn-Star
has a duty to indemnify.
Because the factual disputes must be resolved in the state-court proceeding,
it is premature to try and resolve Penn-Star’s duty to indemnify. So, that issue is
stayed in this Court, pending the resolution of the state-court proceeding. See
generally Wilton, 515 U.S. 277. The parties must file a status report every 90 days
until the state-court proceeding is resolved to keep this Court apprised of how that
case is progressing. Following the resolution of the state-court proceeding, the
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stay will be lifted and the parties may file motions and cross-motions for summary
judgment on the duty-to-indemnify issue.
CONCLUSION
Penn-Star has a duty to defend the defendants against the Pooles’ claims.
But, in light of the factual disputes in the state-court proceeding, the Court will not
yet resolve the question of whether Penn-Star has a duty to indemnify.
IT IS HEREBY ORDERED that the plaintiff’s motion for summary
judgment (dkt # 15) and the defendants’ motion for partial summary judgment (dkt
# 22) are GRANTED IN PART and DENIED IN PART.
The Court GRANTS summary judgment in favor of the defendants as to the
question of whether Penn-Star has a duty to defend the defendants. Penn-Star has a
duty to defend the defendants in the underlying state-court proceeding—Poole v.
Coyote Ridge Construction, Inc., Cause No. DV–10–1478A (Mont. 11th Jud. Dist.
Ct., Flathead Co.)
The Court DENIES the motions for summary judgment to the extent that the
parties ask the Court to determine whether Penn-Star has a duty to indemnify the
defendants in the underlying state-court proceeding. The parties may renew their
motions as to this issue after the state-court proceeding is resolved.
IT IS FURTHER ORDERED that the balance of this matter is STAYED,
pending the resolution of the state-court proceeding. The parties must file a status
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report 90 days after the date of this order, and every 90 days afterwards, that
updates the Court on the status of the state-court proceeding.
Dated this 27th day of February 2012.
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