McShane Construction Company LLC v. Gotham Insurance Company

Filing 39

MEMORANDUM AND ORDER that plaintiff's Motion to Alter or Amend Judgment 37 is denied. Ordered by Judge John M. Gerrard. (ADB)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
MCSHANE CONSTRUCTION
COMPANY, LLC,
8:14-CV-419
Plaintiff,
vs.

MEMORANDUM AND ORDER

GOTHAM INSURANCE COMPANY,
Defendant.
In its Memorandum and Order of March 29, 2016 (filing 35), the Court
dismissed plaintiff McShane Construction Company's complaint for failure to
state a claim upon which relief could be granted. This matter is now before
the Court on McShane's motion to alter or amend the judgment pursuant to
Fed. R. Civ. P. 59(e) (filing 37), taking issue with various aspects of the
Court's decision. McShane's motion will be denied in all respects.
McShane prefaces its argument by advising the Court that its
underlying claims against Mallory Fire Protection Services have since been
tried in the District Court for Douglas County and are under submission to
that court. Filing 38 at 1-2. Attached to McShane's memorandum are the
suggested findings of fact and conclusions of law that it submitted to the
state trial court. Filing 38 at 17-124. McShane asserts that "[b]ecause the
Court was not aware of such facts—and McShane was not given any
opportunity to replead even to attempt to address concerns that the Court
might have had—McShane's complaint should not have been dismissed, and
the judgment should be vacated." Filing 38 at 3.
But McShane does nothing further to identify what precisely, in the
108 pages of suggested findings and conclusions that it submitted, merits
leave to replead its complaint. The Court has considerable discretion to deny
a post-judgment motion for leave to amend, and while the Court may not
ignore the Fed. R. Civ. P. 15(a)(2) considerations that favor affording parties
an opportunity to test their claims on the merits, post-judgment motions for
leave to amend are disfavored. U.S. ex rel. Roop v. Hypoguard USA, Inc., 559
F.3d 818, 824 (8th Cir. 2009). McShane did not seek leave to amend its
complaint before it was dismissed, and the Court was not obliged to invite
amendment. See United States v. Mask of Ka-Nefer-Nefer, 752 F.3d 737, 742
(8th Cir. 2014). Nor has McShane offered a proposed amended complaint. See

id. Instead, McShane is apparently inviting the Court to fish through 108
pages of proposed findings and decide for itself whether anything it discovers
warrants repleading. The Court declines McShane's invitation.
Next, McShane contends that "property damage," within the meaning
of the Gotham Policy, includes repair costs. Filing 38 at 2-3. But the Court
did not hold otherwise. Instead, the Court held that the coverage McShane
sought depended on, among other things, an "occurrence" within the meaning
of the Policy and McShane being "legally obligated to pay," and the Court
found both elements lacking. Filing 35 at 7-9. Whether repairing Mallory's
work can be "property damage" does not change that conclusion.
That is, presumably, why McShane advances its next argument: that
"faulty and negligent construction, especially by a subcontractor, was
intended to be covered and constituted an 'occurrence'" under a standard
commercial general liability (CGL) policy. Filing 38 at 4-6. McShane appears
to be taking issue with the Court's reliance upon Auto-Owners Insurance Co.
v. Home Pride Companies, Inc., in which the Nebraska Supreme Court quite
plainly held that "faulty workmanship, standing alone, is not an occurrence
under a CGL policy. . . ." 684 N.W.2d 571, 577 (Neb. 2004) (emphasis
omitted). McShane's argument is that since Auto-Owners was decided,
"virtually every jurisdiction in the cases cited by the Nebraska Supreme
Court . . . later proceeded to engage in lengthy analyses of the . . .
development of the CGL form" and concluded that coverage should be
extended. Filing 38 at 4-5.
Perhaps so. The Court recognizes a split of authority on that question,
the existence of a trend towards finding an "occurrence" under these
circumstances, and that the majority rule may now favor coverage. See
Greystone Constr., Inc. v. Nat'l Fire & Marine Ins. Co., 661 F.3d 1272, 128283 (10th Cir. 2011); see generally Christopher C. French, Construction
Defects: Are They "Occurrences"?, 47 Gonz. L. Rev. 1, 22-41 (2011). But where
a state supreme court has clearly spoken on an issue of state law, a federal
court is bound by that decision. Life Inv'rs Ins. Co. of Am. v. Corrado, 804
F.3d 908, 912 (8th Cir. 2015). The Nebraska Supreme Court can reconsider
Auto-Owners, but this Court cannot.
Next, McShane disagrees with the Court's findings that McShane was
not a third-party beneficiary of the policy, and that McShane did not plead a
breach of the covenant of good faith and fair dealing. Filing 38 at 7-9.
McShane asserts, in both respects, that it should at least be allowed to
conduct discovery. Filing 38 at 8-9. But McShane has not identified what it
expects that discovery to accomplish. The Court rejects McShane's arguments
for the reasons explained in its March 29, 2016 Memorandum and Order.
Filing 35 at 9-11.
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McShane also takes issue with the Court's conclusion that McShane did
not plead a claim for waiver and estoppel. McShane contends that it incurred
expenses in repairing Mallory's allegedly deficient work and that it was
prejudiced by Gotham's inconsistency and delay in adjusting McShane's
claim. Filing 38 at 9-10. But even if Gotham was "affirmatively misleading"
McShane, as McShane contends, filing 38 at 10, that is not enough for
Gotham to have waived or been estopped from denying coverage under
Nebraska law. Nothing McShane alleged constitutes a definitive
representation or assumption of a position to which Gotham can be equitably
held. See filing 35 at 13-14. In the absence of some conduct akin to assuming
the insured's defense without a reservation of rights, there is no basis for
estoppel or waiver.1
Finally, McShane argues that the Court failed to fully consider its
"rescue doctrine" argument. McShane admits it mislabeled that claim in its
complaint, and contends it was actually pleading a claim for mitigation
expenses. Filing 38 at 13. The Court recognizes that expenses necessarily
incurred in the course of mitigating damages are recoverable by an insured.
See Curtis O. Griess & Sons, Inc. v. Farm Bureau Ins. Co. of Neb., 528
N.W.2d 329, 333-34 (Neb. 1995); see also Slay Warehousing Co., Inc. v.
Reliance Ins. Co., 471 F.2d 1364, 1367-68 (8th Cir. 1973). But both the duty
to mitigate, and the duty to reimburse the insured for mitigation expenses,
rest on an underlying insured loss. See W.M. Schlosser Co. v. Ins. Co. of N.
Am., 600 A.2d 836, 838-40 (Md. 1992); see also, The Phoenix Ins. Co. v.
Infogroup, Inc., No. 113-CV-5, 2015 WL 7755976, at *10 (S.D. Iowa Nov. 30,
2015); Thornewell v. Indiana Lumbermens Mut. Ins. Co., 147 N.W.2d 317,
321 (Wis. 1967); Grebow v. Mercury Ins. Co., 194 Cal. Rptr. 3d 259, 267 (Ct.
App. 2015), as modified on denial of reh'g (Oct. 26, 2015), review denied (Jan.
13, 2016). The Court has already found that no insurable loss is present here.
IT IS ORDERED that Plaintiff's Motion to Alter or Amend Judgment
(filing 37) is denied.

It is also worth noting that, at various points, McShane insists that it was legally required
to undertake repair and remediation work as a result of Mallory's performance. See filing
38 at 2-3. If that is the case, then it is difficult for the Court to see how McShane could have
undertaken that work in reliance on Gotham's purported representations.
1

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Dated this 9th day of May, 2016.
BY THE COURT:

John M. Gerrard
United States District Judge

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