Westfield Insurance Company v. Weaver Cooke Construction, LLC et al
Filing
103
ORDER granting 67 Motion for Summary Judgment; denying 72 Motion for Summary Judgment; granting in part and denying in part 74 Motion for Partial Summary Judgment. The issue of damages regarding the duty to defend and liability and damages on the remaining unfair trade practices claims are STAYED until the Underlying Action is resolved. (See DE # 55.) Upon conclusion of the Underlying Action, a party may file a motion to dissolve the stay. The clerk is DIRECTED to administratively close this case. Signed by Senior Judge W. Earl Britt on 4/11/2019. (Edwards, S.)
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
EASTERN DIVISION
No. 4:15–CV–00169–BR
WESTFIELD INSURANCE COMPANY, )
)
Plaintiff,
)
)
v.
)
)
WEAVER COOKE CONSTRUCTION,
)
LLC, et al.,
)
)
Defendants.
)
)
ORDER
This matter is before the court on three cross–motions for summary judgment: plaintiff
Westfield Insurance Company (“Westfield”) and defendant Zurich American Insurance
Company’s (“Zurich”) motion (DE # 67); defendant Selective Insurance Company of America’s
(“Selective”) motion (DE # 72); and defendant Weaver Cooke Construction, LLC’s (“Weaver
Cooke”) motion (DE # 74). The parties have filed responses in opposition and replies. (DE ##
84, 86, 88, 90, 91, 94, 97–100.) The matter is now ripe for adjudication.
I.
BACKGROUND
In 2006, New Bern Riverfront Development, LLC (“New Bern”), as the
developer, and Weaver Cooke, as the general contractor, entered into a contract for
construction of a condominium complex in New Bern, North Carolina. Weaver
Cooke, in turn, entered into subcontracts with others for performance of work
required to construct the project. In 2009, New Bern filed suit against Weaver
Cooke and others based on allegedly defective construction of the project. New
Bern declared bankruptcy, and the case--the Underlying Action--eventually ended
up in the bankruptcy court for this district, where it remains pending.
With the exception of Weaver Cooke, the parties involved in the instant
action are insurers of parties involved in the Underlying Action. Specifically,
Westfield and Zurich issued to Weaver Cooke, as a named insured, commercial
general liability policies. Selective issued to William H. Dale d/b/a DD Plumbing
Company (“DD Plumbing”), a subcontractor of Weaver Cooke, as a named insured,
commercial general liability policies. [Defendant Penn National Insurance
Company (“Penn National”)] issued to East Carolina Masonry, Inc., [(“ECM”)], a
subcontractor of Weaver Cooke, as a named insured, commercial general liability
policies. Westfield and Zurich have been contributing to the costs of
Weaver Cooke’s defense of the Underlying Action pursuant to a reservation
of rights.
(3/1/17 Order, DE # 55, at 1–2.)
Weaver Cooke entered into a subcontract with DD Plumbing on 4 October 2006, (see DD
Plumbing Subcontract (DE # 71–22) Ex. 19 at 2), and a subcontract with ECM on 25 September
2006, (see ECM Subcontract (DE # 71–21) Ex. 18 at 2) [hereinafter “Subcontracts”]. Both
Subcontracts require that the
Contractor [Weaver Cooke], its members, managers, officers, directors, agents and
employees [] be named as additional insureds on all insurance policies required by
this Subcontract with regard to claims and liabilities for. . . property damage arising
out of or resulting from (i) Subcontractor’s activities under this Subcontract and for
which Subcontractor may be legally liable. . . (ii) products and completed
operations under this Subcontract. . . . ”
(Id. at 13; DD Plumbing Subcontract (DE # 71–22) Ex. 18 at 12.) Both Subcontracts required
additional insured coverage “on a primary and non–contributing basis.” (DD Plumbing
Subcontract (DE # 71–22) Ex. 19 at 3; ECM Subcontract (DE # 71–21) Ex. 18 at 3.)
Following the filing of the Underlying Action by New Bern, on 14 March 2012 Weaver
Cooke sent two letters, identical in substance, to DD Plumbing and ECM (the “First Tender
Letter”) tendering its defense of the Underlying Action and requesting that the letter be
forwarded to the recipient’s agent and/or insurance carrier. (Weaver Cooke Tender Letters (DE
# 71–31) Ex. 28 at 2, 5.) On 12 September 2013, Westfield sent two subsequent identical letters
to Selective and Penn National (the “Second Tender Letter”) tendering the defense in the
Underlying Action. (Selective App’x (DE # 80–4) at 1; Penn National Req. for Admis. and Am.
Answers (DE # 71–23) Ex. 20 at 85.) Pursuant to the commercial liability policies, Selective and
Penn National have defended DD Plumbing and ECM, respectively, in the Underlying Action
under a reservation of rights. (Selective App’x (DE # 78–2) Ex. 1.1 at 15; Penn National Resp.
2
Opp’n (DE # 84) at 2.) To date, neither Selective nor Penn National has defended Weaver
Cooke as an additional insured.
In this action, Westfield, as the plaintiff, seeks a judgment declaring that its
subject policy affords Weaver Cooke no coverage for the claims asserted in the
Underlying Action; it has no further duty to defend Weaver Cooke against the
claims asserted in the Underlying Action; and, Selective and/or Penn National have
the duty to defend Weaver Cooke in the Underlying Action as an additional insured
under their policies on a primary and non–contributory basis or, alternatively, on a
contributory basis in equal shares with other insurers. It also asserts a claim for
equitable subrogation/contribution against Selective and Penn National for defense
costs and expenses it has incurred in the Underlying Action or, alternatively, for
those costs and expenses it has incurred in the Underlying Action beyond its pro–
rata share. Zurich has filed cross–claims against Weaver Cooke and the other
insurer–defendants
alleging
declaratory
judgment
and
equitable
subrogation/contribution claims similar to those Westfield alleges.
Weaver Cooke asserts a counterclaim and cross–claims against Westfield
and Zurich, respectively, for a declaration that each owes Weaver Cooke a defense
and indemnity to the claims in the Underlying Action. It also asserts cross-claims
against Selective and Penn National. It alleges that it is an insured or additional
insured under their respective policies and that those insurers engaged in prohibited
claim settlement practices. Weaver Cooke seeks declaratory and monetary relief.
(3/1/17 Order, DE # 55, at 2–3.)
On 1 March 2017, the court stayed this action on “[t]he issue of the insurers’ duty to
indemnify[,]” while “the issues of the insurer’s duty to defend Weaver Cooke (including
coverage as an additional insured) and Selective’s and Penn National’s handling of Weaver
Cooke’s claim” were allowed to proceed. (Id. at 6.) Following discovery on these issues, the
parties filed the instant motions for summary judgment.
II.
STANDARD OF REVIEW
Summary judgment is appropriate when the record as a whole reveals no genuine issue of
material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P.
56(a); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247–48 (1986). The party seeking
summary judgment initially must demonstrate the absence of a genuine issue of material fact.
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Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the moving party has met its burden,
the nonmoving party may not rest on the allegations or denials in its pleading, Anderson, 477
U.S. at 248–49, but “must come forward with specific facts showing that there is a genuine issue
for trial,” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)
(emphasis and quotation omitted). A trial court reviewing a motion for summary judgment
should determine whether a genuine issue of material fact exists. Anderson, 477 U.S. at 249. In
making this determination, the court must view the evidence and the inferences drawn therefrom
in the light most favorable to the nonmoving party. Scott v. Harris, 550 U.S. 372, 378 (2007).
“When faced with cross-motions for summary judgment, the court must review each motion
separately on its own merits to determine whether either of the parties deserves judgment as a
matter of law.” Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir. 2003) (internal quotation
marks and citation omitted).
III.
DISCUSSION
The parties’ primary dispute is whether Selective and Penn National owe a duty to defend
to Weaver Cooke in the Underlying Action as an additional insured provision under the policies
issued to DD Plumbing and ECM. The parties also dispute whether Selective and Penn National
violated the North Carolina Insurance Unfair Trade Practices Act (“IUTPA”), N.C. Gen. Stat. §
58–63–15, and the North Carolina Unfair and Deceptive Trade Practices Act (“UDTPA”), N.C.
Gen. Stat. § 75–1 et. seq.
A.
Standing
In response to Westfield and Zurich’s motion for summary judgment, Selective contends
that Westfield and Zurich “lack standing to assert additional insured rights under its insured’s
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subcontract[]” because they are not third–party beneficiaries of either the construction contract or
the DD Plumbing subcontract. (Selective Resp. Opp’n (DE # 91) at 9–10.)
In order to maintain an action in federal court, a plaintiff must show that
they have standing under federal law. Miller v. Augusta Mut. Ins. Co., 157 [F.
App’x] 632, 636 (4th Cir. 2005) (citing Phillips Petrol. Co. v. Shutts, 472 U.S. 797,
804[] (1985)). Under 28 [U.S.C.] § 2201, “[i]n a case of actual controversy within
its jurisdiction. . . any court of the United States. . . may declare the rights and other
legal relations of any interested party seeking such declaration.” In order to
determine if an actual controversy exists between interested parties, courts should
consider “whether the facts alleged, under all the circumstances, show that there is
a substantial controversy, between parties having adverse legal interests, of
sufficient immediacy and reality to warrant the issuance of a declaratory judgment.”
Md. Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273[] (1941). If a plaintiff’s
complaint fails to allege facts sufficient to establish standing, the suit must be
dismissed. See, e.g., Walker v. S.W.I.F.T. SCRL, 517 F.Supp.2d 801, 808–09
(E.D. Va. 2007).
Steadfast Ins. Co. v. Berkley Nat’l Ins. Co., 217 F. Supp. 3d 904, 910–11 (S.D.W. Va. 2016).
Westfield and Zurich claim that—as a direct result of Selective’s and Penn National’s
decision not to defend Weaver Cooke in the Underlying Action—Westfield and Zurich have
incurred substantial “fees, cost and expenses” in their defense of Weaver Cooke. (Westfield
Compl. (DE # 1) at 8–9; Zurich Ans. (DE # 34) at 3.) Westfield and Zurich move for
reimbursement of these costs as of the date Penn National’s and Selective’s duty to defend
Weaver Cooke as an additional insured was triggered, thereby giving Penn National and
Selective the “primary responsibility of defending Weaver Cooke for the remainder of the
Underlying Action[.]” (Westfield & Zurich Mem. Supp. Summ. J. (DE # 71) at 2.) As such,
Westfield and Zurich have sufficiently alleged facts in their pleadings sufficient to confer
standing upon each of them. See Steadfast Ins. Co., 217 F. Supp. 3d at 911 (finding standing for
an insurance company who, although not a party to the underlying contract, was “intimately
intertwined with the priority of all parties’ coverage obligations”).
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B.
Duty to Defend
Under North Carolina law, interpretation of an insurance policy, including the extent of
the insurer’s duty to defend, is a question of law. See Waste Mgmt. of Carolinas, Inc. v. Peerless
Ins. Co., 340 S.E.2d 374, 377 (N.C. 1986) (“[The duty to defend] is an appropriate subject for
summary judgment.”). Broader than the duty to insure, “[t]he duty to defend is generally
determined by analyzing the pleadings in the underlying lawsuit.” Westfield Ins. Co. v. Nautilus
Ins. Co., 154 F. Supp. 3d 259, 264 (M.D.N.C. 2016) (citing Waste Mgmt. of Carolinas, Inc., 315
S.E.2d at 377). As such, the courts employ the comparison test, where “the pleadings are read
side–by–side with the policy to determine whether the events as alleged are covered or
excluded.” Waste Mgmt. of Carolinas, Inc., 315 S.E.2d at 378. “Allegations of facts that
describe a hybrid of covered and excluded events or pleadings that disclose a mere possibility
that the insured is liable . . . suffice to impose a duty to defend. Thus, an insurer must defend its
insured against a lawsuit unless no allegation is “even arguably covered by the policy.” Cont’l
Cas. Co. v. Amerisure Ins. Co., 886 F.3d 366, 371 (4th Cir. 2018) (internal quotation marks and
citations omitted). Additionally, “facts learned from the insured and facts discoverable by
reasonable investigation may also be considered.” Waste Mgmt. of Carolinas, Inc., 315 S.E.2d
at 378 (citation and quotation marked omitted) (finding plaintiff’s affidavits relevant to
determining the defendant’s duty to defend). “[A]ny doubt as to coverage must be resolved in
favor of the insured.” Duke Univ. v. St. Paul Fire & Marine Ins. Co., 386 S.E.2d 762, 763–64
(N.C. 1990) (citing Waste Mgmt. of Carolinas, Inc., 315 S.E.2d at 377).
1.
Additional Insured, Property Damage, and Occurrence
The parties disagree whether Selective and Penn National owe a duty to defend Weaver
Cooke as an additional insured. Weaver Cooke, Westfield, and Zurich contend that “Penn
6
National and Selective must provide a defense so long as it might be possible for [p]laintiff in the
Underlying Action to establish property damage caused by conduct for which Weaver Cooke is
legally responsible.” (Weaver Cooke Mem. Supp. Summ. J. (DE # 76) at 13; see also Westfield
& Zurich Mem. Supp. Summ. J. (DE # 71) at 3.) In response, Selective contends “Weaver
Cooke was sued by [New Bern] for purely economic loss type damages[,]” not property damage.
(Selective Resp. Opp’n (DE # 91) at 2; see also Selective Resp. Opp’n (DE # 90) at 6; Selective
Mem. Supp. Summ. J. (DE # 80) at 5.) Similarly, Penn National contends there is no basis for
“[Weaver Cooke’s] contention that [ECM’s] work was responsible for ‘property damage’ as
defined within the applicable Penn National policy[,]” resulting from its work on brick veneer
installation. (Penn National Resp. Opp’n (DE # 84) at 10; see also Penn National Resp. Opp’n
(DE # 88) at 5.)
Under Section I of Penn National’s and Selective’s policies—coverage provided for
bodily injury and property damage—Selective and Penn National both agree to “pay those sums
that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or
‘property damages’ to which this insurance applies.” (Selective Policy Excerpts (DE # 71–26)
Ex. 23 at 10; Penn National Policy Excerpts (DE # 71–25) Ex. 22 at 13.) They also have a “duty
to defend the insured against any ‘suit’ seeking those damages.” (Selective Policy Excerpts (DE
# 71–26) Ex. 23 at 10; Penn National Policy Excerpts (DE # 71–25) Ex. 22 at 13.) Under section
IV—definitions—the policies identically define property damage. Property damage is defined
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.
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(Selective Policy Excerpts (DE # 71–26) Ex. 23 at 25; Penn National Policy Excerpts (DE #71–
25) Ex. 22 at 27.) However, coverage for property damage is only obligated when there has been
a triggering event or “occurrence”—“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 [.]” (Selective Policy Excerpts (DE # 71–26) Ex. 23 at 10; Penn
National Policy Excerpts (DE # 71–25) Ex. 22 at 13) (internal quotation marks omitted).) The
policies identically define occurrence as “an accident, including continuous or repeated exposure
to substantially the same general harmful conditions.” (Selective Policy Excerpts (DE # 71–26)
Ex. 23 at 24; Penn National Policy Excerpts (DE #71–25) Ex. 22 at 26.)
In addition to the original contracting party, the insured, coverage also extends to
“additional insureds.” Under the policy amendments to Section II under Penn National’s policy
—who is an insured—additional insured’s include:
[a]ny person(s) or organization(s) (referred to below as additional insured) with
whom you are required in a written contract or agreement to name as an additional
insured for the products–completed operations hazard, but only with respect to
liability for bodily injury or property damages caused, in whole or in part, by your
work performed for that additional insured. . . .
(Penn National Policy Excerpts (DE # 71–29) Ex. 26 at 4 (internal quotation marks omitted).)
Similarly, under an endorsement to Section II under Selective’s policy—who is an insured— an
insured:
[i]s amended to include as an additional insured any person or organization when
you and such person or organization have agreed in writing in a contract or
agreement that such person or organization be added as an additional insured on
your policy. Such person or organization is an additional insured only with respect
to liability for bodily injury or property damage caused, in whole or in part, by your
work performed for that additional insured and included in the “products–
completed operations hazard.”
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(Selective Policy Excerpts (DE # 71–30) Ex. 27 at 6 (internal quotation marks omitted).) The
policies similarly define the products–completed operations hazard as “all. . . ‘property damage’
occurring away from premises you own or rent and arising out of ‘your product’ or ‘your work.’”
(Selective Policy Excerpts (DE # 71–26) Ex. 23 at 24; Penn National Policy Excerpts (DE #71–
25) Ex. 22 at 26.)
As for the pertinent pleadings, New Bern filed three complaints. In its initial complaint,
filed 30 March 2009, it contends Weaver Cooke breached the construction contract and as a
“proximate result” caused damage in the form of the cost to complete the work and correct
deficiencies in the work as well as caused damage to vehicles and other property. (New Bern
Compl. (DE # 80–1) ¶ 174.) On 6 May 2010, New Bern amended its complaint repeating these
allegations and adding allegations against Weaver Cooke regarding, among other things, water
intrusion causing damages (and potential mold problems) to residential units and common areas.
(See New Bern Am. Compl. (DE # 71–8) Ex. 5 at 25–27.) Finally, on 8 June 2012, New Bern
filed a supplemental complaint, incorporating by reference the allegations in its amended
complaint and attaching and incorporating a “Catalog of Issues” identified by its expert engineer,
George Barbour (“Barbour”). (See New Bern Supp. Compl. (DE # 71–9) Ex. 6 at 7–8.) That
document provides, in relevant part,
Issue No.
1
1.1
Description of Issue
Building Envelope
Weather resistive
barrier and related
flashing installation
[section 1.2–1.4
omitted]
1.5
Damage
Consequence
Corrective Actions
Water intrusion into
residential units and
corridors. Lack of an
effective air barrier.
Remove cladding as required
to address WRB installation
defects
Examples of water
damage, efflorescence,
water seepage and other
damages caused by
construction defects.
Remove and re[p]lace water
damaged components after
addressing sources of water
intrusion
9
1.6
Roof parapet, roof
membrane and flashing
installation and
performance
1.7
Brick Veneer
Water damaged interior
finishes. Corroded studs.
Water intrusion into
many residential units at
the fourth floor
Potential for cracking at
areas of unsupported
brick at discontinuous
brick floor line shelf
angles1
Install s[h]elf angles with
mitered and welded
intersections at building
corners where omitted during
construction. Provide
integrated flashing, sealants
and expansion material as
specified.
Noticeable drain noises
caused by use of
plumbing fixtures in
residential units above.
Backup of raw sewage in
residential mechanical
closets.
The cause of this sewer
discharge should be
investigated and corrected as
required by code. The
damages to interior finishes
should also be repaired.2 All of
the hub drains and condensate
drains should be inspected and
deficiencies corrected.
[sections omitted]
4
Mechanical,
Electrical, Plumbing
and Fire Protection
Waste plumbing
deficiencies
4.4
Remove and replace the
parapet roofing and
coping in accordance with the
contract documents
(Id.)
ECM’s subcontract for the project, set forth the extent and limits of its work:
Work includes furnishing and installing brick, concrete masonry units, cavity
insulation, joint reinforcing, wall ties, grout, thru–wall flashing, pre–formed control
joints, dove tail anchors, mortar stop, damp[]proofing, clean up, mortar, sand,
supervision, labor, equipment, and taxes.
....
1
“[] The resulting discontinuous nature of the Tyvek as discussed in section 1.1–Weather Resistive Barrier and
Related Flashings” was recognized as an issue related to brick veneer construction defects. (Barbour Inspection
Report (DE # 71–16) Ex. 13 at 8.)
2
“Waste discharge occurred in many of the first floor units in building section A resulting in damage to interior
finishes including sheetrock and hardwood flooring[.]” (Barbour Inspection Report (DE # 71–16) Ex. 13 at 21.)
10
Work excludes layout, steel lintels, pre–cast materials, setting of window and door
frames, dove–tail anchor slots, caulking and sealants, rebar, shoring and bracing,
brick pavers, fire stops, wall tie installation, water proofing, water repellants, roof
flashing, testing, welding, and removal of trash from site.
(ECM Subcontract (DE # 71–21) Ex. 18 at 4; ECM Interrog. Resp. (DE # 71–14) Ex. 11 at 5.)
In its subcontract for the project, DD Plumbing was responsible for installing various un–
insulated piping and plumbing fixtures, such as kitchen faucets, bathroom faucets, and tub
faucets. (See DD Plumbing Subcontract (DE # 71–22) Ex. 19 at 4.)
Assuming these facts to be true, the pleading implicate ECM’s and DD Plumbing’s work
and that work damaged property unrelated to the subject of the Subcontracts. Allegedly, their
defective work resulted, at least in part, in water intrusion and/or waste discharge which
damaged interior finishes. Such damages would not have been anticipated or expected from
ECM’s or DD Plumbing’s work. As such, the events New Bern alleged against Weaver Cooke
constitute an occurrence and property damage under Selective and Pen National’s policy
provisions, thereby triggering the insurers’ duty to defend Weaver Cooke as an additional
insured.
Selective and Penn National seek to avoid this result by relying on Westfield Ins. Co. v.
Nautilus Ins. Co., 154 F. Supp. 3d 259 (M.D.N.C. 2016). In Nautilus, a general contractor
procured a contract with the Guilford County Board of Education, and then sub-contracted part
of the job to Associated Steel. 154 F. Supp. 3d at 262. During the construction, a rain event
caused damage to the project. Id. The general contractor contracted with another corporation,
Afterdisaster, to remediate the damage. Id. Afterdisaster filed suit in state court against the
general contractor for the payment of the contract fees for the work performed. Id. Ultimately, a
federal declaratory judgment action was brought to determine whether Associated Steel’s
insurance company had a duty to defend the general contractor in the state court action. Id. at
11
263. The district court found that Associated Steel’s insurance company did not have a duty to
defend because the “occurrence” was the general contractor’s failure to pay for the services
rendered by Afterdisaster. See id. at 267. Because contractual damages are not property
damages, the insurer did not have a duty to defend in the state suit. Id. Specifically,
though the contract between Afterdisaster and [the general contractor] can be traced
to the property damage caused by the rain event, [the general contractor’s]
subsequent breach of contract represents a separate and independent act severing
the casual connection with the water intrusion event. . . . [T]he events giving rise to
[the general contractor’s] liability to Afterdisaster came after the rain event. . . .
Such an indirect connection between Afterdisaster’s claims and the rain event is
insufficient to trigger [the insurer’s] duty to defend. To find that Afterdisaster was
seeking damages because of property damage would distort the meaning of this
provision and extend its reach so as to provide coverage for any liability where
property is a tangential factor.
Id. at 271 (internal citations and quotation marks omitted).
Nautilus is distinguishable from this action. While the triggering event for the lawsuit in
Nautilus was the failure to pay for the services rendered by Afterdisaster, here, the underlying
action is a result of property damages, due to poor or incomplete craftsmanship at the project.
Based on the pleadings above, there are allegations of damage to previously undamaged property
as a result of work allegedly performed by ECM and DD Plumbing under their subcontracts.
Specifically, property that was previously undamaged, such as the sheetrock on the first floor,
allegedly became damaged as a result of DD Plumbing’s poor installation of plumbing. The
defective plumbing installation was unrelated to the craftsmanship of the sheetrock, and
accordingly, damage caused by that work to the sheetrock fits under the definition of property
damage covered under the policies. See Nat’l Union Fire Ins. Co. of Pittsburgh, PA v.
Intercoastal Diving, Inc., No. 7:10–CV–115–FL, 2012 WL 1978291, *4–5 (E.D.N.C. June 1,
2012) (internal quotation marks and citation omitted) (“The term property damage in an
insurance policy has been interpreted to mean damage to property that was previously
12
undamaged, and not the expense of repairing property or completing a project that was not done
correctly or according to contract in the first instance.”). Similarly ECM’s allegedly defective
brick veneer work caused water damage to residential units at the project. Based upon New
Bern’s factual allegations, and what was discoverable through reasonable investigation, both
Selective and Penn National have a duty to defend Weaver Cooke in the Underlying Action.
2.
Tender Letters
The parties also dispute if, and when, Selective and Penn National received official
tenders for Weaver Cooke’s defense. “An insurer’s duty to defend is triggered when insurer first
receives notice of [a] lawsuit and not when [the] complaint is filed.” Harleysville Mut. Ins. Co.
v. Hartford Cas. Ins. Co., 90 F. Supp. 3d 526, 552 (E.D.N.C. 2015) (internal citation and
quotation marks omitted) (finding that a letter from one insurance company to another sufficient
for actual notice). It is undisputed that Selective and Penn National received the Second Tender
Letter dated 12 September 2013, (see Westfield & Zurich Mem. Supp. Summ. J. (DE # 71) at 10;
Weaver Cooke Mem. Supp. Summ. J. (DE # 76) at 3; Selective Mem. Supp. Summ. J. (DE # 80)
at 6, 11; Penn National Statement of Material Facts (DE # 89) ¶¶ 10, 12–13 (stating that Penn
National does not dispute receipt of the letter, but was unable to locate the letter in its files)),
however, Selective disputes the significance of the letter. The letter states, in relevant part,
I am writing on behalf of Westfield Insurance Company (“Westfield[”])[] with
regard to the above–referenced matter which arises out of the construction of a
project known as SkySail Luxury Condominiums in New Bern, North Carolina.
The owner of the project has filed a lawsuit against Weave Cooke Construction,
LLC (“Weaver Cooke”), alleging that it has incurred damages as a result of certain
construction defects at the Project. Westfield is currently defending Weaver Cooke
in this lawsuit.
Pursuant to a subcontract agreement entered into between Weaver Cooke and your
insured, your insured agreed to perform certain scopes of work at the project. The
subcontract agreement expressly requires Weaver Cooke to be named as an
additional insured under your policy on a primary and non–contributing basis.
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Since the damages alleged by the plaintiff in this matter allegedly result from scopes
of work performed by your insured, Westfield hereby tenders this matter to you for
defense and indemnity pursuant to the term of the subcontract agreement.
For your reference, I have enclosed herein a copy of the plaintiff’s Amended
Complaint and First Supplemental Complaint, the subcontract agreement, and the
Other Insurance provision contained in Westfield’s policies.
Please acknowledge this tender in writing within 14 days of the date of the same,
confirming your agreement to indemnify and defend Weaver Cooke in this matter.
Please provide me with a complete copy of your insured’s policy.
(Selective App’x (DE # 80–4) Ex. D at 1; Penn National Req. for Admis. and Am. Answers (DE
# 71–23) Ex. 20 at 85.) Selective contends Weaver Cooke, not Westfield, needed to provide
notice of the Underlying Action. This argument is unavailing. It is insignificant that the Second
Tender Letter was sent by Westfield as opposed to Weaver Cooke. The letter provided actual
notice, as demonstrated by specific reference to the lawsuit, the failed project, and the additional
insured provision. See Kubit v. MAG Mut. Ins. Co., 708 S.E.2d 138, 154 (N.C. Ct. App. 2011)
(“[I]n North Carolina, the duty to defend arises when an insurer receives actual notice of the
underlying action.”). Further, Selective opened a coverage file either by the end of September or
October 2013, (see Selective App’x (DE # 78–2) Ex. 1.1 at 91–92), indicating it understood this
letter to be actual notice. As such, the latest date Selective and Penn National would have
received actual notice of Weaver Cooke’s claim around September 2013.3 (See Westfield &
Zurich Resp. Opp’n (DE # 86) at 4.) It is on that date, at a minimum, Selective and Penn
National had a duty to defend Weaver Cooke as an additional insured.
3.
Primary Insurer
Multiple parties seek damages as a result of Selective’s and Penn National’s failure to
defend Weaver Cooke in the Underlying Action. First, Westfield and Zurich contend that “[a]
3
Selective received the Second Tender letter by 22 September 2013. (Selective App’x (DE # 78–2) Ex. 1.1 at 18
(discussing Beverly Johns email confirming receipt of the letter).)
14
material term in both the ECM and [DD] Plumbing subcontracts required them to name Weaver
Cooke as an additional insured under their respective commercial general liability insurance
policies on a primary and non–contributory basis relative to any insurance policies issued
directly to Weaver Cooke as a named insured.” (Westfield & Zurich Mem. Supp. Summ. J. (DE
# 71) at 8.) Based on their representation of Weaver Cooke under a reservation of rights in the
Underlying Action, over the past five years, Westfield maintains it has incurred a total of
$836,942.82 and Zurich maintains it has incurred $1,087,459.23. (Id. at 10.) Both parties
request a declaration that Selective and Penn National reimburse them for all “costs fees, and
other expenses they have incurred in defending Weaver Cooke in the Underlying Action from at
least September of 2013 through the date that the Court enters its order.” (Id. at 26.)
Weaver Cooke alleges that although Westfield and Zurich have undertaken Weaver
Cooke’s defense in the Underlying Action, it “has been forced to pay the remainder of its
defense costs itself.” (Weaver Cooke Mem. Supp. Summ. J. (DE # 76) at 11, citing Weaver
Cooke Ans. (DE # 24) ¶ 12.) Weaver Cooke does not provide a specific number totaling its costs
and instead requests “judgement for recovery of all of the defense costs that [it] has been
required to pay out of its own pocket[.]” (Id. at 12.) Specifically, Weaver Cooke contends
Selective’s and Penn National’s policies provide primary coverage and therefore are “jointly
responsible to Weaver Cooke for all its defense costs. . . .” (Weaver Cooke Reply (DE # 100) at
3 & n.1.)
Neither Selective nor Penn National dispute the contention that if it is determined they
have a duty to defend, their respective policies are primary. Rather, Selective and Penn National
suggest that they should pay nothing because Westfield and Zurich have defended Weaver
Cooke in the Underlying Action and Weaver Cooke chose to pay its selected attorney at a higher
15
rate than Westfield and Zurich wanted to pay. (See Penn National Resp. Opp’n. (DE # 88) at 8–
9; Selective Mem. Supp. Summ. J. (DE # 80) at 11; Selective Resp. Opp’n. (DE # 90) at 5.)
Both Penn National’s and Selective’s additional insured provisions acknowledge that
their insurance is primary and non–contributory if required by contract. (See Penn National
Policy Excerpts (DE # 71–29) Ex. 26 at 4) (“If a written contract or agreement that requires any
person(s) or organizations(s) to be an additional insured also requires this insurance to be
primary and noncontributory, then this insurance is primary over any other insurance in which
the additional insured is a Named Insured.”); (Selective Policy Excerpts (DE # 71–30) Ex. 27 at
6) (“This coverage shall be excess with respect to the person or organization included as an
additional insured by its provisions; any other insurance that person or organization has shall be
primary with respect to this insurance, unless this coverage is required to be primary and not
contributory in the contract or agreement referred to above [i.e., the contract that provides the
person or organization be an additional insured].”). As recognized above, the Subcontracts
require the additional insured’s insurance to be primary and on a non–contributory basis.
Accordingly, under the respective policies and Subcontracts, Selective and Penn National are
primary, non–contributory insurers.
Selective’s arguments to the contrary are unavailing because they ignore the scope of the
duty to defend. When an insured provides notice to an insurer of a claim, the broad nature of the
duty to defend provides the insurer the opportunity to mount its defense early to control defense
costs. See Westfield Ins. Co., 154 F. Supp. 3d at 265; Wm. C. Vick Const. Co. v. Pennsylvania
Nat. Mut. Cas. Ins. Co., 52 F. Supp. 2d 569, 596 (E.D.N.C. 1999), aff’d sub nom. Wm. C. Vick
Const. Co. v. Great Am. Ins. Co., 213 F.3d 634 (4th Cir. 2000). As a result, when an insured
fails to provide notice, or provides late notice to an insurer, the insurer is not required to pay for
16
legal fees prior to its notice of the claim. Wm. C. Vick Const. Co., 52 F. Supp. 2d at 596. This
protects the insurer from being required to “pay for [] defense costs which it had no opportunity
to control.” Id.
Here, however, Selective and Penn National had notice on or around 12 September 2013
of Weaver Cooke’s claims, and at that time, had the right to control the defense. Selective’s and
Penn National’s failure to do so does not entitle them to claim that the incurred defense costs are
at the insured’s, or excess insurer’s, peril. Such a result would encourage insurers to rebuke their
duty to defend. Similarly, if a primary insurer has a duty to defend without contribution but fails
to defend, an excess insurer who defends the action, absent their own primary duty to defend, is
entitled to reimbursement of those defense fees and costs. See Cont’l Cas. Co. v. Amerisure Ins.
Co., 886 F.3d 366, 375 (4th Cir. 2018). Based on the foregoing, Weaver Cooke’s, Westfield’s,
and Zurich’s motions will be granted on the issue of the Selective’s and Penn National’s duty to
defend Weaver Cooke in the Underlying Action.
C.
North Carolina Claims
Weaver Cooke and Selective also move for judgment on Weaver Cooke’s claims
pursuant to the IUTPA and UDTPA against Selective and Penn National. (Weaver Cooke Mem.
Supp. Summ. J. (DE # 76) at 13–14; Selective Mem. Supp. Summ. J. (DE # 80) at 21–26.) The
three provisions of the IUTPA at issue provide:4
(11) Unfair Claim Settlement Practices.--Committing or performing with such
frequency as to indicate a general business practice of any of the following:
In its summary judgment brief, Weaver Cooke initially cites to § 58–63–15(11) (b), (d), (e), and (n), (Weaver
Cooke Mem. Supp. Summ. J. (DE # 76) at 1), then quotes from (b), (e), (g), and (n), (id. at 16–17), and finally
analyzes the facts of the case as to subsections (b), (e), and (n), (id. at 17–18). In its summary judgment brief,
Selective refers to Weaver Cooke’s crossclaims under § 58–63–15(11) (b), (c), (e), and (n). (Selective Mem. Supp.
Summ. J. (DE # 80) at 26.) Although Weaver Cooke arguably pled a violation of (c) in its crossclaim, (see Weaver
Cooke Ans. (DE # 24) at 10–11), Selective does not discuss any facts or law to support summary judgment on such
a claim, (Selective Mem. Supp. Summ. J. (DE # 80) at 31–32). Accordingly, the court only addresses claims based
on violations of (b), (e), and (n).
4
17
Provided, however, that no violation of this subsection shall of itself create any
cause of action in favor of any person other than the Commissioner. . .
b. Failing to acknowledge and act reasonably promptly upon communications with
respect to claims arising under insurance policies;
...
e. Failing to affirm or deny coverage of claims within a reasonable time after proof–
of–loss statements have been completed;
...
n. Failing to promptly provide a reasonable explanation of the basis in the insurance
policy in relation to the facts or applicable law for denial of a claim or for the offer
of a compromise settlement[.]
N.C. Gen. Stat. § 58–63–15. “In North Carolina, a violation of section 58–63–15(11)[] of the
IUTPA constitutes an unfair or deceptive trade practice under the UDTPA [§ 75–1.1]—as a
matter of law.” ABT Bldg. Prod. Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh, 472 F.3d 99,
123 (4th Cir. 2006).
1.
Selective
In its motion for summary judgment, Weaver Cooke claims Selective’s behavior,
specifically its failure to timely act in various ways in response to its additional insured claim,
resulted in violations of the IUTPA. Because of the delay, Weaver Cooke claims it had to fund
part of its own defense. (Weaver Cooke Mem. Supp. Summ. J. (DE # 76) at 12.) Selective
disputes that it in any way delayed its response to Weaver Cooke or that Weaver Cooke suffered
damages given that Westfield and Zurich are defending it in the Underlying Action. In its own
motion for summary judgment, Selective contends “[t]he entire basis for Weaver Cooke’s
Claims Practices violation is found in two letters.” (Selective Mem. Supp. Summ. J. (DE # 80)
at 21.) Selective contends that it did not receive the First Tender Letter, the Second Tender was
insufficient, it acted reasonably, and Weaver Cooke has not been damaged. (Id. at 22–33.)
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i.
Failing to acknowledge and act reasonably promptly upon
communications with respect to claims arising under insurance
policies
Weaver Cooke contends Selective’s failure to timely respond to either tender letter
resulted in violation of § 58–63–15(11)(b). (Weaver Cooke Mem. Supp. Summ. J. (DE # 76) at
17.) An insurer violates that portion of the IUTPA by failing to acknowledge and act reasonably
promptly upon communications, such as inquiries or tender letters, regarding an insured’s claim.
See Guessford v. Pennsylvania Nat. Mut. Cas. Ins. Co., 983 F. Supp. 2d 652, 661 (M.D.N.C.
2013). Selective contends, without citation to authority, that the statute “is not applicable
because no insured made a claim to Selective.” (Selective Resp. Opp’n (DE #90) at 8)
(emphasis added); see also Selective Mem. Supp. Summ. J. (DE # 80) at 31.) This is an overly
strict reading of the statute. By its plain language, § 58–63–15(11)(b) applies to insurances
claims. Although a third–party, i.e., one who is neither an insured nor in privity with an insurer
cannot maintain a cause of action under § 58–63–15(11)(b) and § 75–1.1 against an adverse
party’s insurer, see Lee v. Mut. Cmty. Sav. Bank, SSB, 525 S.E.2d 854, 856 (N.C. Ct. App.
2000), nothing in § 58–63–15(11)(b) restricts its application to insurances claims communicated
directly from an insured. Therefore, that Westfield, as opposed to Weaver Cooke, notified
Selective of the claim is irrelevant.
As to whether Selective failed to acknowledge and act reasonably promptly depends on
the actions it took upon communications with respect to the additional insured claim for Weaver
Cooke. Selective opened a claim investigation as to Weaver Cooke’s additional insured status
upon receipt of the Second Tender Letter. To that end, Selective arguably acted reasonably
promptly in response to the Second Tender Letter. (See Selective App’x (DE # 78–2) Ex. 1.1 at
91–92.) However, there is a factual dispute as to whether Selective received the First Tender
Letter (the letter Weaver Cooke authored itself). If it did, Selective would have failed to
19
acknowledge Weaver Cooke’s additional insured claim at least until it opened the coverage file
in September or October 2013, well over a year after the First Tender Letter, without
explanation. With an unknown date of initial tender, the court is unable to determine when
Selective acted “upon communications with respect to claims arising under insurance policies.”
Accordingly, on the facts presented, Weaver Cooke’s and Selective’s motions for summary
judgment on Weaver Cooke’s UDTPA claim based on a violation of § 58–63–15(11)(b) will be
denied.
ii.
Failing to affirm or deny coverage of claims within a reasonable time
after proof–of–loss statements have been completed
Weaver Cooke contends that Selective did not deny its claim until at least a year after the
Second Tender Letter was received in violation of § 58–63–15(11)(e). (Weaver Cooke Mem.
Supp. Summ. J. (DE # 76) at 17–18.) Selective contends its filing of a declaratory judgment
action against DD Plumbing, Weaver Cooke, and New Bern on 12 June 2014 was its timely
denial of Weaver Cooke’s claim only nine months after its receipt of the Second Tender Letter.
(Selective Mem. Supp. Summ. J. (DE # 80) at 6–7, 32; Selective Resp. Opp’n (DE # 90) at 3);
(see also Selective App’x (DE # 78–2) Ex. 1.1 at 10–11 (“There is no discreet letter responding
to the tender for defense costs by Westfield. . . . And there are circumstances where we have not
responded to a tender for defense with a coverage position – coverage determination letter, and
we started a [declaratory judgment] action.”).) Whether Selective’s actions constitute a denial of
coverage within a reasonable time is an issue of fact. See N.C. Gen. Stat. § 58–63–15(11)(e)
(failing to define “a reasonable time”); Cf. Laschkewitsch v. Legal & Gen. Am., Inc., 247 F.
Supp. 3d 710, 720 (E.D.N.C. 2017) (finding six weeks to be “a reasonable time” to deny a claim
under § 58–63–15(e)), aff’d, 725 F. App’x 252 (4th Cir. 2018).
20
Selective also contends “Section (e) is not applicable because no insured made a claim
and no proof of loss statements have been submitted.” (Selective Resp. Opp’n (DE # 90) at 8.)
Neither argument is persuasive. First, subsection (e), like the other subsections, does not specify
the manner in which the insurance claim has to be communicated. Second, the statute does not
define what constitutes a proof of loss statement. The record also does not reflect any Selective
policy provision on proof of loss. In fact, in reviewing the Selective policies provided, the court
is unable to find a single provision in a Selective policy that requires a proof of loss statement or
instructs an insured how to submit a proof of loss statement. Additionally, neither party has
provided briefing or argument, aside from the singular comment above, on the proper
presentation of proof of loss. Weaver Cooke’s and Selective’s motions for summary judgment
on Weaver Cooke’s UDTPA claim based on a violation of § 58–63–15(11)(e) will be denied.
iii.
Failing to promptly provide a reasonable explanation of the basis in
the insurance policy in relation to the facts or applicable law for
denial of a claim or for the offer of a compromise settlement
Weaver Cooke contends that Selective failed to provide it a reasonable explanation of the
basis of Selective’s denial of the claim in its answer to Weaver Cooke’s counterclaim in the
declaratory judgment action in violation of § 58–63–15(11)(n). (Weaver Cooke Mem. Supp.
Summ. J. (DE # 76) at 18.) In response, Selective contends
Section (n) fails because Weaver Cooke never made a request to Selective;
Selective engaged in frequent communications with Weaver Cooke defense
counsel; Selective provided a full defense for all plumbing claims; and Selective
filed a declaratory judgment action because no damages asserted in the underlying
action included a claim that met the definitions of occurrence, property damage or
policy period.
(Selective Resp. Opp’n (DE # 90) at 9.)
Selective’s arguments are unavailing. The subsection at issue does not contain that
requirement that the insured itself submit the claim. Furthermore, as to any communications
21
Selective may have had with Weaver Cooke’s defense counsel and the contents thereof,
Selective has not cited to evidence on the record. Also, Selective’s defense on behalf of DD
Plumbing does not negate its responsibilities as to any other insured. Finally, whether
Selective’s filing and the timing thereof in the declaratory judgment action promptly provided a
reasonable explanation of the basis of its denial of Weaver Cooke’s claim is an issue of fact to be
determined at trial. Therefore, Weaver Cooke’s and Selective’s motions for summary judgment
on Weaver Cooke’s UDTPA claim based on a violation of § 58–63–15(11)(n) will be denied.
iv.
Damages
Selective also contends it is entitled to summary judgment on Weaver Cooke’s UDTPA
claims based on the lack of damages. (Selective Mem. Supp. Summ. J. (DE # 80) at 10–11, 25.)
Selective argues that Weaver Cooke suffered no harm because it is receiving a defense from
Zurich and Westfield in the Underlying Action. (Id. at 25.) However, as recognized above, the
fact that Weaver Cooke funded, in part, its own defense does not relieve Selective of liability for
damages nor does the fact that Zurich and Westfield have provided Weaver Cooke with a
defense. Weaver Cooke has demonstrated damages relating to its UDTPA claims.
2.
Penn National
As for its UDTPA claim against Penn National based on violations of the IUTPA,
Weaver Cooke contends,
Penn National did not respond to the tenders for at least three years and four months
after it received the first (Weaver Cooke) tender. The delay could have been longer
but, as discussed, Penn National acknowledges that it received the Weaver Cooke
tender no later than November of 2012 and did not respond to Weaver Cooke’s
crossclaim until March, 2016.
(Weaver Cooke Mot. Supp. Summ. J. (DE # 76) at 17.) In response, Penn National offers the
following:
22
The identification of potential “trigger dates” for coverage under its policy as
testified to by 30(b)(6) designee Gary Johnson shows the extent to which Penn
National reviewed information it had received to formulate its decision to deny
coverage as an additional insured to Weaver Cooke. Although Penn National
admits that it would have preferred to have located letters in its file showing a
formal written response, there is no indication that Weaver Cooke ever understood
it would be an additional insured under Penn National’s policy or that Penn
National in some way communicated that its decision was to provide additional
insured status to Weaver Cooke. Throughout Penn National’s investigation and
ultimate determination that Weaver Cooke did not enjoy additional insured status,
Weaver Cooke was being represented by counsel and was in no way prejudiced by
any failure on the part of Penn National to provide a formal written response to
Weaver Cooke’s tender if such was the case. There is no evidence that Weaver
Cooke was harmed in any way by any alleged delay in responding to its tender.
(Penn National Resp. Opp’n (DE # 88) at 7–8.)
In reviewing the portion of Gary Johnson’s (“Johnson”) testimony and other documents
attached to Penn National’s response, it is evident that Penn National did have internal
communications regarding Weaver Cooke as an additional insured and that the claim should be
denied. (See Johnson Dep. (DE # 71–7) Ex. 4 at 12–41 (claim notes); Penn National Resp.
Opp’n (DE # 88–3) Ex. C at 3–14) (claim notes).) The timing of the investigation, what
materials were reviewed, and what independent investigation, if any, actually took place are
glaringly absent from the sporadic claim file notes provided. Johnson’s testimony does not shed
any more light on the matter. Through Johnson, Penn National admitted that the First Tender
Letter was in its files, but it could not confirm the date of receipt of the letter, (see Johnson Dep.
(DE # 71–7) Ex. 4 at 8), and that it is likely but not certain whether Penn National’s employee
Gregg Gross spoke with different parties at mediation in the Underlying Action in November
2013 regarding Penn National’s position on Weaver Cooke’s status, (id. at 10; Penn National
Resp. Opp’n (DE # 89–2) Ex. B at 3). Penn National was unable to provide the specific date
when it concluded there was not additional insured coverage to be afforded for Weaver Cooke,
but stated it was early on in the claim process, likely in July 2012. (Johnson Dep. (DE # 71–7)
23
Ex. 4 at 7.) Further, it was unable to answer whether it responded to the Second Tender Letter,
which it confirmed it received, (id. at 9–10.)
On the undisputed factual record, Penn National failed to promptly provide a reasonable
explanation of the basis in the insurance policy in relation to the facts or applicable law for
denial of a claim, in violation of § 58–63–15(11)(n), and failed to affirm or deny coverage of
claims within a reasonable time in violation of § 58–63–15(11)(e).
Like Selective’s argument, the court rejects Penn National’s argument that Weaver
Cooke suffered no harm. However, it is unclear if Penn National has failed to meet the standard
under § 58–63–15(11)(b) because there is a factual dispute as to when Penn National
acknowledged and acted upon Weaver Cooke’s claims. Penn National did show that it did act
upon them, but the timeline, scope, and materials reviewed is unknown. Therefore, Weaver
Cooke’s motion for summary judgment on its UDTPA claims based on violations of § 58–63–
15(11)(e) and (n) will be granted, and its UDTPA claim based on violation of § 58–63–15(11)(b)
will be denied.
IV.
CONCLUSION
For the aforementioned reasons, the court DENIES Selective’s motion for summary
judgment (DE # 72). The court GRANTS Westfield and Zurich’s motion for summary judgment
(DE # 67). The court GRANTS Weaver Cooke’s motion for summary judgment on the issue of
Selective’s and Penn National’s duty to defend and Penn National’s violations of § 58–63–
15(11)(e) and (n) (DE # 74); otherwise, the motion is DENIED. The issue of damages regarding
the duty to defend and liability and damages on the remaining unfair trade practices claims are
STAYED until the Underlying Action is resolved. (See DE # 55.) Upon conclusion of the
24
Underlying Action, a party may file a motion to dissolve the stay. The clerk is DIRECTED to
administratively close this case.
This 11 April 2019.
__________________________________
W. Earl Britt
Senior U.S. District Judge
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