Sauer Incorporated v. Lexington Insurance Agency, Inc.

Filing 106

ORDER denying 86 Motion for Summary Judgment and denying 89 Motion for Summary Judgment. The Clerk of Court is DIRECTED to set this case for trial at least ninety (90) days after entry of this order. Signed by Senior Judge James C. Fox on 9/14/2015. (Grady, B.)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WESTERN DIVISION
No. 5:13-CV-180-F

SAUER INCORPORATED,
Plaintiff,
v.
LEXINGTON INSURANCE AGENCY INC.
D/B/A LEXINGTON INSURANCE
COMPANY,
Defendant.

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ORDER

This matter is before the court on cross motions for summary judgement filed by Plaintiff
Sauer Incorporated ("Sauer") [DE-86], and Defendant Lexington Insurance Agency Inc.
("Lexington") [DE-89]. The matters have been fully briefed and are ripe for ruling. For the
reasons set forth herein, both motions are DENIED.

I.

STATEMENT OF THE FACTS
The basic facts are not in dispute. Sauer was general contractor for a storm water

retention system project (the "Rain Tank") at Fort Bragg. The Rain Tank eventually collapsed
after installation. Lexington issued an insurance policy to Sauer that provided certain coverage
for the project. Lexington denied coverage for the Rain Tank collapse, and Sauer brought suit.

A.

The Rain Tank Installation and Collapse

The Rain Tank was composed of plastic crate-like modules, manufactured by a company
called ACF. The modules, when assembled and installed, form a honeycomb structure tank that
retains water underground.

Sauer subcontracted with a company called Benson Construction, Inc. ("Benson"), to
assemble and install the Rain Tanl(. An engineering firm, Burns & McDonnell, was responsible
for hydraulically sizing the Rain Tank and choosing a suitable location based on the site
constraints. See Klingele Deposition [DE-90-3] 25:13-21. Once completed, the Rain Tank was
covered with between seven to thirteen feet of soil fill, depending on the gradient of the land
above it.
Sometime shortly after the Rain Tank was completed, the Old North Utility Services, Inc.
("ONUS") installed a water line above the Rain Tank. The water line project was completely
separate from the Rain Tank contract, and Sauer was not involved in the water line installation.
The water line construction involved heavy equipment, including a large crane. However, the
exact travel paths of the equipment over the Rain Tank are unclear.
At some point after the water line installation, the ground above the Rain Tank began to
show signs of cracking. A sinkhole formed above the center of the Rain Tank, and the Rain Tank
was unearthed to evaluate the damage. While Lexington classifies the damage to the Rain Tank
as a "failure," it is clear that the Rain Tank had begun to collapse. What is not clear, and what the
parties heavily dispute, is what exactly caused the collapse.

B.

The Cause of the Collapse

After the Rain Tank collapse, Lexington assigned EDT to investigate the collapse. EDT
provided a report concluding (1) that the materials used in the Rain Tank did not have the loadbearing capacity necessary for the plan; and (2) that the depth of the Rain Tank contributed to the
collapse because of the load on top of the tank. See EDT Report, Exhibit B to Sauer's
Memorandum of Law in Support of Renewed Motion for Summary Judgment [DE-87-5] at 17,

2

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2-3. The EDT Report also noted that "[o]ther factors," including the construction activities

that occurred above the Rain Tank, may have caused the collapse. See id.

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5.

Sauer similarly requested a report and technical memorandum from S&ME to address the
collapse. See S&ME Report, Ex. E Sauer's Mem. Law Supp. Renewed Mot. Summ. J. [DE-87-8]
("S&ME Report"). The S&ME Report concluded, based on the EDT report, that the materials
used in constructing the Rain Tank were defective. !d. at 3. 1 The S&ME report also opined that
the construction methodology was the "primary, and possibly the sole, cause of the observed
failure of the Rain Tank system." Jd. 2 The S&ME Report stated that the equipment traffic would
have had a "minor, but possibly significant contribution to the" collapse, while the "water line
trench excavation and spoil pile construction methodology was the primary, and possibly the
sole, cause ofthe" collapse. S&ME Report [DE-87-8] at 2-3.
The various parties involved in the Rain Tank construction have not been able to
decisively determine what caused the collapse. As noted above, the reports commissioned by
Sauer and Lexington note that various factors may have caused the collapse. Furthermore, when
Sauer engaged in discussions about replacing the collapsed Rain Tank, it did not know the cause
ofthe collapse. See Haag Dep. [DE-90-1] 136:23-137:8, 139:20-21. Indeed, Sauer's project
manager stated that, although he believed that replacing the plastic Rain Tank with a concrete
rain tank would be safer, he did not know "exactly the cause of ... the collapse of the tank." See
id. 131 :3-10. In a letter regarding the incident, he further stated that Sauer had no evidence of

improper installation and that the amount of backfill did not exceed the manufacturer's
instructions for installation. See Letter of May 12, 2011, from Charles Haag to Frank Roberts

1

S&ME expressed its concerns regarding EDT's testing methodology, but noted that the results,
if accurate, would indicate that the materials used were defective. See id.
2
Lexington admits this statement of fact. See Lexington's Response in Opposition to Sauer's
Motion for Summary Judgment [DE-94] at 7.
3

[DE-90-8] at 3. ACF, the manufacturer of the Rain Tank modules, also believed the Rain Tank
had been installed properly. See DiLoreto Dep. [DE-90-2] 22:5-8.
Other parties believed that the Rain Tank should have been fine as installed. The lead
civil engineer from Bums & McDonnell, the engineering firm that provided volume and location
specifications for the Rain Tank, stated that he did not have concerns regarding the Rain Tank
modules or their manufacturer and that he did not know whether the design caused the collapse.
See Klingele Dep. [DE-90-3] 85:10-86:19. Moreover, he said that his firm could not conclusively

determine what caused the collapse. See id. Otherwise he had not doubts as to the Rain Tank's ·
suitability for the Fort Bragg project. See id. at 99:9-11. Sauer's expert opined that the exact
cause of the Rain Tank failure was not known, other than that the water line installation
precipitated the collapse. See Ulmer Dep. [DE-90-9] 30:6-15. He also stated that the designs for
. the tank appeared to meet the standard of care. See id. at 66:22-67:14. 3 A representative from
Benson, the subcontractor, believed that Benson had installed the Rain Tank "as specified in
accordance with the plans and specs," and that the collapse was due to the heavy equipment that
had been on top ofthe Rain Tank area. See Roberts Dep. [DE-90-10] 22:14-25. These opinions
indicate that that the weight placed upon the Rain Tank during the water line installation
precipitated the collapse, but do not indicate whether the design, the materials, or the Rain Tank
installation methods were the actual underlying cause.

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Lexington contends that Sauer's expert withdrew his opinion that the Rain Tank design met the
standard of care. However, after a review of the expert's deposition, the court finds that the expert did not
withdraw his opinion that the design met the standard of care. See id The expert reviewed the tank
designs believing that Bums & McDonnell, the company that specified the hydraulic capacity and
location of the tank, had also designed the tank. The expert concluded, based on a review of the designs,
that Bums & McDonnell and the designs met the standard of care. However, once he became aware that
Bums & McDonnell had not done the actual design work, it was no longer their standard of care to meet.
That is, it appears the expert withdrew his opinion only as to whether Burns & McDonnell had met the
standard of care, not as to whether the designs met the standard of care.
4

While many parties believed the plastic Rain Tank to be suitable for the job, all of the
potential replacement designs included either additional support panels or the use of concrete,
both of which would have provided additional support to protect against another collapse. See,
e.g., id at 47:3-48:22. Moreover, a representative from ACF stated that, had he known that
construction traffic was to pass over the Rain Tank, he personally would have designed a
different system. See DiLoreto Dep. [DE-90-2] 52:2-7. He also typically recommended
constructing rain tanks after any adjoining buildings had already been constructed to minimize
vehicles driving over it. See id at 26:10-16. Other parties expressed concern regarding the
amount of soil placed on top of the Rain Tank. See, e.g., Haag Dep. [90-1] 13 7:3-11.
The cause of the collapse is germane to the present dispute. Determining what caused the
collapse likely determines whether the policy provides coverage for the loss.

C.

The Policy Coverage

While the Policy provided general coverage for Sauer's projects at Fort Bragg, including
the Rain Tank installation, certain exclusions and additional coverage provisions are particularly
relevant to the present dispute. The relevant contract provisions include (1) an exclusion for
faulty, inadequate or defective design or workmanship; (2) additional coverage for collapse (the
"Collapse Provision"); and (3) the definition of"Building Under Construction." See Ex. A
Sauer's Mem. Law Supp. Renewed Mot. Summ. J. [DE-87-4] at 21, 24, 26 (the "Policy").
The exclusion provision states that the policy will, in part, not cover any loss or damage
resulting from faulty, inadequate or defective design or workmanship. See Policy [DE-87-4] at
21. However, the policy also contains a Collapse Provision, which provides additional coverage
in the event of a collapse "of a building or any part of a building" if caused by certain conditions,
including "[w]eight of people or personal property" and the "[u]se of defective material or

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methods in construction, remodeling or renovation if the collapse occurs during the course of
construction." See id at 24. While the Collapse Provision does not directly define "building" or
"part of a building," the "Builders Risk Coverage Form" defines a "Building Under
Construction" to include a "building or structure" and "[f]ixtures" if intended to become a
permanent part of a building or structure. See id at 26.

***
Lexington moves for summary judgment arguing (1) that the Rain Tank is not a
"building" or "part of a building" under the Collapse Provision, and (2) that coverage is excluded
because the collapse was caused by faulty, inadequate or defective design or workmanship.
Sauer moves for summary judgment arguing that the collapse is covered under the Collapse
Provision.

II.

LEGALSTANDARD
A party is entitled to summary judgement when the moving party shows "there is no

genuine dispute as to any material fact and the movant is entitled to judgement as a matter of
law." Fed. R. Civ. P. 56(a). At summary judgment, the court must examine the evidence
presented by both parties and determine if there is a need for trial. Matsushita Elec. Indus. Co. v.

Zenith Radio Corp., 475 U.S. 574, 587 (1986); Greater Balt. Ctr. for Pregnancy Concerns, Inc.
v. Mayor & City Council ofBalt., 721 F.3d 264,283 (4th Cir. 2013). The court examines

"whether the evidence presents a sufficient disagreement to require submission to a jury or
whether it is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 251-52 (1986). An issue of fact is genuine if a reasonable jury could
find for the nonmoving party. Liberty Lobby, 477 U.S. at 248. A fact is material ifproof of the
fact might affect the outcome of the case under the substantive law. Id The facts should be

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viewed in the light most favorable to the nonmoving party. Smith v. Va. Commonwealth Univ.,
84 F.3d 672, 675 (4th Cir. 1996).
This action is before the court pursuant to diversity jurisdiction. Therefore, the court
applies North Carolina substantive law. Harleysville Mut. Ins. Co. v. Reliance Nat'! Ins. Co., 256
F. Supp. 2d 413, 417 (M.D.N.C. 2002) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938)). 4

III.

DISCUSSION

Under North Carolina law, the goal of insurance contract construction "is to arrive at the
intent ofthe parties when the policy was issued." Woods v. Nationwide Mut. Ins. Co., 246 S.E.2d
773, 777 (N.C. 1978). The Woods court provides the touchstone for disputes where much hangs
on the meaning of a only a few words:
Where a policy defines a term, that definition is to be used. If no definition is
given, nontechnical words are to be given their meaning in ordinary speech,
unless the context clearly indicates another meaning was intended. The various
terms of the policy are to be harmoniously construed, and if possible, every word
and every provision is to be given effect. If, however, the meaning of words or the
effect of provisions is uncertain or capable of several reasonable interpretations,
the doubts will be resolved against the insurance company and in favor of the
policyholder. Whereas, if the meaning of the policy is clear and only one
reasonable interpretation exists, the courts must enforce the contract as written;
they may not, under the guise of construing an ambiguous term, rewrite the
contract or impose liabilities on the parties not bargained for and found therein.
I d. Moreover, "[i]t is the general law of contracts that the purport of a written instrument is to be

gathered from its four comers, and the four comers are to be ascertained from the language used
in the instrument." Carolina Power & Light Co. v. Bowman, 51 S.E.2d 191, 199 (N.C. 1949).
4

Sauer argues, and Lexington does not dispute, that North Carolina law applies. The court agrees.
Under North Carolina law, "[a]ll contracts of insurance on property, lives, or interests in this State shall
be deemed to be made therein." N.C. Gen. Stat. § 58-3-1. Application of this statute is limited to those
"situations where there is a 'close connection' between North Carolina and the interests insured by the
policy." Cant'! Cas. Co. v. Physicians Weight Loss Ctrs. ofAm., Inc., 61 F. App'x 841, 844-45 (4th Cir.
2003) (quoting Collins & Aikman Corp. v. Hartford Accident & Indem. Co., 436 S.E.2d 243, 246 (N.C.
1993)). The project and subject matter of the insurance policy at issue were in North Carolina, the Rain
Tank parts were shipped to and installed in North Carolina, and the collapse occurred in North Carolina.
North Carolina law applies.
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Once the meaning of a policy has been established, the plaintiff bears the initial burden of
"bringing itselfwithin the insuring language of the policy." Hobson Constr. Co., Inc. v. Great
Am. Ins. Co., 322 S.E.2d 632, 635 (N.C. Ct. App. 1984). Once established, that burden then

"shifts to the insuror to prove that a policy exclusion excepts the particular injury from
coverage." See id. (citing Nationwide Mut. Ins. Co. v. Allen, 314 S.E.2d 552, 554 (N.C. Ct. App.
1984)).
North Carolina law favors liberal construction of insurance policies "so as to provide
coverage, whenever possible by reasonable construction." State Capital Ins. Co. v. Nationwide
Mut. Ins. Co., 350 S.E.2d 66, 68 (N.C. 1986). 5 Additionally, the Supreme Court ofNorth

Carolina has held that "that provisions which exclude liability of insurance companies are not
favored and therefore all ambiguous provisions will be construed against the insurer and in favor
of the insured." Id. Put in other terms, "[e]xclusionary clauses are interpreted narrowly while
coverage clauses are interpreted broadly to provide the greatest possible protection to the
insured." Id. at 71.
The Supreme Court ofNorth Carolina has further held that, "[a]s a general rule, coverage
will extend when damage results from more than one cause even though one of the causes is
specifically excluded." Avis v. Hartford Fire Ins. Co., 195 S.E.2d 545, 549 (N.C. 1973). That is,
"the sources of liability which are excluded from ... policy coverage must be the sole cause of
the injury in order to exclude coverage under the policy." State Capital Ins., 350 S.E.2d at 73
(emphasis added). Moreover, where general provisions conflict with specific provisions in the

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While courts have often applied these rules in cases involving homeowners insurance policies,
they have also been applied in cases involving commercial insurance policies. See, e.g., Builders Mut. Ins.
Co. v. N. Main Constr., Ltd, 625 S.E.2d 622, 624-25 (N.C. Ct. App. 2006) (applying the same principals
to commercial insurance policy and an automobile exception). The same principles apply here.
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same contract, the general provisions should give way to the specifics. See Dev. Enters. of
Raleigh v. Ortiz, 356 S.E.2d 922, 924 (N.C. Ct. App. 1987).
Here, there are two issues that the court must evaluate. First, the court must determine
whether the collapse was caused solely by faulty, inadequate or defective design or workmanship
as excluded by the Policy, or whether the collapse was caused, in whole or in part, by conditions
listed in the Collapse Provision. See Policy [DE-87-4] at 21, 24. In short, the court must
determine whether there is no genuine issue of material fact as to what caused the collapse. Ifthe
court cannot reach that determination, then summary judgment must be denied as to both parties.
Second, if the court finds that the collapse was caused in whole or in part by a condition covered
under the Collapse Provision, the court must then determine whether the Rain Tank was a
"building or any part of a building." See id at 24.

A. The Cause of the Collapse
The Policy states that it will not cover any loss or damage resulting from faulty,
inadequate or defective design or workmanship. See id at 21. However, under the principles of
contract interpretation enumerated above, "coverage will extend when damage results from more
than one cause even though one ofthe causes is specifically excluded." Avis, 195 S.E.2d at 549.
Therefore, as long as the collapse resulted from some condition covered by the Policy, coverage
will extend to the loss despite the exclusion.
Under the Collapse Provision, coverage will not extend to any collapse, but only to those
collapses caused by one or more of the listed conditions. See id at 24. Those conditions include
the "[w]eight of people or personal property" and the "[u]se of defective material or methods in
construction ... if the collapse occurs during the course of construction." Id If the undisputed

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facts indicate that one of these conditions is met, then the Policy provides coverage so long as the
Rain Tank was a "building or ... part of a building." Id.
Here, the facts are heavily disputed, particularly as to the cause of the collapse. The court
has reviewed all of the parties' submissions and cannot determine, based on those submissions,
that the collapse was either (1) caused only by faulty, inadequate or defective design or
workmanship; or (2) caused at least in part by the "[w]eight of people or personal property" or
the "[u]se of defective material or methods in construction, remodeling or renovation ... during
the course of construction." Viewed in the light most favorable to Sauer, the evidence indicates
that something beyond defective design or workmanship likely contributed to the collapse. On
the other hand, viewed in the light most favorable to Lexington, the evidence does not
definitively show that something beyond defective design or workmanship caused the collapse.
Indeed, the only common thread in the evidence is that no one seems to know just what caused
the collapse. The evidence is not "so one-sided that one party must prevail as a matter oflaw,"
but instead "presents a sufficient disagreement to require submission to a jury." Liberty Lobby,
477 U.S. at 251-52. A fact-finder is necessary to make a determination on what caused the
collapse. Therefore, both Motions for Summary Judgment [DE-86, -89] are DENIED.

IV.

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CONCLUSION
For the foregoing reasons, Sauer's Motion for Summary Judgement [DE-86] is DENIED.

Lexington's Motion for Summary Judgment [DE-89] is also DENIED. The Clerk of Court is
DIRECTED to set this case for trial at least ninety (90) days after entry of this order.

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Because the court cannot determine the cause of the collapse, the court does not reach the
question of whether the Rain Tank was a "building" or "part of a building" under the Collapse Provision.
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SO ORDERED.
This, the

/If 'day of September, 2015.

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