PEERLESS INDEMNITY INSURANCE COMPANY et al v. CITY OF GREENSBORO

Filing 37

MEMORANDUM OPINION AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE L. PATRICK AULD signed on 5/7/2015, Recommending that Defendant's Motion for Summary Judgment (Docket Entry 33 ) be granted. (Daniel, J)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
PEERLESS INDEMNITY INSURANCE
COMPANY, et al.,
Plaintiffs,
v.
CITY OF GREENSBORO,
Defendant.

)
)
)
)
)
)
)
)
)
)

1:13CV1104

MEMORANDUM OPINION AND RECOMMENDATION
OF UNITED STATES MAGISTRATE JUDGE
This case comes before the undersigned Magistrate Judge for a
recommended ruling on Defendant’s Motion for Summary Judgment
(Docket Entry 33).

For the reasons that follow, the Court should

grant Defendant’s instant Motion.
FACTUAL BACKGROUND
On February 7, 2014, Plaintiffs (the insurers and subrogees of
the underlying property owners) filed their Amended Complaint
against Defendant.

(Docket Entry 13.)

Plaintiffs allege that

Defendant negligently failed to repair a water main, thereby
allowing a subsequent fire to damage their insured’s personal and
real property.

(Id., ¶¶ 10, 12, 13.)

Defendant argues that

governmental immunity shields it from liability.
at 3.)

(Docket Entry 27

After engaging in limited discovery on the issue of

governmental immunity, Defendant filed the instant Motion. (Docket
Entry 33.)

The facts in the light most favorable to Plaintiffs reveal1
that,

on

November

28,

2012,

employees

of

Southeast

Church

Furniture, Inc. reported a water main leak located outside of their
building (the “Building”). (See Docket Entry 34-2 at 14-15; Docket
Entry 34-4 at 2; Docket Entry 35-3 at 2; Docket Entry 35-5 at 2;
Docket Entry 35-6 at 2.)

Both the local fire department and the

water department responded to the scene. (See Docket Entry 34-2 at
14-15; Docket Entry 34-4 at 2; Docket Entry 35-3 at 2; Docket Entry
35-5 at 2; Docket Entry 35-6 at 2.)

In surveying the scene, the

firefighters noticed a water valve near the leak - which they later
realized, after the fire, controlled the fire suppression line
leading

to

the

Building’s

fire

suppression

unsuccessfully attempted to close it.

sprinklers

-

and

(Docket Entry 34-4 at 2, 3;

Docket Entry 35-3 at 2; Docket Entry 35-5 at 2; Docket Entry 35-6
at 2.)

A water department employee subsequently closed the valve.

(Docket Entry 34-4 at 3; Docket Entry 35-3 at 2; Docket Entry 35-5
at

2;

Docket

Entry

35-6

at

2;

Docket

Entry

Unfortunately, that action did not stop the leak.

35-9

at

4.)

(Docket Entry

34-4 at 3; Docket Entry 35-3 at 2; Docket Entry 35-5 at 2; Docket
Entry 35-6 at 2; Docket Entry 35-10 at 5.)

Shortly thereafter,

additional water department employees arrived to combat the water

1

In evaluating a motion for summary judgment, the Court must
construe the facts in the light most favorable to the non-moving
party. Miller v. Leathers, 913 F.2d 1085, 1087 (4th Cir. 1990) (en
banc).
2

main leak and the fire department left.

(Docket Entry 34-4 at 3;

Docket Entry 35-3 at 2; Docket Entry 35-5 at 2; Docket Entry 35-6
at 2.)

Eventually, the water department employees stopped the

water main leak.

(Docket Entry 34-2 at 13-15.)

However, no one

re-opened the water valve on the fire suppression line.

(Docket

Entry 35-13 at 7-8.)
On January 11, 2013, a fire occurred in a spray paint booth
of the Building.

(Docket Entry 13, ¶ 12; Docket Entry 27, ¶ 12.)

The Building’s fire suppression sprinklers failed to activate
because the water valve on the fire suppression line remained
closed.

(Docket Entry 35-13 at 7-8.)

The fire spread, causing

several hundred thousand dollars worth of damage before the fire
department could contain the fire.
Docket Entry 27, ¶¶ 17, 19.)

(Docket Entry 13, ¶¶ 17, 19;

Ultimately, Plaintiff Peerless paid

Right Touch Interiors (the lessor of the Building) over three
hundred thousand

dollars

for

the

loss of

its

real

(Docket Entry 13, ¶ 17; Docket Entry 27, ¶ 17.)

property.
Plaintiff

Excelsior paid Southeast Church Furniture, Inc. (the lessee of the
Building) over five hundred thousand dollars for the loss of its
personal property. (Docket Entry 13, ¶ 19; Docket Entry 27, ¶ 19.)
Water service to the Building arrives from two service lines
branched off from the main water line, the domestic line and the
fire suppression line.

(Docket Entry 16-2, ¶¶ 3-6; Docket Entry

34-2

service

at

13-14.)

The

line

3

at

issue

here,

the

fire

suppression line, runs from the main line to the Building’s fire
suppression sprinklers.
34-2 at 13-14.)

(Docket Entry 16-2, ¶¶ 4, 6; Docket Entry

Defendant does not meter or charge for the use of

water from the fire suppression line; nor did Defendant charge a
fee for installing the fire suppression line.

(Docket Entry 16-2,

¶ 6; Docket Entry 34-2 at 13-14.)
LEGAL BACKGROUND
The Court should grant a motion for summary judgment when
“there is no genuine dispute as to any material fact and the movant
is entitled to judgment as a matter of law.”
56(a).

Fed. R. Civ. P.

A genuine dispute exists “if the evidence is such that a

reasonable jury could return a verdict for the nonmoving party.”
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

In

considering a motion for summary judgment, the Court must view the
facts and draw reasonable inferences in the light most favorable to
the nonmoving party.
Cir. 1990) (en banc).

Miller v. Leathers, 913 F.2d 1085, 1087 (4th
The party seeking summary judgment has the

initial burden to show an absence of evidence to support the
nonmoving party’s case.
325 (1986).

Celotex Corp. v. Catrett, 477 U.S. 317,

The opposing party then must demonstrate that a

triable issue of fact exists; he may not rest upon mere allegations
or denials.

Anderson, 477 U.S. at 248.

4

ANALYSIS
Plaintiffs have filed a single claim of negligence against
Defendant.

(Docket Entry 13, ¶¶ 23-27.)

As a federal court

sitting in diversity, this Court must apply the state law where it
sits.

See Burris Chemical, Inc. v. USX Corp., 10 F.3d 243, 247

(4th Cir. 1993).
“(i)

a

legal

Negligence, under North Carolina law, requires

duty,

(ii)

a

breach

proximately caused by such breach.”

thereof,

and

(iii)

injury

Hunt v. North Carolina Dep’t

of Labor, 348 N.C. 192, 195, 499 S.E.2d 747, 749 (1998).

Defendant

has asserted the affirmative defense of governmental immunity.
(Docket Entry 27 at 3.)

Governmental immunity provides that a

“municipal corporation ‘is immune from suit for the negligence of
its employees in the exercise of governmental functions absent
waiver of immunity.’” Estate of Williams v. Pasquotank Cnty. Parks
& Rec. Dep’t, 366 N.C. 195, 198, 732 S.E.2d 137, 140 (2012)
(quoting Evans ex rel. Horton v. Housing Auth., 359 N.C. 50, 53,
602 S.E.2d 668, 670 (2004)).
“Nevertheless, governmental immunity is not without limit.
‘[G]overnmental immunity covers only the acts of a municipality or
a municipal corporation committed pursuant to its governmental
functions.’”

Id. at 199, 732 S.E.2d at 141 (quoting Evans 359 N.C.

at 53, 602 S.E.2d at 670) (emphasis omitted).
immunity

does

proprietary

not

cover

functions.

municipalities
See

Town

5

of

Thus, governmental

when

they

Grimesland

engage

v.

City

in
of

Washington, 234 N.C. 117, 123, 66 S.E.2d 794, 798 (1951) (“[W]hen
a

municipal

corporation

undertakes

functions

beyond

its

governmental and police powers and engages in business in order to
render a public service for the benefit of the community for a
profit, it becomes subject to liability for contract and in tort as
in case of private corporations.”).
North

Carolina

courts

consistently

have

held

that

municipalities engaged in the selling of water act in a proprietary
fashion, see e.g., Bowling v. City of Oxford, 267 N.C. 552, 557,
148 S.E.2d 624, 628 (1966) (“When a municipal corporation operates
a system of waterworks for the sale by it of water for private
consumption and use, it is acting in its proprietary or corporate
capacity and is liable for injury or damage to the property of
others to the same extent and upon the same basis as a privately
owned water company would be.”), and that, when “a municipality
undertakes to supply water to extinguish fires, or for some other
public purpose, it acts in a governmental capacity, and cannot be
held liable for negligence,” Faw v. Town of North Wilkesboro, 253
N.C. 406, 409-10, 117 S.E.2d 14, 17 (1960).
North

Carolina

Supreme

Court

recently

However, because the
“restate[d]

[its]

jurisprudence of governmental immunity,” Estate of Williams, 366
N.C. at 196, 732 S.E.2d at 139, a question arises regarding the
continued force of Bowling and Faw.

6

Under Estate of Williams, the availability of governmental
immunity depends on “whether the alleged tortious conduct of the
county or municipality arose from an activity that was governmental
or proprietary in nature.”
determine

whether

an

Id., at 199, 732 S.E.2d at 141.

activity

qualifies

as

governmental

proprietary, North Carolina law employs a three-step test.

To
or

Bynum

v. Wilson Cnty., 367 N.C. 355, 358-59, 758 S.E.2d 643, 646 (2014).
First,

the

court

must

evaluate

whether

the

North

Carolina

legislature has designated the particular activity as governmental
or proprietary.

Id. at 358, 758 S.E.2d at 646.

Second, if the

legislature has not addressed the issue, then an activity qualifies
as necessarily governmental if only the government or its agency
can complete the activity.

Id. at 358-59, 758 S.E.2d at 646.

Finally, if both private companies and governmental entities can
perform the relevant activity, then the court must consider several
factors, including: whether governmental entities traditionally
provide the service; whether the government charges a substantial
fee for the service; and whether the fee exceeds the operating
costs.
The

Id. at 359, 758 S.E.2d at 646.
Parties

initially

dispute

the

relevant

purposes of determining governmental immunity.

activity

for

(Compare Docket

Entry 34 at 13 (focusing on provision of water for fire suppression
services), with Docket Entry 35 at 6 (referencing negligent repair
to the water distribution system).)

7

Defendant contends that its

failure to provide water for fire suppression purposes constitutes
the relevant activity.

(Docket Entry 34 at 13.)

Defendant argues

that Plaintiffs’ negligence claim exists because Defendant failed
to provide water for fire suppression services, i.e., if Defendant
had provided water for the Building’s fire suppression sprinklers,
then the water would have contained the fire and no injury to
Plaintiffs would have occurred.
to

Defendant,

the

provision

(Id. at 13-14.)
of

represents the relevant activity.

water

for

Thus, according

fire

suppression

(Id. at 14.)

Plaintiffs disagree with Defendant and argue that the repair
of the water main represents the relevant activity.

(Docket Entry

35 at 6.) Plaintiffs note that Defendant’s arguments center on the
end result - the fire and the lack of water to put out the fire instead of the cause - in their view, the negligent repairs to the
water main.

(Id.)

Plaintiffs further point out that Defendant’s

employees closed the water valve on the fire suppression line while
repairing the water main.

(Id. at 7.)

Thus, according to

Plaintiffs, the repair of the water main constitutes the relevant
activity.
The

(Id.)
undersigned

finds

Defendant’s

arguments

persuasive.

Plaintiffs’ negligence claim exists because Defendant failed to
provide water for the Building’s fire suppression sprinklers - a
result of the closed water valve on the fire suppression line
(Docket Entry 35-13 at 7-8).

Although Defendant failed to re-open

8

the water valve after repairing the water main, the repair of the
water main itself did not prevent water from flowing through the
fire suppression line, which would present a different situation,
see Bowling, 267 N.C. at 557-58, 148 S.E.2d at 628 (“There is no
distinction, in this respect, between negligence, or other wrongful
act,

by

reservoir

the
in

city
which

in

the

the

construction

water

is

or

maintenance

impounded

and

like

of

the

acts

or

omissions in the construction or maintenance of the system of mains
and pipes by which the water is distributed to the consumers, both
the reservoir and the distribution system being part of the water
plant owned and maintained for the same commercial or proprietary
purpose.

It is also immaterial that one purpose of the reservoir

or the water main is to supply water for fire protection or for
washing the streets.” (internal citations omitted)).
Moreover, the North Carolina Supreme Court previously rejected
an argument similar to Plaintiffs’. In Mabe v. City of WinstonSalem, 190 N.C. 486, 130 S.E. 169, (1925), the plaintiff’s house
spontaneously caught fire.

Id. at 486, 130 S.E. at 169.

When the

fire department arrived to put out the fire, they discovered
several rocks blocking the fire hydrant.

Id.

Employees of the

defendant-city had previously placed the rocks by the hydrant while
paving a street and had not moved them.

Id.

The firefighters had

to move the rocks in order to access the fire hydrant, but in that
time the fire grew and destroyed the house.

9

Id.

The plaintiff

sued

the

defendant-city

on

the

theory

that

its

employees

negligently placed the rocks thereby blocking the fire hydrant.
Id. at 490, 130 S.E. at 171.

The court explicitly rejected this

argument and stated that “the proximate cause of [the] plaintiff’s
loss was the failure of the fire department of the defendant city
to put out the fire . . . .”

Id. at 489, 130 S.E. at 171.

Like in Mabe, Plaintiffs suffered losses as a result of a city
employee’s disruption of the water supply for fire prevention.
Thus, the Court should, as in Mabe, find that the failure to
provide water for fire suppression itself constitutes the relevant
activity and not the circumstances of the disruption. Accordingly,
the failure to provide water for fire suppression constitutes the
relevant

activity

for

evaluating

governmental

immunity,

and,

because Defendant’s negligence concerned the failure to provide
water for fire suppression services, Defendant “act[ed] in a
governmental capacity, and cannot be held liable for negligence,”
Faw, 253 N.C. at 409-10, 117 S.E.2d at 17 (internal citations
omitted).
To the extent that Estate of Williams overrules or supplants
the

North

Carolina

Supreme

Court’s

earlier

decisions

on

governmental immunity, application of Estate of Williams mandates
the same result.

As an initial matter, again, the provision of

water for fire suppression constitutes the “governmental act or
service that was allegedly done in a negligent manner,” Bynum, 367

10

N.C. at 359, 758 S.E.2d at 646, for the reasons stated above.
Under the first step of Estate of Williams, the North Carolina
legislature has not clearly identified supplying water for fire
suppression as a governmental activity.
Defendant argues that North Carolina General Statute § 160A193 statutorily mandates that Defendant provide water for fire
suppression services.

(Docket Entry 34 at 9.)

The statute, in

part, provides: “A city shall have authority to summarily remove,
abate, or remedy everything in the city limits, or within one mile
thereof, that is dangerous or prejudicial to the public health or
public safety.”

N.C. Gen. Stat. § 160A-193.

However, the North

Carolina Supreme Court has rejected a claim for governmental
immunity

where

the

statute

activity in question.
S.E.2d at 142.

did

not

specifically

mention

the

Estate of Williams, 366 N.C. at 201, 732

In Estate of Williams, an individual drowned in the

“Swimming Hole” an area at the Fun Junktion park owned by the
defendant-county.

Id. at 196, 732 S.E.2d at 139.

The defendant-

county argued that North Carolina General Statute § 160A-351, which
provides

that

the

operation

of

parks

qualify

as

a

proper

governmental function, definitively addressed the issue.

Id. at

201, 732 S.E.2d at 142. The court rejected the argument and stated
“even if the operation of a parks and recreation program is a
governmental function by statute, the question remains whether the
specific operation of the Swimming Hole component of Fun Junktion,

11

in this case and under these circumstances, is a governmental
function.”

Id.

In essence, the court required a more specific

designation by the legislature in order to bestow governmental
immunity.

Accordingly, here, the statute does not specifically

identify the provision of water for fire suppression services as a
governmental activity.
Defendant additionally argues that North Carolina General
Statute Sections 160A-411 and 412 also confirm that providing water
for fire suppression constitutes a governmental activity.
Entry 34 at 9-10.)

(Docket

Sections 160A-411 and 412 relate to building

inspectors and their duties to enforce “State and local laws
relating to [] [t]he construction of buildings and other structures
. . . .”

Defendant argues that “State and local laws” include the

North Carolina Fire Code and the North Carolina Building Code,
which contains provisions dealing with fire protection systems and
their water sources.

(Docket Entry 34 at 9.)

Defendant suggests

that, in Bynum, the Supreme Court upheld a finding of governmental
immunity for a county based on similar statutes, Sections 153A-351
and 352.

(Docket Entry 34 at 9-10.)

However, in Bynum, the

plaintiff argued that the defendant-county negligently failed to
maintain the county office building.
S.E.2d at 644.

Bynum, 367 N.C. at 356, 758

The court concluded that the defendant-county’s

maintenance of the building constituted a governmental act, and, in
doing so, cited and quoted North Carolina General Statute Section

12

153A-169.
§

Id. at 360, 758 S.E.2d at 647 (citing N.C. Gen. Stat.

153A-169

(“The

board

of

commissioners

shall

supervise

the

maintenance, repair, and use of all county property.”)). The court
then added a “see also” citation to Sections 153A-351 and 352. Id.
Thus, the court did not rely entirely on Sections 153A-351 and 352,
as Defendant appears to suggest, and the undersigned finds that
Sections 160A-411 and 412 do not sufficiently address providing
water for fire suppression service. Accordingly, the analysis must
proceed to the second step.
Under, the second step of Estate of Williams, both private
companies and governmental entities can provide water for fire
suppression.

Compare Gorrell v. Greensboro Water-Supply Co., 124

N.C. 328, 32 S.E. 720 (1899) (discussing water provided by a
private company), with Mack v. Charlotte City Waterworks, 181 N.C.
383, 107 S.E. 244 (1921) (referencing water provided by the city).
Accordingly, the analysis must proceed to the third step.
Under the third step, the factors require a finding that
Defendant’s provision of water for fire suppression constitutes a
governmental activity.

The first factor, whether governmental

entities or private companies have traditionally provided the
service does not benefit either side.

Compare Gorrell, 124 N.C.

328, 32 S.E. 720 (discussing water provided by a private company),
with Mack, 181 N.C. 383, 107 S.E. 244 (referencing water provided
by

the

city).

However,

the

13

second

factor

clearly

favors

governmental immunity.

The water provided to the fire suppression

line operates separately from the domestic water line.
Entry 16-2, ¶¶ 4-6.)

(Docket

Unlike the domestic line, Defendant does not

meter, or charge, for water used from the fire suppression line.
(Id., ¶¶ 5-6.) Moreover, Defendant did not charge a connection fee
when installing this line.

(Id., ¶ 6.)

The lack of a fee

demonstrates that governmental immunity covers the provision of
water for fire suppression services.2

By providing this free

service,

a

Defendant

does

not

act

in

proprietary

manner.

Accordingly, governmental immunity shields Defendant.
CONCLUSION
Defendant has shown entitlement to judgment as a matter of
law.
IT

IS

THEREFORE

RECOMMENDED

that

Defendant’s

Motion

for

Summary Judgment (Docket Entry 33) be granted.
/s/ L. Patrick Auld
L. Patrick Auld
United States Magistrate Judge
May 7, 2015

2

Of course, because Defendant does not charge a fee, the fee
cannot cover more than the operating costs. Thus the third factor
does not apply.
14