Cleveland Construction, Inc. v. Fireman's Fund Insurance Company
Filing
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ORDER granting in part and denying in part 44 Motion for Summary Judgment. Signed by Senior Judge Graham Mullen on 4/29/2011. (tmg)
IN THE DISTRICT COURT OF THE UNITED STATES
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
CHARLOTTE DIVISION
3:09-CV-200-GCM
CLEVELAND CONSTRUCTION, INC.
Plaintiff,
v.
FIREMAN’S FUND INSURANCE COMPANY,
Defendant.
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ORDER
This matter is before the Court on Defendant’s Motion for Summary Judgment [D.I. 44],
Plaintiff’s Response [D.I. 47] and Defendant’s Reply [D.I. 49]. Oral arguments were held on the
Motion on March 21, 2011. For the reasons laid out below, the Defendant’s Motion is GRANTED
IN PART and DENIED IN PART.
I. Background
Cleveland Construction Company (“Plaintiff”) filed suit against Fireman’s Fund Insurance
Company (“Defendant”) on April 15, 2009 in the Superior Court of Mecklenburg County, alleging
breach of an insurance contract and negligence. The Defendant removed the action to this Court on
May 15, 2009. [D.I. 1]. On November 5, 2009, the Court issued an order granting the Defendant’s
Motion to Dismiss as to the Plaintiff’s negligence claim and denying it as to the Plaintiff’s breach
of contract claim. [D.I. 21]. The Plaintiff was granted leave to amend its complaint on January 25,
2010 to add claims of unfair and deceptive trade practices and bad faith. [D.I. 28].
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The Defendant issued an all-risks insurance policy to Mecklenburg County (the “County”)
providing builder’s risk insurance for the construction of the new Mecklenburg County Courthouse.
[D.I. 12-5]. The courthouse was completed in December 2006. The policy covered “risk of direct
physical loss to covered property from any external cause” as well as “an insured’s materials,
supplies, machinery, equipment or fixtures the insured owns or for which the insured is liable or
which insured has contracted to install or erect.” Id. Excluded from coverage are “all costs and
expenses incurred in the…reworking of any faulty or defective workmanship, material or design of
covered property.” Id. The Defendant does not dispute that there was a policy in place or that
Plaintiff is an insured with respect to the project. Defendant’s Brief in Support of Motion for
Summary Judgment at 1.
The Plaintiff claims portions of its work and materials were damaged or stolen, resulting in
losses to the Plaintiff and requiring Plaintiff to perform repair work under its contract with the
County. Plaintiff submitted four claims to the Defendant under the all-risks policy. The first was
to recover costs that the County charged the Plaintiff for roof re-work, which the County alleged was
at least partially due to Plaintiff’s poor workmanship. The second claim was for the costs of lost and
stolen hardware belonging to Plaintiff. The third was to recover costs that the County assessed
Plaintiff for cleaning stucco debris out of cooling towers. The fourth claim was to recover costs that
Plaintiff incurred for repairing damage to drywall that Plaintiff installed.
Defendant asserts the Plaintiff failed to give proper notice of their claims under the policy.
The Plaintiff requested a copy of the insurance policy from Robert Lutz, the senior project manager
for the County, on April 10, 2006. [D.I. 44-8]. Plaintiff allegedly took no action for 16 months, and
then sent a follow-up letter to the attorney for the County on August 8, 2007. [D.I. 44-10]. Plaintiff
contends that it was sent the incorrect insurance policy in the first instance, and that the County had
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represented that they would file the Plaintiff’s claims with the insurance company. [D.I. 44-11].
Plaintiff reported the claims to Marsh, Inc., the insurance broker handling claims for the County, on
September 7, 2007. Plaintiff’s documents in support of its claims were submitted on October 2,
2007 to the County. Defendant asserts the claim documents did not contain specific dates or causes
of loss for the claims and that the Plaintiff did not cooperate fully in the investigation of the claim.
Plaintiff counters that the Defendant never undertook even a preliminary investigation of the claim.
II. Summary Judgment Standard
“Under the Federal Rules of Civil Procedure, summary judgment shall be awarded ‘if the
pleadings, depositions, answers to interrogatories, and admissions on file, together with the
affidavits . . . show that there is no genuine issue as to any material fact and that the moving party
is entitled to judgment as a matter of law.’” Bouchat v. Baltimore Ravens Football Club, Inc., 346
F.3d 514, 519 (4th Cir. 2003) (quoting Fed. R. Civ. P. 56(c)). A genuine issue of material fact exists
if a reasonable jury, considering the evidence, could return a verdict for the non-moving party.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The party seeking summary judgment
bears the initial burden of demonstrating the absence of a genuine issue of material fact. Celotex
Co. v. Catrett, 477 U.S. 317, 325 (1986). If this showing is made, the burden then shifts to the nonmoving party. Bouchat, 346 F.3d at 519. A party opposing a properly supported motion for
summary judgment “may not rest upon the mere allegations or denials of [its] pleadings,” but rather
must “set forth specific facts showing that there is a genuine issue for trial.” Matsushita Elec. Indus.
Co. v. Zenith Radio Co., 475 U.S. 574, 586 (1986); Fed. R. Civ. P. 56(e). When considering the
facts in evaluating a summary judgment motion, the Court views the materials in the light most
favorable to the non-moving party.” Id. at 587.
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III. Plaintiff’s Claims
A. Breach of Contract
“For a breach of contract claim, a plaintiff must show a valid contract existed, and a breach
of its terms. . . . When examining whether an insurance policy is breached, we begin with the wellsettled principle that an insurance policy is a contract and its provisions govern the rights and duties
of the parties thereto. The insured party has the burden of bringing itself within the insuring
language of the policy.” Nelson v. Hartford Underwriters Ins. Co., 630 S.E. 2d 221, 229
(2006)(quoting Fid. Bankers Life Ins. Co. v. Dortch, 318 N.C. 378, 380 (1986)).. Defendant relies
on Defeat the Beat v. Underwriters at Lloyd’s London for the proposition that the Defendant is
entitled to summary judgment because the Plaintiff has not brought itself within the limits of the
policy. 669 S.E.2d 48 (N.C. App. 2008). Defendant contends the Plaintiff has not provided
evidence to show that the damages were not due to their own shoddy workmanship. In Defeat the
Beat, a corporation organized to host an annual band competition brought an action against the
insurance company to recover for breach of contract, bad faith and deceptive and unfair trade
practices because the insurance company refused to pay the corporation’s lost profits. Id. In that
case, lost profits were specifically excluded from the policy and there was no dispute that plaintiff’s
claim was rooted in lost profits. Id. Here, there is a dispute as to whether the Plaintiff’s claim is
excluded under the language of the policy.
Plaintiff counters that an all-risk policy is to be read broadly. “Recovery will be allowed
under a policy affording ‘all risks’ coverage for all losses of a fortuitous (external) nature not
resulting from misconduct or fraud, unless the policy contains a specific provision expressly
excluding loss from coverage. The term ‘all risks’ is not to be given a restrictive meaning.” Avis
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v. Hartford Fire Ins. Co., 283 N.C. 142, 146 (1973). The Plaintiff has made a prima facie case that
it is covered under the policy. The Defendant does not dispute that there is a policy, it was in effect
at the time, and that the Plaintiff was a named insured. There is a coverage exclusion in the policy
for the contractor’s own poor workmanship; however, there appears to be a genuine issue of material
fact as to whether, or to what extent, the Plaintiff contributed to the damage through their shoddy
workmanship. The Plaintiff produced documentary evidence demonstrating Plaintiff’s protests at
being required to do at least some of the repair work. See Exhibit 37 of the Master Deposition
Exhibits, Tab 1, MARSH-01-00127; see also Exhibit 37 of the Master Deposition Exhibits, Tab 5,
MARSH-01-00167. The Defendant even acknowledges in their own brief that the County only
found the Plaintiff “partially” responsible for certain repairs and has not forecasted evidence that
the Plaintiff was completely responsible and thus outside the bounds of the policy. See Defendant’s
Memorandum in Support of its Motion for Summary Judgment at 11. Plaintiff has presented
sufficient evidence to survive summary judgment on whether they were covered under the policy.
The Defendant’s claim that the Plaintiff did not provide prompt notice is similarly a question
more suited for a jury. The policy requires notice “as soon as practical after the loss or damage.”
[D.I. 12-5]. Courts have enforced an “as soon as practical” notice provision to bar claims,
considering it to be a condition precedent for coverage. Yale v. National Indem. Co., 664 F.2d 406,
409 (4th Cir. 1982). Here, however, Plaintiff has submitted sufficient evidence to suggest that they
were given the incorrect policy and that it had some notion that the county was submitting insurance
claims on their behalf. See August 8, 2007 Letter [D.I. 44-10]; see also September 7, 2007 Letter
[D.I. 44-11]. The question of whether under the circumstances the delay in notice was in good faith
and “as soon as practical” is one for a jury; therefore, summary judgment on the basis of notice is
denied.
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The more difficult issue for the Plaintiff’s breach of contract claim is the statute of
limitations. The general statute of limitations for breach of contract actions in North Carolina is
three years. N.C. Gen. Stat. § 1-52(1). The policy also requires that any legal action be brought
within three years after the insured gains knowledge of the direct loss or damage. [D.I. 12-5]. The
issue of whether a cause of action is barred by the statute of limitations should be submitted to a jury
“when the evidence is sufficient to support an inference that the limitations period has not expired.”
Piles v. Allstate Ins. Co., 653 S.E.2d 181, 183 (N.C. App. 2007).
Plaintiff’s argument that the action did not accrue until the Defendant breached the contract
is not compelling. First, they rely on an inapposite case in which the court found that the statute of
limitations prescribed in the insurance contract could not be less than that prescribed by law (there
was a direct statutory violation). F&D Company v. Aetna Ins. Co., 305 N.C. 256 (1982). Here, the
time period prescribed is not less than that prescribed by law. Second, Lloyd v. Grain Dealers
Mutual Ins. Co. is clear on the issue. “An insurance policy is a contract and its provisions govern
the rights and duties of the parties…[a]ccording to the provisions of the insurance policy [here], any
legal action against the defendant must be ‘brought within three years after the date the physical loss
or damage occurred.’” 645 S.E.2d 230, *2 (N.C. App. 2007)(unpublished disposition). The parties
can and did contract to a specific time limit for legal action. Plaintiff’s arguments to the contrary
are unpersuasive. A three year statute of limitations applies to the claim. Plaintiff filed their
Complaint on April 15, 2009; therefore, any claim that arose prior to April 15, 2006 is barred.
The record and the parties are both unclear on the actual dates of loss. As discussed, Plaintiff
submitted four claims to the Defendant. The first was to recover costs that the County charged the
Plaintiff for roof re-work, which the County alleged was at least partially due to Plaintiff’s poor
workmanship. The second claim was for the costs of lost and stolen hardware belonging to Plaintiff.
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The third was to recover costs that the County assessed Plaintiff for cleaning stucco debris out of
cooling towers. The fourth claim was to recover costs that Plaintiff incurred for repairing damage
to drywall that Plaintiff installed.
As to the first claim of roof-rework, the record is clear that the Plaintiff received notice of
the damage and the County’s intent to hold them responsible for the damage on March 22, 2006.
See Exhibit 37 of the Master Deposition Exhibits, Tab 1, MARSH-01-00119. This claim is barred
by the statute of limitations.
As to the second claim for lost and stolen hardware, the hardware was allegedly stolen on
or about August 20, 2006. See Exhibit 37 of the Master Deposition Exhibits, Tab 3, MARSH-0100138. Defendant does not dispute this date. This claim is not barred by the statute of limitations.
As to the third claim for stucco debris, while it is clear from the record that much of the clean
up occurred prior to April 15, 2006, the record does not demonstrate that the Plaintiff was charged
for such rework, or on notice that they would be charged, until February 2007. When the damage
to Cleveland Construction occurred is a matter best left for the jury. Summary judgment on the
statute of limitations defense for this claim is denied without prejudice to the Defendant raising the
defense at trial.
As to the fourth claim for drywall repairs, the record is clear that such repairs (and
presumably the accompanying damage) occurred throughout the construction project. Plaintiff was
clearly on notice of such repairs because they were actually performing them, and the record is clear
that the County put the Plaintiff on notice that such repairs would be their responsibility as early as
March 2, 2006. Any such damage that occurred prior to April 15, 2006 is barred by the statute of
limitations. Thus, any claim arising from a Change Order Ticket or Time and Material Ticket
dealing with the drywall damage and dated April 15, 2006 or earlier is barred by the statute of
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limitations. Any claim arising from a Change Order Ticket or Time and Material Ticket dated April
16, 2006 or later is allowed. Summary judgment on this claim as to the statute of limitations is thus
granted in part and denied in part. Denial is without prejudice to Defendant raising the defense at
trial.
In accordance with the foregoing analysis, summary judgment is DENIED IN PART and
GRANTED IN PART as to the breach of contract claim.
B. Bad Faith
Bad faith against an insurance company on the refusal to settle a claim requires three
elements. Lovell v. Nationwide Mutual Ins. Co., 424 S.E.2d 181, 184 (1993). The Plaintiff must
prove: (1) a refusal to pay after recognition of a valid claim, (2) bad faith, and (3) aggravating or
outrageous conduct (for punitive damages). Id. Bad faith means “not based on honest disagreement
or innocent mistake.” Id. (quoting Daily v. Integon Gen. Ins. Corp., 331 S.E.2d 148 (N.C. App.
1993)). Defendant asserts that the Plaintiff’s insurance claim has not been recognized and paid
because of the Plaintiff’s lack of information and cooperation and that as a result, whether Plaintiff
is entitled to coverage is “unclear.” Defendant’s Memorandum in Support of their Motion for
Summary Judgment at 19. Defendant argues there is an honest disagreement over coverage here,
which requires a finding for Defendant on the bad faith claim. Additionally, the Defendant asserts
there is no evidence in the record of any aggravating or outrageous conduct on the part of the
insurer.
Plaintiff urges the Court to go beyond the Defendant’s definition of insurance bad faith to
settle and to rely on Dailey v. Integon General Ins. Corp. 331 S.E.2d 148 (N.C. App. 1985). In
Dailey, the court upheld an exception to the typical rule that punitive damages are not available for
a breach of contract claim. When there is an identifiable tort, even though that tort constitutes or
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accompanies a breach of contract, the tort (including bad faith refusal to settle an insurance claim)
may give rise to punitive damages if there is some element of “aggravation.” Id. at 154. The tort
need not be separate from the contract itself. In finding bad faith refusal to settle, the court in Dailey
found a “great volume of evidence which tends to show that defendant’s refusal to pay or settle
plaintiff’s claim on any reasonable basis was not based on honest disagreement or innocent
mistake.” Id. at 155. In that case, the defendant delayed in investigating a fire claim, hired a clearly
unqualified builder to estimate the damages and repairs, and offered a grossly low settlement
amount. Additionally, the defendant’s agent told the plaintiff’s neighbors that the plaintiff set the
fire to his home for purposes of collecting insurance money, although there was absolutely no
evidence to support that contention. Id.
It is clear under the case law that punitive damages for a bad faith claim require some sort
of aggravated conduct. The record indicates that the Defendant did not undertake an investigation
of the claim; however, the Defendant’s conduct does not rise to the level of aggravated conduct seen
throughout the relevant case law, and thus summary judgment for the bad faith claim is GRANTED.
The Plaintiff has provided sufficient evidence to withstand summary judgment as to their unfair and
deceptive trade practices claim.
C. Unfair and Deceptive Trade Practices
Plaintiff has produced evidence that although the Defendant received notice of the claim, the
Defendant never investigated the claim. Violations of N.C. Gen. Stat. § 58-63-15 are violations of
N.C. Gen. Stat. § 75-1.1 as a matter of law. Gray v. North Carolina Ins. Underwriting Assoc., 352
N.C. 61 (2000). The statute of limitations for an unfair and deceptive trade practices claim is four
years. Lucky Ducks, Ltd. v. Leeds., 664 S.E. 2d 78 (N.C. App. 2008)(unpublished disposition). The
cause of action begins to accrue when the violation occurs. Id. Plaintiff has produced competent
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evidence to support their claim that the Defendant did not commence a timely investigation; there
is a genuine issue of material fact for the jury as to whether the Defendant met their statutory duties.
Summary judgment is therefore DENIED as to this claim.
SO ORDERED.
Signed: April 29, 2011
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