Mitsui Sumitomo Insurance Company of America et al v. Travelers Property Casualty Company of America

Filing 67

ORDER denying 36 Defendant's Motion for Summary Judgment ; granting in part and denying in part 46 Plaintiff's Motion for Summary Judgment. Further briefing due. Signed by District Judge Robert J. Conrad, Jr on 3/29/17. (ssh)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NORTH CAROLINA
CHARLOTTE DIVISION
3:15-CV-00207-RJC-DCK
MITSUI SUMITOMO INSURANCE
COMPANY OF AMERICA, and
SCHAEFER SYSTEMS INTERNATIONAL,
INC.

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Plaintiffs,
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v.
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TRAVELERS PROPERTY CASUALTY
)
COMPANY OF AMERICA,
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Defendant.
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__________________________________________ )

ORDER

THIS MATTER comes before the Court on the motion of Defendant Travelers
Property Casualty of America (“Travelers”) for summary judgment, (Doc. No. 36), the
cross-motion of Plaintiffs Mitsui Sumitomo Insurance Company of America (“Mitsui”)
and Schaefer Systems International, Inc. (“Schaefer”) (collectively with Mitsui,
“Plaintiffs”) for summary judgment, (Doc. No. 46), and related pleadings. The issues
have been fully briefed and are ripe for adjudication following oral argument.
I.

BACKGROUND
This civil case arises out of Travelers’ duty to defend Schaefer against a property

damage claim raised by Nephron Pharmaceuticals (“Nephron”) against Schaefer and its
subcontractor Wiginton Corporation (“Wiginton”) for alleged faulty sprinkler installation
in a warehouse.
Nephron hired Schaefer, a construction company based in Charlotte, North
Carolina, to build warehouse in Orlando, Florida. (Doc. No. 1: Compl. at 2). On July 20,

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2011, Schaefer subcontracted the design and installation of the fire sprinkler system to
Wiginton. (Id. at 3). The contract between Schaefer and Wiginton required the
subcontractor to maintain insurance protecting Schaefer as an “additional insured” from
claims based on faulty work by Wiginton. (Id.; Doc. No. 13-1: Compl. Ex. A). Wiginton
obtained such insurance from Travelers and provided proof to Schaefer of the coverage.
(Doc. No. 13-2, -5: Compl. Ex. B, E). Schaefer maintained its own insurance with
Mitsui. (Doc. No. 13-4: Compl. Ex. D).
On May 30, 2012, a pallet struck a sprinkler head causing water damage to
Nephron’s property in the warehouse. (Doc. No. 1: Compl. at 4). On July 18, 2012,
Nephron CEO Lou Kennedy emailed Schaefer Executive Fritz Schaefer stating the claim
based on Wiginton’s sprinkler installation, advising that Nephron’s and Wiginton’s
insurance adjustors were involved, and requesting contact with Schaefer’s insurance
adjuster. (Doc. No. 61-2: Second Doerr Decl. Ex. A). Kennedy also refused to make
further payments on the building’s construction until the damage claim was resolved.
(Id.). Later that same day, Schaefer’s insurance agent Dee Bumgardner with Wells Fargo
Insurance Services followed up a phone conversation with an email to Travelers Senior
Technical Specialist Danny Williams stating Travelers was working with Wiginton on
the water damage claim at Nephron and concluding with reference to Wiginton’s
contractually required indemnification of Schaefer and Schaefer’s “additional insured
status” with Travelers.1 (Doc. No. 13-6: Compl. Ex. F). Bumgardner included Mitsui

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The email message reads, in pertinent part:
Concerning the Schaefer Systems insurance program as discussed we have advised our
insurance carrier Mitsui Sumitomo of the water damage claim and Dave Bass … is our
assigned representative. I am sure you will review the construction contract and note that
Wiginton indemnified Schaefer Systems and they are also provided additional insured
status as it relates to this project.

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Claim Counsel David Bass in the communication, and Bass began working with
Williams to set up an on-site investigation of the damage. (Id.).
On September 7, 2012, Bass sent an email message to Williams reading,
in pertinent part:
At your convenience, can you confirm that Travelers is extending
defense/indemnity to Schaefer under the additional insurance coverage
required under the contract.
(Doc. No. 13-7: Compl. Ex. G). On September 11, 2012, Williams responded to Bass:
Right now there are no formal allegations outlining this claim. Until we have has
them or suit is filed, [Travelers] will not have enough information to make a
decision as to our contractual obligations to [Schaefer].”
(Id.).
On September 24, 2012, Kennedy sent a letter to Schaefer executives Arnold
Heuzen and Christoph Schenck and to Alan Wiginton requesting a meeting to resolve the
damage claim prior to filing a lawsuit as required by construction contract between
Nephron and Schaefer. (Doc. No. 51-1: Doerr Decl. Ex. G). That mediation took place
on February 23, 2013, attended by counsel retained by Travelers on behalf of Wiginton,
along with attorneys representing Schaefer. When mediation did not resolve the claim,
Nephron filed suit against Schaefer and Wiginton in Florida state court on March 13,
2013. (Doc. No. 13-3: Compl. Ex. C). In addition to alleging the sprinkler had been
installed too low, Nephron claimed Schaefer illegally entered into the warehouse
construction contract as an unlicensed contractor, seeking recovery on the property loss
(in excess of $1,800,000), plus treble damages, as well as disgorgement for all payments
under the construction contract ($9,091,514.88). (Id. at 13). Nephron also alleged the
lien Schaefer placed on the property when Nephron suspended construction payments

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was fraudulent, seeking compensatory and punitive damages. (Id. at 28).
During a mediation in the state court litigation on June 19, 2014, Schaefer
attorney Sean McDonough and Heuzen hand-delivered a letter to Travelers Major Claim
Specialist Gregory Kasbarian. (Doc. No. 13-8: Compl. Exh. H). Schaefer wrote “to
renew a tender” and “formally re-tender[] its defense and indemnity of [Nephron’s
lawsuit] to Travelers” pursuant to the additional insured provision in Wiginton’s
construction contract. (Id. at 1). The letter recited:
Travelers previously received notice, originated by Schaefer, of the
incident that forms the basis of the [Nephron] lawsuit. In addition, an
email was sent to Travelers on September 7, 2012, seeking to confirm
additional insured coverage for Schaefer. Travelers’ response was that it
had no obligation to provide additional insured coverage until suit was
filed. As you know, that condition was satisfied.
(Id.). The letter noted the possibility of a settlement that would be funded by a
combination of funds from Travelers and Mitsui, as well as adjustments to the
construction contract. (Id. at 2).
On July 16, 2014, Kasbarian responded by email and letter to McDonough stating
Wiginton did not owe indemnity for Schaefer’s alleged negligent acts and tendered the
defense to Mitsui based on the contract between Schaefer and Wiginton. (Doc. No. 13-9,
-10: Compl. Ex. I, J). On July 19, 2014, McDonough and Bass replied to Kasbarian by
letter refuting the basis for denial of coverage and correcting the scrivener’s error in the
contract between Schaefer and Wiginton about which entity was providing
indemnification to the other. (Doc. No. 13-11: Compl. Ex. K). The letter also highlighted
Travelers’ lack of response prior to July 16, 2014, to Schaefer’s September 7, 2012, and
June 19, 2014, requests for coverage. (Id.).
On July 25, 2014, Travelers coverage counsel Gary Dunlap sent a letter to Mitsui
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attorney Robert Marshall to “serve as the initial response of Travelers to the July 19,
2014 letter” to Kasbarian, agreeing to participate in the defense of Schaefer in the
Nephron litigation and to reimburse covered defense fees retroactive to June 19, 2014,
when the defense “was first tendered to Travelers,” with reservation of certain rights.
(Doc. No. 53-1: Doerr Decl. Ex. M).
On July 28, 2014, Marshall responded seeking confirmation that Travelers agreed
that Schaefer was an additional insured under Travelers policy and seeking settlement
authority up to the policy’s limit. (Doc. No. 53-1: Doerr Decl. Ex. N). On July 29, 2014,
Dunlap responded to Marshall stating that Travelers’ defense of Schaefer would extend to
all claims in the Nephron litigation retroactive to June 19, 2014, the date Schaefer’s
defense was “actually tendered to Travelers,” as compared to the “pre-litigation tender of
Nephron’s claim,” and limiting settlement authority to $500,000. (Doc. No. 53-1: Doerr
Decl. Ex. O).
On August 22, 2014, Travelers Major Case Specialist Laurie Johnson sent Mitsui
local counsel Adam Doerr a letter specifically limiting its agreement to the continued
retention of the Wilson Elser law firm and refusing to reimburse any fees paid to the
Holland & Knight law firm. (Doc. No. 36-3: Kasbarian Aff. Ex. 3).
There are no disputes about these material facts, but the parties contest the legal
significance of communications, specifically relating to when Schaefer “tendered” its
defense of the Nephron lawsuit to Travelers. The parties also disagree as to whether the
duty to defend obligates Travelers to reimburse Schaefer for work performed by Holland
& Knight. As detailed below, because Schaefer communicated to Travelers that it
desired defense and indemnity coverage in September 2012, the Court will find that

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Travelers breached its duty to defend Schaefer when Nephron filed its lawsuit on March
13, 2013, and Travelers did not confirm coverage and provide a defense.
II.

STANDARD OF REVIEW
Summary judgment shall be granted “if the movant shows that there is no genuine

dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
Fed. R. Civ. P. 56(a). A factual dispute is genuine “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). A fact is material only if it might affect the
outcome of the suit under governing law. Id. The movant has the “initial responsibility
of informing the district court of the basis for its motion, and identifying those portions of
the pleadings, depositions, answers to interrogatories, and admissions on file, together
with the affidavits, if any, which it believes demonstrate the absence of a genuine issue of
material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (internal quotation
marks omitted). This “burden on the moving party may be discharged by ‘showing’—
that is, pointing out to the district court—that there is an absence of evidence to support
the nonmoving party’s case.” Id. at 325.
Once this initial burden is met, the burden shifts to the nonmoving party, which
“must set forth specific facts showing that there is a genuine issue for trial.” Anderson,
477 U.S. at 250. The nonmoving party may not rely upon mere allegations or denials of
allegations in the pleadings to defeat a motion for summary judgment, rather it must
present sufficient evidence from which “a reasonable jury could return a verdict for the
nonmoving party.” Id. at 248; accord Sylvia Dev. Corp. v. Calvert Cnty., Md., 48 F.3d
810, 818 (4th Cir. 1995).

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When ruling on a summary judgment motion, a court must view the evidence and
any inferences from the evidence in the light most favorable to the nonmoving party.
Anderson, 477 U.S. at 255. “Where the record taken as a whole could not lead a rational
trier of fact to find for the nonmoving party, there is no genuine issue for trial.” Ricci v.
DeStefano, 557 U.S. 557, 586 (2009) (quoting Matsushita Elec. Indus. Co. v. Zenith
Radio Corp., 475 U.S. 574, 587 (1986)). The mere argued existence of a factual dispute
does not defeat an otherwise properly supported motion. Anderson, 477 U.S. at 248–49.
“If the evidence is merely colorable or is not significantly probative,” summary judgment
is appropriate. Id. at 249–50 (citations omitted).
III.

DISCUSSION
A.

Tender of Defense

An insurance company’s “defense obligation is triggered when the insured tenders
the defense of an action against it which is potentially within the policy coverage.” The
Hartford Acc. and Indem. Co. v. Gulf Ins. Co., 776 F.2d 1380, 1383 (7th Cir. 1985)
(internal quotations and citations omitted).2 The tender requirement is satisfied when the
insurer has “knowledge that the suit is potentially within the policy’s coverage coupled
with knowledge that the insurer’s assistance is desired.” Id. Thus, the most crucial issue
before the Court is the date on which Schaefer “tendered” its defense to Travelers
because, as the insured, Schaefer retained the option to defend itself rather than rely on

This Court, sitting by diversity jurisdiction, applies state substantive law and federal
procedural law. Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 427, 116 S.Ct. 2211,
135 L.Ed.2d 659 (1996). Courts in Florida have cited Hartford on the issue of the tender
requirement, see e.g. Scotsdale In.s Co. v. Shageer, 2010 WL 4961166, slip op. at *7
(S.D. Fla. Dec. 1, 2010)(unpublished); Cont’l Cas. Co. v. United Pac. Ins. Co., 637 So.
2d 270, 275 (Fla. Dist. Ct. App. 1994)(en banc), and Travelers has not cited any Florida
decision applying different standards.
2

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the indemnity and defense coverage available as an additional insured under Wiginton’s
policy.
That policy gave Travelers the discretion to investigate any “occurrence” and
settle any “claim” or “suit,” but imposed “the right and duty” to defend Schaefer against
any “suit” for property damage. (Doc. No. 13-5: Compl. Ex. E at 15). The policy defines
a suit as “a civil proceeding in which damages because of … property damage … to
which this insurance applies are alleged.” (Id. at 29). Suit includes:
1.
An arbitration proceeding in which such damages are
claimed and to which the insured must submit or does submit with our
consent; or
2.
Any other alternative dispute resolution proceeding in
which such damages are claimed and to which the insured submits with
our consent.
(Id.).
There is no factual dispute that Schaefer notified Travelers as soon as practicable
of the incident at the warehouse as required by the policy. (Id. at 24). There is also no
factual dispute that Schaefer’s representative requested defense and indemnity coverage
in the September 7, 2012, email message to Travelers’ representative, who did not deny
the coverage, but rather deferred a decision until Travelers received formal allegations of
the “claim” or until “suit” was filed. (Doc. No. 13-7: Compl. Ex. G). Finally, there is no
factual dispute that Travelers later received Nephron’s March 13, 2013, lawsuit naming
Schaefer and Wiginton as defendants and containing claims potentially within the policy
coverage. (Doc. No. 53-1: Doerr Decl. Ex. O (Travelers counsel’s letter extending
coverage to all claims in lawsuit).
Schaefer argues that the Travelers received formal allegations as part of the
information exchange that took place among the parties prior to the February 2013
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mediation; thus, Travelers’ duty to defend began at that point since the contract between
Nephron and Schaefer required mediation prior to a party filing suit, (Doc. No. 13-1:
Compl. Ex. A), and Travelers retained counsel to represent Wiginton at that stage. (Doc.
No. 47: Pl. Mem. at 15). However, Schaefer was not required to participate in that presuit mediation and there is no evidence that Travelers consented to Schaefer’s
involvement. Therefore, the Court finds as a matter of law that Travelers’ duty to defend
was not triggered at that point.
Travelers argues that its duty to defend could not be triggered by Schaefer’s presuit communications and that Schaefer did not formally tender the defense post-suit until
June 2014. (Doc. No. 60: Def. Mem. at 8, 11). However, Travelers offers no legal
authority to ignore the earlier communication and demand a secondary communication
“actually” tendering the defense after the lawsuit was filed. As detailed above, the tender
requirement is satisfied when: 1) the insurer has knowledge that the suit is potentially
within the policy’s coverage; and 2) the insurer knows that its assistance is desired.
Hartford, 776 F.2d at 1383. It is not disputed that Travelers’ representative understood
the September 2012 communication as Schaefer’s request for coverage; therefore, the
Court finds as a matter of law that the tender requirement was satisfied when the lawsuit
was filed on March 13, 2013, giving Travelers notice that it implicated the policy’s
coverage. Accordingly, Travelers breached its duty to defend at that point.
B.

Florida Statute/Voluntary Payments Provision

In addition to the communication among the parties, Plaintiffs rely on the Florida
Claims Administration Statute, Section 627.426(2), to estop Travelers from arguing a
deficiency in Schaefer’s tender of the defense. (Doc. No. 47: Pl. Mem. at 17). Plaintiffs

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assert that Travelers had 30 days from the date it knew or should have known it had a
basis to deny coverage to provide written notice of reservation of rights to Schaefer. (Id.).
Thus, Travelers’ silence following the September 7, 2012, email bars it from limiting
coverage retroactively to June 19, 2014.
Travelers responds that the statute is inapplicable because it never denied
coverage, but rather agreed to defend Schaefer when it finally tendered the defense on
June 19, 2014. (Doc. No. 60: Def. Mem. at 13-14). Based on that premise, Travelers
characterizes Schaefer’s defense costs prior to that point as unrecoverable “voluntary
payments” to attorneys that were hired at Schaefer’s own cost without Travelers’ consent,
according to the policy. (Doc. No. 13-5: Compl. Ex. E at 25).
Because the Court has found that Travelers’ duty to defend was not triggered and
breached until the filing of the March 13, 2013, lawsuit, it is not necessary to reach this
issue.
C.

Damages

Travelers disputes that its duty to provide a defense includes paying for the work
of both law firms engaged by Schaefer. (Doc. No. 36: Def. Mot. at 8-9). After initially
agreeing to defend Schaefer on all claims in the Nephron lawsuit, subject to a general
reservation of rights regarding claims outside the policy’s coverage, (Doc. No. 53-1:
Doerr Decl. Ex. O), Travelers Major Case Specialist Laurie Johnson sent Mitsui local
counsel Adam Doerr a letter on August 22, 2014, specifically limiting its agreement to
the continued retention of the Wilson Elser law firm and refusing to reimburse fees paid
to Holland & Knight. (Doc. No. 36-3: Kasbarian Aff. Ex. 3).

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“In fulfilling its duty to defend, ‘the insurer employs counsel for the insured ...
and controls the insured’s defense after a suit is filed on a claim,’ which includes
‘mak[ing] decisions as to when and when not to offer or accept settlement of the claim.’”
W. Heritage Ins. Co. v. Montana, 30 F. Supp. 3d 1366, 1371 (M.D. Fla. 2014), aff’d, 623
F. App’x 525 (11th Cir. 2015) (quoting Doe on Behalf of Doe v. Allstate Ins. Co., 653
So. 2d 371, 373 (Fla. 1995)). “But if an insurer wrongfully refuses to defend, the insurer
breaches its duty to defend and forfeits its right to control the defense. This ‘relieves the
insured of his contract obligation to leave the management of such suit to the insurer and
justifies him in assuming the defense of the action on his own account.’” Id. at 1372
(quoting BellSouth Telecomms., Inc. v. Church & Tower of Fla., Inc., 930 So. 2d 668,
673 (Fla. Dist. Ct. App. 2006)).
The Church case is particularly instructive because of its closeness to the facts of
the instant matter. There, BellSouth contracted with Church & Tower to install a utility
pole. Id. at 670. The contract between the parties required Church & Tower to obtain
“additional insured” coverage for BellSouth, which it did from Liberty Mutual. Id. When
a third party sued BellSouth and Church & Tower for a personal injury relating to the
utility pole, Liberty defended Church & Tower, but not BellSouth, claiming BellSouth’s
notice of the claim was untimely. Id. BellSouth obtained its own qualified counsel to
defend the personal injury lawsuit and sued Liberty for breach of contract. Id. Liberty
ultimately reversed its position and accepted coverage, but sought to control BellSouth’s
defense with counsel of its own choosing. Id. The Florida appellate court ruled that it is
well-settled law that when an insurer refuses to defend, and “if it is later determined that
the insured was entitled to coverage, the insured will be entitled to full reimbursement of

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the insured’s litigation costs.” Id. at 670-671. Additionally, “once an insurer wrongfully
withdraws from the defense of a case, the insured has the right to refuse to allow the
insurer to re-enter the case and take charge of it.” Id. at 673.
Here, the Court has found above that Travelers wrongfully failed to provide
coverage to Schaefer when Nephron filed its March 2013 lawsuit. Consequently,
Schaefer was forced to assume its own defense to the diverse property damage and
construction payments claims raised in the state court action. Plaintiffs have shown that
the Holland & Knight law firm performed separate legal work from Wilson Elser, each
according to its subject matter expertise, (Doc. No. 61: Pl. Resp. 10-11), and Travelers
has not shown a genuine issue of material fact concerning the reasonableness of that
defense, (Doc. No. 60: Def. Mem. at 4). Additionally, Travelers, having forfeited the
right to control the defense, had no right to dictate which attorneys would and would not
be paid when it retroactively decided to provide coverage. Church, 930 S. 2d at 672-673.
Therefore, the Court finds as a matter of law that Plaintiffs are entitled to full
reimbursement of their litigation costs from the time of Travelers’ breach when the
lawsuit was filed on March 13, 2013 until its resolution. Because the amount of those
costs is not readily discernable from the pleadings, the Court reserves judgment on that
issue and orders, pursuant to the schedule below, the parties to submit further briefing on
how damages should be calculated, including whether an evidentiary hearing is
warranted.
IV.

CONCLUSION
IT IS, THEREFORE, ORDERED that:
1. Defendant’s Motion for Summary Judgment, (Doc. No. 36), is DENIED.

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2. Plaintiffs’ Motion for Summary Judgment, (Doc No. 46), is GRANTED in
part and DENIED in part. Specifically, the Court declares that:
a. Travelers had a duty to defend Schaefer as an additional insured on
a primary and non-contributory basis;
b. Travelers’ duty to defend arose at the time Nephron’s lawsuit was
filed on March 13, 2013; and
c. Travelers’ breached its duty to defend Schaefer and is liable for
Schaefer’s litigation costs from March 13, 2013, until the Nephron
lawsuit was resolved.
3. Plaintiffs shall submit further briefing regarding litigation costs in the state
court proceeding within thirty (30) days of this Order. Defendant shall
respond within fourteen (14) days of Plaintiffs’ filing. Plaintiffs may file a
reply within seven (7) days of the date on which the response is filed.
Signed: March 29, 2017

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