North Star Mutual Insurance Company v. Rose et al
Filing
42
ORDER by Judge Ronald A. White granting plaintiff's motion for summary judgment ( 32 Motion for Summary Judgment) (lal, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF OKLAHOMA
NORTH STAR MUTUAL INSURANCE
COMPANY,
)
)
)
Plaintiff,
)
)
v.
)
)
RODDY ROSE, individually and d/b/a
)
ROSE HEAT AND AIR, JAMES QUIGLEY )
and MARY QUIGLEY,
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Defendants.
)
Case No. CIV-13-373-RAW
ORDER
Before the court is the motion of the plaintiff, North Star Mutual Insurance Company
(“North Star”) for summary judgment. Plaintiff filed this action seeking a declaratory
judgment1 that is has no duty to defend or indemnify defendant Roddy Rose (“Rose”) in a
lawsuit brought in state court by the other defendants, James and Mary Quigley (“the
Quigleys”).2 The standard for the granting of a summary judgment motion is set forth in
Rule 56(a) F.R.Cv.P. The court views the evidence and draws reasonable inferences in the
1
The Declaratory Judgment Act, 28 U.S.C. §2201, et seq., is not an independent grant of jurisdiction.
See Devon Energy Production Co., L.P. v. Mosaic Potash Carlsbad, Inc., 693 F.3d 1195, 1202 (10th
Cir.2012). Here, the court exercises jurisdiction pursuant to 28 U.S.C. §1332 (diversity jurisdiction) and thus
Oklahoma law applies to the interpretation of the policy. See Houston Gen. Ins. Co. v. Am. Fence Co., Inc.,
115 F.3d 805, 806 (10th Cir.1997). Additionally, the court has discretion whether to hear claims for
declaratory judgment. See Mid-Continent Cas. Co. v. Village at Deer Creek Homeowners Ass’n, Inc., 685
F.3d 977, 980 (10th Cir.2012). In deciding whether to hear this action, the court considered the five factors
listed in State Farm Fire & Cas. Co. v. Mhoon, 31 F.3d 979, 983 (10th Cir.1994).
2
The response to the present motion is only on behalf of defendant Rose. The Quigleys were served
but have not entered an appearance in the case. Counsel for Rose initially entered an appearance for all
defendants (#10), but later withdrew the appearance for the Quigleys. See ##16, 21 & 22.
light most favorable to the nonmoving party. Brecek & Young Advisors, Inc. v. Lloyds of
London Syndicate 2003, 715 F.3d 1231, 1237 (10 th Cir.2013).
The pertinent standards for insurance policy construction and interpretation under
Oklahoma law are set forth in Canal Ins. Co. v. Montello, Inc., 2013 WL6732658 at **3-4
(N.D.Okla.2013). This court will not reiterate those, but will review to specific standards as
relevant to this analysis.
The underlying facts are largely undisputed. The Quigleys hired Rose to install an
HVAC (heating, ventilation and air conditioning) unit at their home located within Pittsburg
County, Oklahoma. The work was performed from January, 2008 until October, 2008.
While the work was being performed on the residence, Rose and plaintiff entered into a
contract for insurance coverage. The effective dates of the policy were July, 2008 through
July, 2009. Beginning in late 2009, the Quigleys began experiencing heating and cooling
problems, along with other deficiencies with the unit. Ultimately, the Quigleys sued Rose
in the District Court of Pittsburg County [CJ-2012-307] for (1) breach of implied warranty
and (2) breach of contract. North Star received notice of a property loss by Rose on January
2, 2013.3
Under this CGL (Commercial General Liability Coverage) policy, an “occurrence”
is defined as “an accident, including continuous or repeated exposures to substantially the
same general harmful conditions.” (#32-6, page 44 of 56, ¶13). North Star does not appear
3
Rose does not admit the allegations in the state court lawsuit, but it is undisputed that the allegations
have been made.
2
to dispute that the facts alleged in the Pittsburg County lawsuit satisfy this definition. “Faulty
workmanship can constitute an occurrence that triggers coverage under a CGL policy if (1)
the property damage was not caused by purposeful neglect or knowingly poor workmanship,
and (2) the damage was to non-defective portions of the contractor’s or subcontractor’s work
or to third-party property.” Mt. Hawley Ins. Co. v. Creek Side at Parker Homeowners Assoc.,
Inc., 2013 WL 104795 (D.Colo.2013)(citing Greystone Construction, Inc. v. National Fire
& Marine Ins. Co., 661 F.3d 1272, 1286-87 (10th Cir.2011)).
North Star does contend, however, that certain exclusions in the policy preclude
coverage.4 Cited first is exclusion b (contractual liability), which states in pertinent part that
“[t]his insurance does not apply to . . . ‘property damage’ for which the insured is obligated
to pay damages by reason of the assumption of liability in a contract or agreement. This
exclusion does not apply to liability for damages . . .[t]hat the insured would have in the
absence of the contract or agreement.”
North Star argues that contractual liability exclusions operate to deny liability for
“property damage” resulting from breach of contract. Rose disagrees, contending that a
claim such as here for breach of implied warranty does not implicate duties under the
contract but rather duties implied by law. In defendant’s words: “A warranty does not
involve the assumption of a liability.” (Response [#34] at 8). There appears to be a split of
4
“A basic rule of insurance law provides that the . . . insurer has the burden of showing that a loss
falls within an exclusionary clause of the policy.” Pitman v. Blue Cross & Blue Shield of Okla., 217 F.3d
1291, 1298 (10th Cir.2000).
3
authority on this issue, and Oklahoma law is not certain. Rose cites Townsend Ford, Inc. v.
Auto-Owners Ins. Co., 656 So.2d 360, 364-65 (Ala.1995), in which the Supreme Court of
Alabama seemingly held that breach of warranty claims do not fall within the contractual
exclusion. This court notes, however, that in Pennsylvania Nat. Mut. Cas. Ins. Co. v. St.
Catherine of Siena Parish, 2014 WL 1653516 (S.D.Ala.2014), a district court said that
Townsend Ford only dealt with express warranties and that “under binding Alabama law the
breach of contract claim and the implied warranty claim are excluded from coverage under
the contractual liability exclusion.” Id. at *9.5 Nevertheless, Rose might well have cited
Ingalls Shipbuilding v. Fed. Ins. Co., 410 F.3d 214, 222 (5 th Cir.2005)(“[C]ourts have
consistently interpreted the phrase ‘liability assumed by the insured under any contract’ to
apply only to indemnification and hold-harmless agreements, whereby the insured agrees to
‘assume’ the tort liability of another. This phrase does not refer to the insured’s breach of
its own contracts.”)(footnote omitted).
In Oklahoma, by contrast, the district court in Boggs v. Great Northern Ins. Co., 659
F.Supp.2d 1199 (N.D.Okla.2009) referred to “[t]he basic assumption that general liability
policies do not cover damages for breach of contract”. Id. at 1210. “The phrases ‘legally
obligated to pay’ and ‘liability imposed by law’ refer only to tort claims and not contract
claims.” Id. (quoting VBF, Inc. v. Chubb Group of Ins. Companies, 263 F.3d 1226, 1231
5
See also Employers Mut. Cas. Co. v. Donnelly, 300 P.3d 31 (Idaho 2013)(damages awarded to
homeowners in underlying dispute concerning construction contract, based on breach of implied warranty
of workmanship, sounded in contract, rather than tort and therefore coverage excluded under this type of
policy provision).
4
(10th Cir.2001)). This court does not find the reading of the exclusion urged by North Star
to necessarily be a natural one.6 As the Supreme Court of Wisconsin stated in Am. Fam. Mut.
Ins. v. Am. Girl, Inc., 673 N.W.2d 65 (Wis.2004), “[t]he term ‘assumption’ must be
interpreted to add something to the phrase ‘assumption of liability in a contract or
agreement.’ Reading the phrase to apply to all liabilities sounding in contract renders the
term ‘assumption’ superfluous.” Id. at 80-81.7 Still, the court in Dobbs cited Tenth Circuit
authority, which is of course binding on this court as well. The court adopts the discussion
in Dobbs and rules in favor of the plaintiff as to the contractual liability exclusion.8
In the interest of thoroughness, the court will address plaintiff’s remaining arguments.
Next, North Star relies upon exclusion m, which is an “impaired property” exclusion. Such
a provision “precludes coverage for property damage to property, other than the insured’s
work or product, which is not physically damaged and which damage is caused by the
insured’s faulty work or product.” 9A Couch on Insurance, §129:21 (3d ed.)(footnote
omitted). An example might be where the alleged faulty workmanship involved a boat
engine, and the insured is sued for loss of use of the boat itself. “[T]he exclusion does not
6
“The construction of an insurance policy should be a natural and reasonable one, fairly constructed
to effectuate its purposes, and viewed in light of common sense so as not to bring about an absurd result.”
Dodson v. St. Paul Fire & Marine Ins. Co., 812 P.2d 372, 376 (Okla.2002).
7
“A contract shall not be interpreted in a manner that leaves words without meaning and renders
language superfluous.” Canal Ins. Co. v. Montello, Inc., 2013 WL 6732658, *3 (N.D.Okla.2013)(citing
Bituminous Casualty Corp. v. Cowen Constr., Inc., 55 P.3d 1030, 1033 n.15 (Okla.2002)).
8
The Dobbs court was addressing GCL policies in general rather than the contractual liability
provision, but this court sees no argument that the exclusionary provision somehow expands coverage.
5
apply where there is physical damage to the other property into which the insured’s work or
product has been incorporated or if the insured’s work cannot be repaired or replaced without
causing physical injury to the other property.” (emphasis added)(footnote omitted).
Here, North Star concedes that “there is a potential for damage to property
surrounding the HVAC installation due to removing sub-flooring to reach the ducts in order
to rectify the situation. . . . “ (Motion at 8). Thus, under the second half of the treatise
sentence quoted above, the court finds that exclusion m does not apply. Secondarily, North
Star argues that exclusion n would preclude coverage for such a claim. The language
provides exclusion for “[d]amages claimed . . . [involving the insured’s product, work or
impaired property] . . . If such product, work or property is withdrawn or recalled from the
market. . . . “ As the language makes obvious, “[e]xclusion n protects insurance companies
against liability for the costs of recalls.” Harleysville Worcester Ins. Co. v. Paramount
Concrete, Inc., 2014 WL 1305070, *13 (D.Conn.2014). Replacing a single HVAC unit is
not a “recall.” Plaintiff’s arguments as to exclusion m and exclusion n are both rejected.
The foregoing addresses the exclusions which plaintiff raises in its motion. In
defendants’ response, however, another exclusion is discussed and is further addressed in
plaintiff’s reply. Therefore, the court will address it. The policy states that coverage is not
provided for “property damage” to “(6) That particular part of any property that must be
restored, repaired or replaced because ‘your work’ was incorrectly performed on it.” A
further provision, however, sets forth an exception to the exclusion. It states that “Paragraph
6
(6) of this exclusion does not apply to ‘property damage’ included in the ‘products-completed
operations hazard.’” (#32-6 at pages 34-35 of 56). Rose notes that yet another provision
under exclusion l states that coverage is not provided for “‘property damage’ to ‘your work’
arising out of it or any part of it and included in the ‘products-completed operations hazard.”
Id. at page 35 out of 56. Finally, the term “products-completed operations hazard” is defined
(in pertinent part) as property damage occurring away from premises the insured owns or
rents, and arising out the insured’s product or work, except “[w]ork that has not yet been
completed or abandoned.” Id. at page 44 out of 56, ¶16.
Rose argues that the two provisions, seemingly both providing and negating an
exception for the “products-completed operations hazard” renders the policy ambiguous.
“When an insurance contract is susceptible of two meanings . . . words of inclusion are
liberally construed in favor of the insured and words of exclusion strictly construed against
the insurer.” Phillips v. Estate of Greenfield, 859 P.2d 1101, 1104 (Okla.1993). This
argument appears to have been rejected in Auto-Owners Ins. Co. v. Potter, 105 Fed. Appx.
484 (4th Cir.2004), in which the court noted that “[p]aragraph j excludes from coverage
various types of property damage[;] however, it also details situations in which the exclusion
does not apply, including products-completed operations.”
The court continued:
“[f]urthermore, other policy exclusions apply only to products-completed operations
coverage, demonstrating that such coverage is subject to more, not fewer exclusions than the
general coverage.” Id. at **6. In any event, the incident involved here would not fit within
7
the “products-completed operations hazard” as interpreted by the Tenth Circuit in Advantage
Homebuilding, LLC v. Maryland Cas. Co., 470 F.3d 1003, 1012 (10th Cir.2006)(coverage for
shoddy work excluded). Thus, even if the provisions are ambiguous, it is not a pertinent
ambiguity.
Finally, Rose seeks to invoke the doctrine of reasonable expectations. Oklahoma
applies this doctrine “‘to the construction of ambiguous insurance contracts or to contracts
containing exclusions which are masked by technical or obscure language or which are
hidden in policy provisions.’” Tomlinson v. Combined Underwriters Life Ins. Co., 708
F.Supp. 2d 1284, 1291 (N.D.Okla.2010)(quoting Max True Plastering Co. v. U.S. Fidelity
and Guar. Co., 912 P.2d 861, 863 (Okla.1996)). “‘Under this doctrine, if the insurer or its
agent creates a reasonable expectation of coverage in the insured which is not supported by
policy language, the expectation will prevail over the language of the policy.’” Id. “In other
words, ‘when construing an ambiguity or uncertainty in an insurance policy, the meaning of
the language is not what the drafter intended it to mean, but what a reasonable person in the
position of the insured would have understood it to mean.’” Id. (quoting Spears v. Shelter
Mut. Ins Co., 73 P.3d 865, 868 (Okla.2003)). The court is not persuaded the doctrine is
applicable to the case at bar. As discussed, some of the policy provisions are not pellucid,
but Tenth Circuit authority has resolved the issues pertinent to this case.9
9
In a subsidiary argument, Rose argues for coverage under the “Commercial Inland Marine” policy
between the parties. Plaintiff asserts this is a separate policy with a limit of $500, which appears to be
correct. (See #32-6, page 2 of 56). Rose has not demonstrated that this policy provides coverage regarding
the HVAC installation, for the reasons stated in plaintiff’s reply. (#39 at 1-2).
8
It is the order of the court that the plaintiff’s motion for summary judgment (#32) is
GRANTED.
ORDERED THIS 17th DAY OF JUNE, 2014.
Dated this 17th day of June, 2014.
J4h4i0
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