Essex Insurance Company v. Sheppard & Sons Construction Inc et al
Filing
201
ORDER granting in part and denying in part 148 Motion for Partial Summary Judgment. Signed by Honorable Timothy D. DeGiusti on 7/9/2015. (mb)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF OKLAHOMA
ESSEX INSURANCE COMPANY,
Plaintiff,
v.
SHEPPARD & SONS
CONSTRUCTION, INC., et al.,
Defendants.
)
)
)
)
)
)
)
)
)
)
Case No. CIV-12-1022-D
ORDER
Before the Court is the Dental Lodge, PLC and Gabe D. Nabors’ Motion for Partial Summary
Judgment Against Plaintiff, Essex Insurance Company with Brief in Support [Doc. No. 148].
Plaintiff has responded to the motion [Doc. No. 161] and the moving defendants have replied [Doc.
No. 165]. The matter, therefore, is fully briefed and ready for decision.
I.
Background
In this declaratory judgment action, Plaintiff, Essex Insurance Company (Essex), seeks a
declaratory judgment that it has no duty to defend or indemnify its insured, Defendant Sheppard &
Sons Construction, Inc. (Sheppard), for damages to a dental facility owned by the moving defendants
the Dental Lodge, PLC and Gabe D. Nabors (collectively, the Dental Defendants). Sheppard acted
as general contractor for construction of the dental facility.
After this lawsuit was commenced, the Dental Defendants brought suit in Oklahoma state
court against Sheppard and others for property damage to the dental facility. See Petition [Doc. No.
121-12], Case No. CJ-2013-1236-L, District Court of Cleveland County, State of Oklahoma
(Petition). The Dental Defendants allege that the property damage resulted from the negligence of
Sheppard and the other defendants named in both this action and the state court action. These other
defendants provided supplies and services for the construction of the dental facility.1
In the Second Amended Complaint [Doc. No. 107], Essex alleges that coverage is lacking
and relies upon the following provisions of the subject policies: (1) the lack of an “occurrence;” (2)
the “Damage to Your Work” exclusion; (3) the “Damage to Your Property” exclusion; and (4) the
“Movement of Land or Earth” exclusion. Essex has independently moved for summary judgment
in its favor on grounds the “Movement of Land or Earth” exclusion precludes coverage and
therefore, does not obligate Essex to defend or indemnify Sheppard. In a separate order, the Court
has denied Essex’s motion, finding the exclusion does not preclude coverage for property damage
resulting from allegedly defective fill work and/or fill material.
The Dental Defendants state that they move for partial summary judgment as to the first and
second claims for relief alleged in the Second Amended Complaint. See Motion at p. 6.2 However,
the arguments raised by the Dental Defendants (and responded to by Essex) relate to the first and
third claims for relief. The Court, therefore, addresses those claims which allege:
First Claim: The Policies do not provide coverage because the claimed faulty
workmanship was not an “occurrence” under the Policies.
Third Claim: The Policies do not provide coverage because the Dental
[Defendant’s] claim only seeks damages to restore, repair or replace the Facility,
which is excluded under the Damage to Property Exclusion.
1
One of those defendants specifically referenced in the parties’ current briefing is C&D Dozer
Services, LLC. The Petition alleges that C&D Dozer Services, LLC “performed certain work
including moving and compacting fill dirt onto the building site in which the [Dental] Facility would
be constructed” and “performed such work in a negligent, unworkmanlike manner, including failure
to properly compact, strengthen, and/or secure the fill dirt material.” Id., ¶ 13
2
Citations to the parties’ pleadings and exhibits will refer to this Court’s CM/ECF pagination.
2
See id. at pp. 9, 10.3 The Dental Defendants contend the property damage at issue was caused by an
occurrence and, therefore, is covered under the policies. The Dental Defendants further contend that
the “Damage to Property” exclusion, and specifically, paragraph j(6) of that exclusion, does not
preclude coverage for all property damage at issue. Accordingly, the Dental Defendants maintain
that because the possibility of coverage exists, Essex has breached its contractual duty to defend and
is not entitled to a declaratory judgment that is has no such duty. The distinct issue of Essex’s duty
to indemnify is not presently before the Court.
II.
Governing Standard
Summary judgment is proper “if the movant shows there is no genuine dispute as to any
material fact and the movant is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(a). A
material fact is one that “might affect the outcome of the suit under the governing law.” Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). An issue is genuine if the evidence is such that a
reasonable jury could return a verdict for either party. Id. at 255. All facts and reasonable inferences
must be viewed in the light most favorable to the nonmoving party. Id.
3
The second claim for relief provides:
Second Claim: The Policies do not provide coverage because the “property
damage” alleged falls within the “Damage to Your Work” Exclusion.
Id. at p. 10. As acknowledged by Essex, “[n]o party, including Essex, has moved for summary
disposition of Essex’s Second Claim for Relief discussing the ‘Damage to Your Work’ exclusion.”
See Response at p. 5, footnote 2.
3
The movant bears the initial burden of demonstrating the absence of a dispute of material fact
warranting summary judgment. Celotex Corp. v. Catrett, 477 U.S. 317, 322–23 (1986). If the movant
carries this burden, the nonmovant must then go beyond the pleadings and “set forth specific facts”
that would be admissible in evidence and that show a genuine issue for trial. See Anderson, 477 U.S.
at 248; Celotex, 477 U.S. at 324; Adler v. Wal–Mart Stores, Inc., 144 F.3d 664, 671 (10th Cir.1998).
“To accomplish this, the facts must be identified by reference to affidavits, deposition transcripts,
or specific exhibits incorporated therein.” Adler, 144 F.3d at 671; see also Fed.R.Civ.P. 56(c)(1)(A).
A district court has discretion to go beyond the cited materials and consider other materials in the
record, but it is not required to do so. See Adler, 144 F.3d at 672; Fed.R.Civ.P. 56(c)(3). The court’s
inquiry is whether the facts and evidence of record present “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, 477 U.S. at 251–52.
III.
Material and Undisputed Facts
The parties do not dispute that at all applicable times, Essex insured Sheppard under two
commercial general liability policies (collectively, the Policy).4 The parties further do not dispute
that “Essex has no evidence, and has made no assertions, that Defendants Sheppard or C&D Dozer
Services, LLC, intentionally provided allegedly defective work.”5
4
The provisions at issue are identical under each of the policies. For ease of reference, the
Court refers to the policies in the singular.
5
The Dental Defendants parenthetically reference “fill material” as the “allegedly defective
work” at issue. See Motion at p. 3, Statement of Undisputed Material Facts, ¶ 2. Essex disputes the
parenthetical reference to the extent it implies “that the only defective work claimed in the
[underlying state court] litigation relates to fill material. See Response at p. 3.
4
IV.
Discussion
The following provisions of the Policy are at issue:
SECTION I – COVERAGES
COVERAGE A BODILY INJURY AND PROPERTY
DAMAGE LIABILITY
1. Insuring Agreement
a.
We will pay those sums that the insured becomes legally obligated to pay as
damages because of . . . ‘property damage’ to which this insurance applies.
We will have the right and duty to defend the insured against any ‘suit’
seeking those damages. However, we will have no duty to defend the insured
against any ‘suit’ seeking damages for . . . ‘property damage’ to which this
insurance does not apply.
b.
This insurance applies to . . . ‘property damage’ only if:
(1) The . . . ‘property damage’ is caused by an ‘occurrence’ that takes
place in the ‘coverage territory[.]’
See Policy [Doc. No. 107-1] at p. 8.
2. Exclusions
This insurance does not apply to:
j.
Damage to Property
‘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.
Id. at pp. 8, 11.
SECTION V – DEFINITIONS
13.
‘Occurrence’ means an accident including continuous or repeated
exposure to substantially the same general harmful conditions.
5
22.
‘Your work’:
a.
Means:
(1)
Work or operations performed by you or on your behalf; and
(2)
Materials, parts or equipment furnished in connection with
such work or operations.
Id. at p. 18, 19, 20-21.
A.
Oklahoma Rules of Insurance Contract Construction
The parties do not dispute that Oklahoma substantive law governs the interpretation of the
Policy. Under well-established Oklahoma law “[w]hen policy provisions are unambiguous and clear,
the employed language is accorded its ordinary, plain meaning; and the contract is enforced carrying
out the parties’ intentions. The policy is read as a whole, giving the words and terms their ordinary
meaning, enforcing each part thereof.” BP America, Inc. v. State Auto Property and Casualty Ins.
Co., 148 P.3d 832, 835 (Okla. 2005). “The construction of a policy should be natural and reasonable,
viewed in the light of common sense. The result should not be absurd.” Redcorn v. State Farm Fire
& Casualty Co., 55 P.3d 1017, 1019 (Okla. 2002) (citation omitted).
“An insurance contract is considered a contract of adhesion in Oklahoma, and is construed
in favor of the insured when ambiguity remains after applying the rules of construction.” Mansur v.
PFL Life Ins. Co., 589 F.3d 1315, 1319 (10th Cir. 2009) (citing Dodson v. St. Paul Ins. Co., 812
P.2d 372, 376 (Okla. 1991)). “The interpretation of an insurance contract and whether it is
ambiguous is a matter of law for the Court to determine and resolve accordingly.” Dodson, 812 P.2d
at 376.
6
B.
Property Damage Resulting from Faulty Workmanship May Constitute an
Occurrence Under the Policy
The Policy covers property damage caused by an “occurrence.” The Policy defines
“occurrence” as “an accident, including continuous or repeated exposure to substantially the same
general harmful conditions.” See Policy, Section V, ¶ 13. The word “accident” is not defined by the
Policy.
For purposes of the instant motion for partial summary judgment, the parties do not contend
the Policy terms at issue are ambiguous. Yet, each party urges a contrary construction of those terms.
Both parties rely on United States Fidelity & Guar. Co. v. Briscoe, 239 P.2d 754 (Okla.
1951), for the proposition that under well-settled Oklahoma law, the term “accident” when used in
an insurance contract, has no technical legal meaning but instead, should be construed “according
to common speech and common usage of people generally.” Id. at 756. See also Emcasco Ins. Co.
v. CE Design, Ltd., 784 F.3d 1371, 1379 (10th Cir. 2015) (“Oklahoma defines ‘accident’ using a
plain language, dictionary meaning: ‘[a]n event that takes place without one’s foresight or
expectation; an undersigned, sudden and unexpected event, chance, contingency.’”) (quoting
Briscoe, 239 P.2d at 757)). The parties dispute whether damages to the dental facility resulting from
the alleged unworkmanlike or negligent construction by Sheppard and other defendants constitutes
an accident.
The Dental Defendants rely upon the lack of any intentional wrongdoing by Sheppard and
the other defendants to support a finding that the property damage at issue resulted from an accident
and therefore is a covered occurrence under the Policy. Essex contends that “Oklahoma state courts
have not yet determined whether faulty workmanship constitutes an ‘accident’ within liability
7
policies.” See Response at p. 11. Essex relies upon Tenth Circuit case law applying the law of other
jurisdictions and contends that if an insured performs a voluntary act, the natural results of the
insured’s act – including unworkmanlike or negligent construction – do not constitute an occurrence.
See id. at pp. 12-15.
Essex correctly states that no Oklahoma case directly addresses whether an insured’s
negligent construction or faulty workmanship constitutes an accident for purposes of determining
whether occurrence coverage exists under a commercial general liability insurance policy. But a
review of Oklahoma case law defining the term accident shows the result urged by Essex is contrary
to that authority.
Because both parties rely on Briscoe and that decision is one of the leading Oklahoma cases
to define accident in the insurance coverage context, the Court begins with a review of that case. In
Briscoe, landowners brought a nuisance action against a contractor hired to construct a cement
highway. The landowners alleged that for a period of approximately four months cement dust from
the construction project permeated and saturated the air causing injury to person and property. The
landowners notified the contractor but efforts undertaken by the contractor during the four-month
period to remediate the problem were unsuccessful. Litigation ensued.
The contractor’s insurance company declined to defend the contractor in the litigation and
contended the damages at issue were not covered as they did not result from an accident as required
by the terms of the policy. The Oklahoma Supreme Court agreed. Significant to the court’s
conclusion was the fact that the contractor’s actions “could have been abated by injunction” and thus,
“both the means and result were, in no sense, accidental. Id. at 758 (emphasis added). As the court
found, the claims “were predicated upon a series of acts, which continued approximately four
8
months, and, at all times, voluntary, intentional, tortious and wrongful, resulting from negligent
conduct of contractor.” Id. (emphasis added). Thus, the resulting injury was “to be expected.” Id.
at 757.
In Penley v. Gulf Ins. Co., 414 P.2d 305 (Okla. 1966), the Oklahoma Supreme Court again
addressed the issue of what constitutes an accident for purposes of coverage, but this time under a
commercial-use vehicle liability policy. In Penley, the plaintiff’s employee damaged a customer’s
motor grader when the employee mistakenly put regular gasoline rather then diesel fuel in the motor
grader. The customer sued the plaintiff for the resulting damages and the plaintiff’s insurance
company denied that the policy covered the conduct at issue. The insurance company refused to pay
the damages or defend the plaintiff and the plaintiff then brought suit against it.
Under the terms of the policy, coverage existed as to damages “caused by accident and
arising out of the ownership, maintenance or use of the automobile.” Id. at 308. The insurance
company argued that “the act of [the] plaintiff’s employee was voluntary and the damage was the
natural result of the act; that even though the result may have been unforeseen and unintended, there
is no coverage for damages caused by the mistake or error of the employee.” Id. (emphasis added).
In its analysis of the issue, the court noted that simply because damage may result from
negligence, which incorporates the concept of foreseeability, that factor “does not deprive the
occurrence of its accidental nature.” Id. (citation omitted). The court further stated: “[a]lthough an
intentional or willful tort would negative the existence of an accident an act attributable solely to
negligence may be an accident” and to exclude coverage for such conduct would “manifestly defeat
the purpose of the policy.” Id. at 308-09 (citations omitted). The court concluded:
9
The petition readily admits that the acts of plaintiff’s employee were
negligent and that he intentionally delivered fuel to and placed same in grader.
However, there is no allegation nor is their any contention by either party that this
employee intentionally or deliberately placed regular gas in this diesel engine instead
of diesel fuel, nor that this employee intentionally or deliberately intended to damage
the grader. . . . Here we merely have an act of negligence completely void of any
intent to inflict injury or damages upon this property.
We are of the opinion and hold that the alleged acts in the instant action
which caused the resulting damages were ‘caused by accident.’
Id. at 309-10 (emphasis added).
A review of Briscoe and Penley make clear that the voluntariness of the conduct, as urged
by Essex, is not the determinative factor. In Briscoe, though the damages resulted from voluntary
acts, the court specifically found the voluntary acts were “intentional, tortious and wrongful” and the
resulting damage, therefore, to be expected. And in Penley, the court relied upon the absence of any
intentional or deliberate conduct designed to inflict injury or damage upon property. Moreover,
recent pronouncements by federal courts applying Oklahoma law demonstrate Essex’s position lacks
merit. See Automax Hyundai South, LLC v. Zurich American Ins. Co., 720 F.3d 798, 804 (10th Cir.
2013) (under Oklahoma law, “[n]egligent conduct that, although voluntary, produces an unexpected
result will be deemed an ‘accident’” for purposes of determining whether occurrence coverage
exists) (citing Penley, 414 P.2d at 209).
In Automax, the insured, Automax Huyndai South (Automax), brought a declaratory action
against its insurer, Zurich American Insurance Company (Zurich) alleging Zurich had a duty to
indemnify Automax for damages arising from a jury verdict for an occurrence Automax contended
was covered by the applicable insurance policy.
In the underlying state-court litigation, an individual, Tammy Moses, and her father, David
Moses (the Buyers) purchased a car from Automax. At the time the car was purchased, Automax
10
represented the car was new. When the Buyers discovered defects in the car shortly after its
purchase, they filed a lawsuit and brought multiple claims against Automax including a claim for
fraud/deceit. A jury returned a verdict in favor of the Buyers on their claim for fraud/deceit as well
as their claims for negligence and a violation of the Truth in Lending Act.
Automax then brought suit against Zurich alleging breach of the duty to defend and
indemnify in the Buyers’ litigation. The policy provided “occurrence” coverage for “an accident”
that results in injuries “neither intended nor expected from the standpoint of a reasonably prudent
person.” The district court entered summary judgment in favor of Zurich finding that the claims
against Automax – including the negligence claim – were premised on intentional conduct and,
therefore, Zurich had no duty to defend Automax under the occurrence provision of the policy.
The Tenth Circuit reversed and held that Automax’s conduct constituted an accident under
the policy. Id. at 805. To reach this conclusion, the Tenth Circuit first “parse[d] the facts” of the car
purchase. The court looked to the complaint which “indicate[d] that Automax could incur liability
for three types of behavior: (1) the sale of the used car as ‘new,’ (2) the sale of the car with
undisclosed damage, and (3) the terms and manner of the financing.
Automax focused on the second type of behavior and argued that the lawsuit “contemplate[d]
the possibility that Automax did not know of the damage when it sold the [car] to the [Buyers] and
violated the ordinary duty of care by failing to detect the damage.” Id. at 805. The court concluded
that “the failure to detect damage in a car constitutes an ‘accident’ (and thus an ‘occurrence’) under
the terms of the policy, because a dealership neither expects nor intends to cause injury to its
customers when it sells a car that it believes is in perfect condition.” Id. (emphasis added) (citing
Penley, 414 P.2d at 309 (accident can encompass a voluntary act where the injury that resulted was
11
neither intentional nor likely)). In reaching this conclusion, the court noted that “[o]ther courts
similarly conclude that an insurer has a duty to defend even where the facts alleged intentional
conduct because at trial the jury could have found the defendant guilty merely of negligence or other
nonintentional conduct.” Id. at 806-07 (citing cases).
The Tenth Circuit’s decision in Automax is consistent with other cases construing Oklahoma
law. See, e.g., Employers Mutual Cas. o. v. Grayson, Case No. CIV-07-917-C, 2008 WL 2278593
at *5 (W.D. Okla. May 30, 2008) (unpublished op.) (where undisputed facts demonstrated insured
did not knowingly deliver defective concrete, resulting damage to bridge deck and its structural
components during the required removal of the defective concrete was the “unintended consequence
of insured innocently suppling a non-conforming product” and therefore a covered occurrence under
the policy); Lutheran Benev. Ins. Co. v. National Catholic Risk Retention Group, Inc., 939 F.
Supp.1506, 1513 (N.D. Okla. 1995) (Diocese’s negligent retention of priest constituted an “accident”
for purposes of insurance coverage despite fact that Diocese had knowledge of priest’s prior
misconduct as “no evidence in the record support[ed] the conclusion that the Diocese intended to
cause bodily injury to [victim] . . . or that the Diocese expected that such a result would occur”).
The cases holding an occurrence is not accidental under Oklahoma law further inform the
analysis. Those cases clearly involve intentional conduct wholly distinct from the negligent conduct
arising from the alleged faulty workmanship at issue here. See, e.g, Shelter Mutual Ins. Co. v.
Wheat, 313 Fed. Appx. 76, 82 (10th Cir. 2008) (insured’s shooting of victim at victim’s house was
not an accident); Equity Ins. Co. v. Garrett, 178 P.3d 201, 205 (Okla. Civ. App. 2008) (where
insured admitted she intentionally drove her vehicle into a pedestrian, the resulting injury was not
accidental).
12
Most recently, in Broom v. Wilson Paving & Excavating, Inc., – P.3d –, 2015 WL 1541969
at *9 (Okla. April 7, 2015) (for publication), the Oklahoma Supreme Court held that an exclusion
providing that the insurance did not apply to “bodily injury” or “property damage” that was
“expected or intended from the standpoint of the insured” did not apply where a contractor’s
negligence caused a trench to collapse and injure a worker. See id. (“The very nature of negligence
as a basis of recovery is inconsistent with activity that would produce an ‘expected or intended’
injury under the language in the Mid-Continent policy.”). Although the Broom court was construing
a policy exclusion and not addressing whether occurrence coverage existed, the holding further
supports the result reached by this Court interpreting and applying Oklahoma law.
Essex does not address Oklahoma law. Instead, Essex relies on Tenth Circuit case law
construing the law of other jurisdictions.6 The Court finds that case law inapposite. Under
controlling Oklahoma law faulty workmanship may constitute an accident (and, therefore, an
occurrence) under the Policy. For purposes of the instant motion for partial summary judgment, it
is undisputed that Essex makes no assertions that Sheppard or C&D Dozer intentionally provided
6
Essex’s reliance on Employers Mutual Cas. Co. v. Bartile Roofs, Inc. (Bartile I), 618 F.3d
1153 (10th Cir. 2010) is unavailing. In that case, the Tenth Circuit determined that under both Utah
and Wyoming law “the natural results of an insured’s negligent and unworkmanlike construction
do not constitute an occurrence triggering coverage under a CGL policy.” Id. at 1174. (emphasis
added). Oklahoma case law does not focus on the “natural results” of the insured’s conduct, but
instead focuses on the intended and expected result. As discussed above, clearly in Penley the
natural result of the employee’s negligent conduct in using the wrong type of fuel was damage to the
subject property. But the Oklahoma Supreme Court found the natural result was nonetheless
accidental because the employee’s negligent conduct was devoid of any intent to inflict injury or
damage. Oklahoma law, therefore, differs from the law of Utah and Wyoming in this regard.
Compare Greystone Constr. Inc. v. National Fire & Marine Ins. Co., 661 F.3d 1272, 1282-83 (10th
Cir. 2011) (reviewing approaches in multiple jurisdictions and recognizing “a strong recent trend in
the case law that interprets the term ‘occurrence’ to encompass unanticipated damage to nondefective
property resulting from poor workmanship”).
13
allegedly defective work. Because it is alleged that the property damage to the dental facility resulted
from negligent conduct, such conduct may constitute an accident, and therefore an occurrence, under
the Policy.7
C.
Exclusion j(6) – the “Particular Part ” Exclusion
Exclusion j(6) of the Policy excludes from coverage property damage to “that particular part
of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly
performed on it.” See supra (Policy provisions). “Your work” is defined as “[w]ork or operations
by you or on your behalf” and “[m]aterials, parts or equipment furnished in connection with such
work or operations.” See id.
The Dental Defendants maintain that “the particular part” of the subject property at issue is
the allegedly defective “fill material beneath the foundation of the Facility Sheppard constructed for
Dental Defendants.” See Motion at p. 14. They acknowledge that “Essex may argue the defective
fill material is properly excluded under (j)(6)” but that “any argument that there is no coverage for
the other property damaged as a result of defective fill material fails as a matter of law.” Id. The
Dental Defendants appear to concede that the fill work was incorrectly performed and/or the fill
material itself was defective, and that any property damage resulting from the need to restore, repair
7
Neither party addresses allegations in the state court Petition that “[d]uring the construction
process” the Dental Defendants “notified Sheppard on several occasions of problems with the
construction of the Facility” but that Sheppard “represented to [the Dental Defendants] that such
defects and problems were normal and/or would be repaired by Sheppard.” See Petition at ¶ 12.
These allegations may suggest intentional conduct by Sheppard, or conduct that, as in Briscoe, could
have been abated by an injunction. But on the present record, Essex expressly makes no assertion
that Sheppard or the other defendants intentionally performed the allegedly defective work.
Therefore, the Court finds the possibility of coverage exists. See also Automax, 720 F.3d at 806
(“[A]n insurer has a duty to defend even where the facts alleged intentional conduct because at trial
the jury could have found the defendant guilty merely of negligence or other nonintentional
conduct.”) (citation omitted).
14
or replace the fill material is excluded. But the Dental Defendants contend other work was not
defective (i.e., incorrectly performed) and damage to property from such non-defective work is not
excluded. The Dental Defendants make no attempt, however, to identify the non-defective work.
Essex responds that Sheppard “was tasked with constructing the entire Facility, not just part
of it” and, therefore, the “particular part” referenced in the exclusion refers to the entire facility and
excludes coverage for all damages sustained. See Response at p. 17.8 Alternatively, Essex contends
that even if the Dental Defendants’ construction of exclusion j(6) is accepted, “questions of fact exist
regarding the extent of Sheppard’s alleged incorrect work.” See Response at p. 18. Essex states that
the court or a jury in the state court litigation would still be required “to parse out covered and noncovered damages.” See Response at p. 18. Like the Dental Defendants, Essex focuses on the
defective fill material and incorporates by reference the facts submitted in support of its separately
filed motion for summary judgment.9
The underlying state court Petition alleges property damage resulting from “faulty fill dirt
methodology” employed by Sheppard. See Petition at ¶ 11. But the Petition also identifies alleged
property damage caused by other defendants including faulty construction of the foundation and slab
and a faulty irrigation system which caused a major water leak underneath the facility. See id. at
¶¶ 14-15.10
8
The Petition filed by the Dental Defendants states that “Sheppard did in fact serve as the
Plaintiff’s general contractor and architect which controlled and directed the construction of the
Facility.” See Petition at ¶ 9.
9
See supra, discussion at p. 2.
10
The scope of this property damage and whether it would be excluded from coverage is not
addressed by the parties.
15
The parties have not cited any Oklahoma law construing an exclusion similar to the exclusion
at issue. Thus, this Court must predict what Oklahoma’s highest court would do. see, e.g., Specialty
Beverages, L.L.C. v. Pabst Brewing Co., 537 F.3d 1165, 1174 (10th Cir. 2008).
The Court rejects Essex’s broad construction of the exclusion that would encompass all
damages to the entire dental facility. Essex bases this construction on the fact that Sheppard acted
as general contractor. Although the exclusion includes under the definition of “your work,” work
performed by both Sheppard and its subcontractors, that fact alone is not dispositive.
By its express terms, the exclusion applies only to work incorrectly performed on the
particular part of the property that must be restored, repaired or replaced. See, e.g., Fortney &
Weygandt, Inc. v. American Mfgs. Mut. Ins. Co., 595 F.3d 308, 311 (6th Cir. 2010) (language in
policy limiting exclusion to “that particular part” is “trebly restrictive, straining to the point of
awkwardness to make clear that the exclusion applies only to building parts on which defective work
was performed, and not to the building generally”); accord Mid-Continent Cas. Co. v. JHP Dev.,
Inc., 557 F.3d 207, 217 (5th Cir. 2009). On the current record, the parties have provided no facts
demonstrating to what extent incorrectly performed work has resulted in property damage.11
In addition, although the Dental Defendants appear to concede coverage for damage resulting
from incorrectly performed fill work is excluded, the parties have not submitted facts to identify the
scope of that damage. Compare Cincinnati Ins. Co. v. Spectrum Development Corp., No. 2:11- cv0015-CW, 2015 WL 730020 at *7 (D. Utah Feb. 19, 2015) (unpublished op.) (interpreting similar
11
Essex states in its Response, “because the Dental Defendants contend Sheppard and/or its
alleged subcontractors incorrectly performed their (i.e. Sheppard’s) work on the Facility, the
language under Section j(6) is triggered to exclude coverage.” See Response at pp. 20-21. But the
current record contains no facts to demonstrate that all work on the Dental Facility was incorrectly
performed.
16
exclusion and recognizing that some of the damage to the concrete slab may be caused by defective
work and the natural and probable consequences of that work, while other damage may have resulted
from other causes; “[s]eparating the causes of damage and the cost necessary to repair that damage
are issues of fact” and “cannot be resolved on summary judgment”); see also Roaring Lion, L.L.C.
v. Nautilus Ins. Co., No. 11-2-M-DWM-JCL, 2011 WL 3956132 at * 7 (D. Mont. July 15, 2011)
(unpublished op.) (concluding that “exclusion j(6) must be read as applying only to that particular
part of the Sawtooth Cabin on which defective work was performed” and concluding that material
disputed facts as to whether damage to framing was caused by defective work on the framing, such
that coverage would be excluded or from subcontractor’s foundation work, such that coverage would
exist, precluded summary judgment). Issues of fact, therefore, remain as to the scope and cause of
the property damage at issue. Accordingly, summary judgment is not proper as to whether exclusion
j(6) precludes coverage.
D.
Duty to Defend
Having considered the policy coverage and exclusion issues presented, the Court must now
address the Dental Defendants contention that they are entitled to partial summary judgment in their
favor on the issue of Essex’s duty to defend. The Dental Defendants move for the entry of partial
summary judgment on grounds the possibility of coverage exists and triggers the duty to defend.
Under Oklahoma law, “[t]he duty to defend is separate from, and broader than, the duty to
indemnify, but the insurer’s obligation is not unlimited.” First Bank of Turley v. Fidelity & Deposit
Ins. Co. of Md., 928 P.2d 298, 303 (Okla.1996). The duty to defend is triggered whenever the insurer
“ascertains the presence of facts that give rise to the potential of liability under the policy.” Id.
(emphasis in original). The potential for liability exists “whenever the allegations in a complaint state
17
a cause of action that gives rise to the possibility of a recovery under the policy; there need not be
a probability of recovery.” Id. at 303 n. 14 (quoting 7C Appleman, Insurance Law and Practice
§ 4682 (Berdal ed. 1979) (emphasis in original). This determination is made by looking to
information “gleaned from the petition (and other pleadings), from the insured and from other
sources available to the insurer at the time the defense is demanded.” Id. “While the initial burden
to request a defense is on the insured, once that request is received the insurer bears the burden of
investigating the underlying facts and determining whether they trigger coverage.” Automax, 720
F.3d at 804 (citation omitted). An insurer “must defend an action in which damages that are
potentially within the policy’s coverage are sought, even though coverage may ultimately not be
afforded.” Turley, 928 P.2d at 304, n. 16 (emphasis in original). See also Automax, 720 F.3d at 804
(“The duty to defend is triggered by the facts reasonably available at the time the defense is
demanded, not by the outcome of the lawsuit.”). Finally, where at least some of the insured’s conduct
may be covered, the insurer has a duty to defend all the claims. Automax, 720 F.3d at 806 (holding
that no authority demonstrates that Oklahoma law would deviate from the majority rule that “once
an insurer’s duty to defend is triggered, it must defend all the claims in a lawsuit – both covered
claims and claims for which no coverage exists).
The Policy provides that Essex has “no duty to defend the insured against any ‘suit’ seeking
damages for . . . ‘property damage’ to which [the] insurance does not apply.” See Policy provisions,
supra. Relying upon the Policy’s Movement of Land or Earth exclusion, Essex states that “the
information known to Essex at the time Sheppard’s defense was demanded showed that there was
not a possibility of coverage under the [Policy] . . . .” See Response at p. 8 (emphasis in original).
The information known to Essex included expert opinions that settling of fill material caused, at least
18
in part, property damage to the Dental Facility.12 But the Court has determined that the Movement
of Land or Earth exclusion does not preclude coverage as to property damage resulting from the
settling of fill material. Therefore, Essex cannot rely on this exclusion as support for establishing
it has no duty to defend.
Essex also contends that “the information known to Essex also showed that the Dental
Defendants’ damages were not caused by an ‘occurrence’ providing yet another basis for why Essex
does not owe any duty to defend or indemnify any party to the [underlying state court litigation].”
Id. at pp. 8-9. As set forth above, the Court finds the negligent conduct alleged in the state court
Petition and the undisputed fact that Sheppard did not intentionally provide defective work, gives
rise to occurrence coverage. Therefore, Essex cannot rely upon the lack of an occurrence to establish
it has no duty to defend.13
The only remaining exclusion is the j(6) “particular part” exclusion. Essex concedes that
questions of fact exist as to the “extent of Sheppard’s alleged incorrect work.” Id. at p. 21. Under
theses circumstances, the possibility of coverage exists. Compare Mount Vernon Fire Ins. Co. v.
Okmulgee Inn Venture, LLC, 451 Fed Appx. 745, 748 (10th Cir. 2011) (applying Oklahoma law and
construing policy that provided insurer had no duty to defend a “‘suit’ seeking damages for ‘injury’
12
Those expert opinions are more fully set forth in Essex’s motion for summary judgment
which Essex adopts and incorporates in its response to the pending motion. See Response at pp. 6-7.
13
Based on theses findings, Essex’s reliance on Boggs v. Great Northern Ins. Co., 659 F.
Supp.2d 1199 (N.D. Okla. 2009) is misplaced. In Boggs, the court found no duty to defend where
the insurance policies at issue required a defense only for “covered damages.” The Court concluded
that the face of the amended petition in the underlying litigation clearly established no claims had
been raised that would have been covered under the policies and, therefore that the insurance
companies could properly concluded that “no potential for liability existed.” Id. at 1214. See also
Briscoe, 239 P.2d at 758 (finding no duty to defend where insured’s conduct at issue in underlying
litigation was not covered under the policy).
19
to which this insurance does not apply,” the court held that because disputed issues of fact existed
as to what caused injuries, potential for coverage existed triggering duty to defend). Accordingly,
Essex’s duty to defend is triggered.
V.
Conclusion
On the factual record presented, the negligent or faulty workmanship of the Defendants at
issue in the underlying state court action falls within the definition of an accident under Oklahoma
law and may give rise to occurrence coverage. Questions of fact exist as to whether the Policy’s
“Damage to Your Property” exclusion, and in particular, paragraph j(6) of that exclusion, operates
to preclude coverage. Because the Court has determined – (1) the Movement of Land or Earth
exclusion does not preclude coverage; (2) the negligent conduct at issue may give rise to occurrence
coverage; and (3) questions of fact remain as to the scope of damage encompassed by the Policy’s
j(6) “particular part” exclusion – Essex’s duty to defend is triggered.
The Second Amended Complaint also seeks a declaration that the property damage at issue
falls within the “Damage to Your Work” exclusion in the Policy. See id. at ¶¶ 41-45 (Second Claim
for Relief). As stated, see supra, footnote 3, the parties have not briefed that exclusion in any motion
pending before the Court. The Court does not address, therefore, whether that exclusion would
result in a finding that Essex does not have a duty to defend.
IT IS THEREFORE ORDERED that the Dental Lodge, PLC and Gabe D. Nabors’ Motion
for Partial Summary Judgment Against Plaintiff, Essex Insurance Company with Brief in Support
[Doc. No. 148] is GRANTED in part and DENIED in part as set forth herein.
20
IT IS SO ORDERED this 9th day of July, 2015.
21
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?