Builders Mutual Insurance Company v. Pickens et al
Filing
35
MEMORANDUM OPINION AND ORDER in support of the following Judgment. Signed by District Judge William O Bertelsman on 7/18/13. (ADA)
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TENNESSEE
NORTHERN DIVISION AT KNOXVILLE
CIVIL ACTION NO. 3:13-cv-00022(WOB-HBG)
BUILDERS MUTUAL INS.
CO.
VS.
PLAINTIFF
MEMORANDUM OPINION AND ORDER
CLAYTON PICKENS,
ET AL.
DEFENDANTS
This is a declaratory judgment action in which plaintiff
seeks a ruling regarding coverage under commercial general
liability insurance policies it issued to defendant Clayton
Pickens.
This matter is before the Court on plaintiff’s motion
for summary judgment (Doc. 13) and defendants’ motions to
amend their answers (Doc. 28, 30).
The Court heard oral argument on these motions on
Friday, July 12, 2013, via telephone.
Paul Whitt
represented the plaintiff, and Jeff Murrell and Jim
McDonald represented defendants Clayton and Jama Pickens.
Court reporter Joan Averdick recorded the proceedings.
Having heard the parties, the Court now issues the
following Memorandum Opinion and Order.
Factual and Procedural Background
Defendant Clayton Pickens (“Pickens”) is a residential
homebuilder in Tennessee.
Plaintiff, Builders Mutual
Insurance Company (“BMI”), issued to Pickens two commercial
general liability policies covering the period from October
15, 2007 to October 15, 2009.
(Doc. 1, Exhs. A, B).
The
material terms of these policies are identical.
In 2008-2009, Pickens built a new home for defendant
John Underwood (“Underwood”).
When it came time to pay the
final bill for the home, however, Underwood disputed many
of the costs.
Pickens filed a lien against the home in
June 2009 and then filed suit against Underwood in
Tennessee state court in July 2009, seeking to recover an
unpaid balance of approximately $150,000.
Underwood counterclaimed against Pickens for
construction defects, fraudulent misrepresentation, and
violation of the Tennessee Consumer Protection Act.
1, Exh. C).
(Doc.
Underwood alleged that there were numerous
defects in the house, including improperly installed
subflooring, concrete driveway, concrete garage floor,
front porch, master shower, and propane gas range.
(Id.).
Underwood also filed a Third-Party Complaint against
Pickens’s wife, Jama Pickens, alleging that she was a
partner in her husband’s business.
2
(Doc. 1, Exh. D).
BMI filed this action on January 15, 2013, seeking a
declaration that it owes no duty to defend or indemnify
Pickens in connection with the claims brought against him
by Underwood.
The above pending motions are now ripe for resolution.
Analysis
“Insurance contracts are ‘subject to the same rules of
construction as contracts generally,’ and in the absence of
fraud or mistake, the contractual terms ‘should be given
their plain and ordinary meaning, for the primary rule of
contract interpretation is to ascertain and give effect to
the intent of the parties.’”
Clark v. Sputniks, LLC, 368
S.W.3d 431, 441 (Tenn. 2012) (citations omitted).
Commercial general liability (“CGL”) policies “are
designed to protect an insured against certain losses
arising out of business operations.”
The Travelers Indem.
Co. of Am. v. Moore & Assocs., Inc., 216 S.W.3d 302, 305
(Tenn. 2007).
CGL policies “are divided into several
components, including the ‘insuring agreement,’ which ‘sets
the outer limits of an insurer’s contractual liability,’
and the ‘exclusions,’ which ‘help define the shape and
scope of coverage’ by excluding certain forms of coverage.”
Id. (citation omitted).
When interpreting a CGL policy, the Court should first
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construe the “insuring agreement” and then construe the
“exclusions.”
Id. at 306.
The “insuring agreement” of the policies at issue in
this matter provides:
a. We will pay those sums that the insured becomes
legally obligated to pay as damages because of “bodily
injury” or “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 “bodily injury”
or “property damage” to which this insurance does not
apply.
b. This insurance applies to “bodily injury” and
“property damage” only if:
(1) The “bodily injury” or “property damage” is caused
by an “occurrence” that takes place in the “coverage
territory” . . .
(Doc. 1, Exh. A at 44).1
“Occurrence” is defined as “an accident, including
continuous or repeated exposure to substantially the same
general harmful conditions.”
(Doc. 1, Exh. A at 57).
These policies also contain an exclusion entitled
“Damage to Your Work,” which states that coverage does not
extend to “‘Property damage’ to ‘your work’ arising out of
it or any part of it.”
(Doc. 1, Exh. A at 48).
“Your
work” is defined as “Work or operations performed by you or
on your behalf” and “Materials, parts or equipment
1
Page references are to the electronic case filing page
numbers on the document.
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furnished in connection with such work or operations.”
(Doc. 1, Exh. A at 58).
Further, while the “Your Work” exclusion provides that
it does not exclude work performed on the insured’s behalf
by a subcontractor, both policies carry an endorsement
which removes that exception, thus leaving work performed
by subcontractors within the scope of this exclusion.
The Court will assume, as do the parties, that the
claims alleged by Underwood against Pickens in the state
court action relating to defects in the home constitute an
“occurrence” within the meaning of the insuring agreement
of the policies.
(Doc. 15 at 16 n. 8).
Nonetheless, it is clear from a review of the
allegations of those claims that the alleged deficiencies
in the home constructed by Pickens arise out of allegedly
incomplete or faulty workmanship, procedures, and/or
materials.
(Doc. 1, Exh. C at 8-9).
The Court thus
concludes that such claims fall squarely within the
parameters of the “Your Work” exclusion contained in these
policies.
The Supreme Court of Tennessee has long held that,
pursuant to such exclusions, “the standard comprehensive
general liability policy does not provide coverage to an
insured-contractor for a breach of contract action grounded
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upon faulty workmanship or materials, where the damages
claimed are the cost of correcting the work itself.”
Vernon Williams & Son. Constr., Inc. v. Cont’l Ins. Co.,
591 S.W.2d 760, 765 (Tenn. 1979).
See also id. at 764
(“The risk intended to be insured is the possibility that
the goods, products or work of the insured, once
relinquished or completed, will cause bodily injury or
damage to property other than to the product or completed
work itself . . .
.
The coverage is for tort liability
for physical damages to others and not for contractual
liability of the insured for economic loss because the
product or completed work is not that for which the damaged
person bargained.”) (citation omitted).
Pickens essentially concedes this point in his
opposition to BMI’s motion (Doc. 25 at 2) because his only
argument against summary judgment is that BMI is estopped
from denying coverage based on representations to Pickens
by BMI’s agent.
Specifically, Pickens avers in an
affidavit that, at the time he purchased the insurance, he
told BMI’s agent that he (Pickens) “desired to have full
coverage to protect me in the event I was sued,” and that
he believed the policies afforded him such coverage.
26 ¶ 3).
(Doc.
Pickens further avers that the agent did not
advise him of the subcontractor exclusion.
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(Doc. 26 ¶ 4).
As support for this argument, Pickens relies on Bill
Brown Constr. Co. v. Glens Falls Ins. Co., 818 S.W.2d 1
(Tenn. 1991), in which the Court held that any contractual
provision of an insurance policy may be waived by the acts
or representations of the insurer’s agent.
Id. at 13.
Pickens’s reliance on Bill Brown is misplaced.
Subsequent Tennessee decisions make clear that the rule of
Bill Brown applies only where the insured has no knowledge
that the agent lacks authority to make representations that
would alter the policy terms, and that where the policy
states that its terms can be amended or waived only by the
company, the insured is charged with that knowledge and a
claim for waiver by estoppel will not lie.
See Finchum v.
Davenport, No. M2007-00559-COA-R3-CV, 2008 WL 2019408, at
*7-8 (Tenn. Ct. App. May 9, 2008); Reed v. Nat’l Found.
Life Ins. Co., No. 03A01-9603-CV-00081, 1996 WL 718467, at
*3-4 (Tenn. Ct. App. Dec. 16, 1996).
The policies in this matter contain the following common
policy condition:
B.
Changes
This policy contains all the agreements between you and
us concerning the insurance afforded. The first Named
Insured shown in the Declarations is authorized to make
changes in the terms of this policy with our consent.
This policy’s terms can be amended or waived only by
endorsement issued by us and made a part of this policy.
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(Doc. 1., Exh. A at 31).
Thus, Pickens is charged with the knowledge that the
agent lacked the authority to alter the policy terms, and
his estoppel argument fails as a matter of law.2
For the above reasons, the Court concludes that BMI is
entitled to summary judgment and the declaratory relief it
seeks.
Therefore, having reviewed this matter, and the Court
being otherwise sufficiently advised,
IT IS ORDERED that plaintiff’s motion for summary
judgment (Doc. 13) be, and is hereby, GRANTED; defendants’
motions to amend their answers (Doc. 28, 30) be, and are
hereby, DENIED; and a judgment shall enter concurrently
herewith.
2
The Court also concludes that the claims asserted by
Underwood against Pickens and his wife which are not
directly related to the defective work -- e.g.,
negligent/fraudulent contract administration, fraudulent
inducement, violation of the TCPA, and other claims
relating to Pickens’s contractor’s license -- do not
involve any alleged “bodily injury” or “property damage” so
as to fall within the insuring agreement of the policies.
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This 18th day of July, 2013.
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