Case 2:08-cv-00874-RDP Document 52 Filed 09/23/10 Page 1 of 81 FILED 2010 Sep-23 PM 02:11 U.S. DISTRICT COURT N.D. OF ALABAMA
IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ALABAMA SOUTHERN DIVISION
CAPSTONE BUILDING } CORPORATION, } } Plaintiff, } } v. } Case No.: 2:08-CV-0513-RDP } AMERICAN MOTORISTS } INSURANCE COMPANY, } } Defendant. } } ______} CAPSTONE DEVELOPMENT } CORPORATION, } } Plaintiff, } } v. } Case No.: 2:08-CV-0874-RDP } AMERICAN MOTORISTS } INSURANCE COMPANY, } } Defendant. }
MEMORANDUM OPINION
This case is before the court on Defendant's Motion for Summary Judgment (Doc. #40)1 and
Defendant's Motion to Strike (Doc. #44). For the following reasons, the court concludes that
Defendant's Motion for Summary Judgment is due to be denied and Defendant's Motion to Strike is due to be granted.
1Unless otherwise specified, all docket entries reference this consolidated action's lead case, Case No. 2:08-CV- 513-RDP. Case 2:08-cv-00874-RDP Document 52 Filed 09/23/10 Page 2 of 81
I. STATEMENT OF FACTS
The present cases generally concern an insurance coverage dispute between Plaintiffs and
Defendant. To summarize, Plaintiffs Capstone Building Corp. ("CBC") and Capstone Development
Corp. ("CDC") agreed to construct residential units at the University of Connecticut. Plaintiffs completed the project in 2001, but in (or at some point before) 2004, the University discovered various deficiencies in the construction. Pursuant to the building contract between Plaintiffs and the
University, the University requested that Plaintiffs go to mediation. Plaintiffs demanded that
Defendant participate in the mediation because, according to Plaintiffs, the University's claims triggered coverage under a commercial general liability policy, which Plaintiffs contend extended to them and their work under the construction agreement. Defendant, on various grounds, denied that it had a duty to defend and further denied that the duty to defend extended to the presented controversy.
Incidental to these demands, Plaintiff CBC initiated a declaratory judgment action against
Defendant, and Defendant initiated a declaratory judgment action against Plaintiff CDC. Both cases, each of which proceeded in this court before separate judges, were dismissed without prejudice on procedural errors – one under Federal Rule of Civil Procedure 19 and the other on ripeness grounds.
Meanwhile, the University insisted that Plaintiffs participate in the mediation. In the face of
Defendant's assertion that coverage did not extend to the University's demands, Plaintiffs attended the mediation and brokered a deal whereby, instead of the $26 million requested by the University, each would pay to the University approximately $1 million. Now, Plaintiffs ask this court to declare that Defendant should have defended them and, in fact, wrongfully denied their demands. With that roadmap, the court delves more fully into the facts of this case.
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A. The Building Contract
On April 11, 2000, Plaintiff CDC confirmed its bid submitted to the University of
Connecticut for the coordination and supervision of the construction of a set of dormitories known as the Hilltop Apartments. (Doc. #42-2 at 16). According to the bid, Plaintiff CDC agreed to construct the project at a cost not to exceed $39,325,000. (Doc. #42-2 at 16).
On June 2, 2000, Plaintiff CDC, as developer, entered into an agreement with the University of Connecticut for coordinating and supervising the construction of the Hilltop Apartments. (2:08-
CV-874, Doc. #47-2 at 2). According to the agreement, Plaintiff CDC would be responsible for all work that it knew to be in violation of "laws, statutes, ordinances, building codes, and rules and regulations." (2:08-CV-874 Doc. #47-2 at 24). Additionally, Plaintiff CDC assumed responsibility for the "acts and omissions of [its] employees, subcontractors and their agents and employees and other persons . . . ." (2:08-CV-874 Doc. #47-2 at 5). Relatedly, in July 2000, Plaintiff CBC entered into an agreement with Plaintiff CDC. (Doc. #42-2 at 17). Pursuant to that agreement, Plaintiff
CBC would serve as the contractor for the Hilltop Apartments project. (Doc. #47-2 at 2). The construction contract between Plaintiff CDC and Plaintiff CBC incorporated the "Supplementary
Conditions" contained in the agreement between Plaintiff CDC and the University of Connecticut.
(Doc. #47-2 at 14).
The "Supplementary Conditions" governed, among other matters, resolution of disputes arising out of the project. (Doc. #47-2 at 58). Specifically, the dispute resolution clause provided as follows:
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10.9 Mediation of Claims
If a controversy or claim arises between the parties arising out of, or relating to this Contract or the breach thereof, the parties agree to use the following procedure prior to and as a precondition to either party pursuing any other available remedies, including arbitration or litigation:
1. A meeting shall be held promptly between the parties, attended by individuals with decision-making authority regarding the dispute, to attempt in good faith to negotiate a resolution of the dispute.
2. If, within 30 days after such meeting, the parties have not succeeded in negotiating a resolution of the dispute, they agree to submit the dispute to non- binding mediation in accordance with the Construction Industry Mediation Rules of the American Arbitration Association.
3. The parties will jointly appoint a mutually acceptable mediator, seeking assistance in such regard from the American Arbitration Association if they have been unable to agree upon such appointment within 20 days from the conclusion of the negotiation period.
4. The parties agree to participate in good faith in the mediation and negotiations related thereto for a period of 30 days. If the parties are not successful in resolving the dispute through the mediation, then the parties may pursue the other legal remedies available to them.
10.10 Arbitration or Litigation of Claims
Any controversy or claim arising out of or related to the Contract or the breach thereof which is not resolved through mediation . . . shall be subject to the provisions of Section 4-61 of the Connecticut General Statutes. The requirements of this Contract herein regarding the necessity of written notices of claim are not intended to abrogate the provisions of Connecticut General Statutes Section 4-61 regarding notice, and any notices required by Paragraph 10.3 of this document
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are in addition to those referred to in Connecticut General Statutes Section 4-61. . . .
(Doc. #47-2 at 58). Under Section 4-61 of the Connecticut General Statutes, a party "which has entered into a contract with the state . . . for the design, construction, construction management, repair or alteration of any . . . building . . . may, in the event of any disputed claims under such contract . . . bring an action against the state to the superior court for the judicial district of Hartford
. . . ." CONN. GEN. STAT. § 4-61(a). Alternatively, "any such" party "may submit a demand for arbitration of such claim or claims . . . ." CONN. GEN. STAT. § 4-61(b). If arbitration is demanded, then the arbitrator's "findings of fact and decision shall be final and conclusive and not subject to review by any forum, tribunal, court or government agency, for errors of fact or law." CONN GEN.
STAT. § 4-61(e).
B. The Insurance Policy
The "Supplementary Conditions" also covered insurance as to claims stemming from the construction project. (Doc. #47-2 at 31-54). In particular, the University of Connecticut had "the option to purchase and maintain, at its cost, [commercial general liability insurance] . . . for [itself],
Design/Builder, Subcontractors of all tiers and such other persons or interests as the [University of
Connecticut] may designate in connection with the performance of the [project] as insured parties
. . . ." (Doc. #47-2 at 33). Moreover, under the agreement, the University was required to procure
"[l]iability insurance providing coverage not less than a Commercial General Liability insurance policy and insuring [itself], the State of Connecticut, the Design/Builder, Subcontractors of all tiers and such other persons or interest as the [University] may designate in connection with the performance of the work, including . . . completed operations for three years after substantial
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completion of the work[,] . . . such that the total available limits to all insureds combined will not be less than $2,000,000 per occurrence and $5,000,000 aggregate . . . ." (Doc. #47-2 at 34). The contract required that the furnished policy "shall not be less than that specified" in the agreement.
(Doc. #47-2 at 36). In the event, however, that the University of Connecticut had not purchased the insurance, then it was obligated to "notify the Design/Builder at least ten (10) days before the Notice to Proceed is issued." (Doc. #47-2 at 33). According to Plaintiffs, such an event never occurred.
(Doc. #46 at 11).
As to the subject policy itself, the language of the policy indicates that the words "we," "us," and "our" "refer to the company providing this insurance." (Doc. #48-5 at 4). The policy defines
"you" and "your" as "the Named Insured shown in the Declarations, and any other person or organization qualifying as a Named Insured under this policy." (Doc. #48-5 at 4). On the policy's declarations page, however, "UCONN 2000 PHASE II OCIP" is the only named insured. (Doc. #48-
5 at 4). According to Bonney Hebert, who served as account executive to the University of
Connecticut and was involved in the development of the owner controlled insurance program
("OCIP") at issue, in the late 1990s and early 2000s, several construction projects were commenced at the University. (Doc. #48-2 at 1). Those projects were designated as "UConn 2000 Phase II."
(Doc. #48-2 at 1). The Hilltop Apartments project was part of that phase of construction at the
University. (Doc. #48-2 at 1). Importantly, according to Hebert, "'UCONN 2000 PHASE II OCIP' is not an entity but, rather, an insurance program consisting of parties that were involved in this phase of the University's construction and that enrolled within the owner controlled insurance program. [Plaintiff CBC] was such an enrollee." (Doc. #48-2 at 2).
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Indeed, Defendant's internal documents contain conflicting reports as to the clear identity of the insured. In a policy summary, Defendant identified the "insured" as "UCONN 2000 PHASE II
OCIP," the "business description" as "OCIP," and the legal entity as "corp." (Doc. #52-2 at 1).
Alternatively, in a Ceded Reinsurance Worksheet, printed May 22, 2001, Defendant labeled the
"insured" under the policy as "UCONN 2000." (Doc. #52-2 at 3). And on a Dividend or Correction
Notice, dated February 21, 2003, Defendant listed the "insured" as "UCONN Phase II." (Doc. #52-2 at 4). Lastly, and perhaps most importantly, in an internal e-mail sent October 28, 2002, Defendant's employee stated that "the direct premium [under the UCONN 2000 PHASE II OCIP] is booked in the underlying policies as they are issued throughout the policy year to the individual contractors."
(Doc. #52-2 at 5).
Relatedly (and likely due to the designation on the policy's declarations page of "UCONN
2000 PHASE II OCIP" as the insured), on October 4, 2000, Plaintiff CBC requested the University of Connecticut's OCIP administrator, Accordia Northeast, to add Plaintiff CBC as an Additional
Insured of the policy. (2:08-CV-874, Doc. #48-11 at 2). In response to this request, however, Helen
Dickie, on behalf of Accordia, replied:
The Owner (The University of Connecticut) and all of its enrolled contractors of each tier are added to the OCIP General Liability policy as a Named Insured effective as of the anticipated start date. This anticipated start date is also the effective date for all OCIP policies. Therefore, adding [Plaintiff CBC] as an Additional Insured on the General Liability policy is not only unnecessary, but would provide a lesser degree of protection than [Plaintiff CBC's] current status as a "Named Insured."
(2:08-CV-874, Doc. #48-11 at 2). In this regard, Accordia, as the University of Connecticut's OCIP administrator, confirmed that Plaintiff CBC, as an enrollee, was a Named Insured rather than an
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Additional Insured. (2:08-CV-874, Doc. #48-11 at 2). Similarly, Accordia issued to Plaintiff CDC on November 30, 2000 a "Certificate of Liability Insurance," which contained the same policy number as included on the policy to which "UCONN 2000 PHASE II OCIP" was listed, and specifically identified the "insured" as Plaintiff CDC. (2:08-CV-874, Doc. #48-12 at 2-3). On this
Certificate, the insurer for the commercial general liability policy was Defendant's predecessor-in- interest, Reliance National Insurance Company, and the policy number matches that which appears on the actual policy at issue. (2:08-CV-874, Doc. #48-12 at 3).
The policy specified that "[a]ny entity you [i.e., the Named Insured] are required in a written contract ('the contract') to name as an insured (the 'Additional Insured') is an Insured but only with respect to liability arising out of 'your work' for the Additional Insured, or acts or omissions of the
Additional Insured in connection with the general supervision of 'your work.'" (Doc. #49-1 at 19).
The policy defines "your work" as follows:
21. "Your work" means: a. Work or operations performed by you or on your behalf; and b. Materials, parts or equipment furnished in connection with such work or operations. "Your work" includes: a. Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of "your work"; and b. The providing of or failure to provide warnings or instruction.
(Doc. #48-5 at 16). Under the contract between the University and Plaintiffs CBC, as contractor, and
CDC, as developer, the "Named Insured on the Owner-provided O.C.I.P. policies shall include the
Owner, the State of Connecticut, their officers, agents and employees, Design/Builders and
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Subcontractors of any tier for whom the Owner has agreed to furnish O.C.I.P. coverage." (Doc. #47-
2 at 14; Doc. #47-3 at 5-6).
According to the policy's general insuring provision:
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 for "bodily injury" or "property damage" to which this insurance does not apply. We may, at our discretion, investigate any "occurrence" and settle any claim or "suit" that may result.
(Doc. #48-5 at 4). In particular, the policy "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'; and (2) The 'bodily injury' or 'property damage' occurs during the policy period."
(Doc. #48-5 at 4). Relevant to these provisions, the policy contains the following definitions:
SECTION V—DEFINITIONS . . . . 13. "Occurrence" means an accident, including continuous or repeated exposure to substantially the same general harmful conditions. . . . . 17. "Property damage" means: a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the "occurrence" that caused it. 18. "Suit" means a civil proceeding in which damages because of "bodily injury," "property damage" or "personal and advertising injury" to which this insurance applies are alleged. "Suit" includes: a. An arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with our consent; or
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b. Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with out consent.
(Doc. #48-5 at 13-16).
C. Detection of Defects
In August 2001, the building project's architect, Demarest & Associates, certified that the project was in compliance with the Connecticut Building and Fire Safety Codes. (Doc. #42-2 at 7).
Nevertheless, and over three years later, on September 29, 2004, the University of Connecticut sent a letter to Plaintiffs regarding perceived problems with construction. (Doc. #52-3 at 1). According to the letter, the University discovered, through routine maintenance, the presence of elevated levels of carbon monoxide in several areas of the construction, including in certain types of units throughout the Hilltop Apartments. (Doc. #52-3 at 1). According to the University's investigation, the source of the leak "was the individual hot water heaters serving the residential units and the insufficient draft of the exhaust from the heater through the venting system." (Doc. #52-3 at 1). In addition to the carbon monoxide issues, the University identified the following "defects and deficiencies" additionally attributable to Plaintiffs' work:
(a) The venting system is inadequate as designed and/or constructed incorrectly to properly vent the water heater exhaust from individual apartment units, (b) The sizes of flues are questionable and vary in diameter, (c) The size and capacity of the air handling equipment including condensers for the two-bedroom units are too large, (d) There is insufficient rise in the vent connectors, (e) The hot water heaters on each of the floors of the buildings are vented through common flues, without separate venting for individual hot water heaters, (f) Improper proximity of hot water heaters to air handling units and "B" vents to combustible construction,
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(g) Violation of numerous code requirements [throughout] the complex, (h) Insufficient protection against emission of hot water system exhaust into individual living units, (I) Poor workmanship and quality control, as evidenced by cutting and crimping of the pipe material and construction and other debris found in the pipes, thus obstructing and preventing the flow of exhaust from the pipes, (j) Poor workmanship and quality control, as evidenced by pieces of the venting system not properly put together or sealed.
(Doc. #52-3 at 2). As a consequence of these issues, the University engaged in and planned for remediation efforts, including "the installation of direct and separate flues from all third floor hot water heaters, the provision for consistent sizes of piping, the installation of spill switches, the installation of hard-wired carbon monoxide detectors directed to the University's Department of
Public Safety, the replacement or modification of the fan coil units in the two-bedroom residential units, and other potential actions." (Doc. #52-3 at 2).
D. Capstone Building Corporation v. Kemper Insurance Company
In response, Plaintiff CBC forwarded the University's letter to Defendant. (Doc. #52-4 at 1).
On December 6, 2004, Defendant acknowledged receipt of Plaintiff CBC's demand for defense against the University of Connecticut's claims. (Doc. #52-4 at 1). In particular, according to
Defendant's analysis, the University made a claim against Plaintiff CBC after "discover[ing] during the performance of routine maintenance procedures by University personnel of elevated levels of carbon monoxide in certain of the residence units." (Doc. #52-4 at 1). According to the letter, after investigation, the University determined that "the source of the problem was the individual hot water heaters serving the residential units and the insufficient draft of exhaust from the heater through the venting system." (Doc. #52-4 at 1). Aside from the carbon monoxide related issues, the letter did
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not include any other explicit references to alleged property damage other than "[a]dditional defects and deficiencies in the performance by [Plaintiff CBC], its engineers and contractors . . . ." (Doc.
#52-4 at 1). Indeed, despite the University's identification of concerns beyond the carbon monoxide level problems, Defendant referenced only the remediation efforts cited by the University of
Connecticut that related to responding to elevated carbon monoxide levels. (Doc. #52-4 at 1).
Responding to the tender, however, Defendant unequivocally denied coverage: "As the liability at issue arises out of [Plaintiff CBC's] own work, including its role as general contractor and heating and plumbing installation, there can be no coverage for this matter for Capstone under the policy." (Doc. #52-4 at 3). In support of its declination, Defendant first characterized Plaintiff CBC as an "Automatic Additional Insured" instead of the "Named Insured" under the policy. (Doc. #52-4 at 2). According to Defendant, only UCONN 2000 Phase II OCIP is a named insured. (Doc. #52-4 at 2). After determining that Plaintiff CBC is an automatic additional insured rather than a named insured, Defendant relied on the following policy provision, which concerns coverage as to additional insureds, to support its conclusion:
5. Any entity you are required in a written contract ("the contract") to name as an insured (the "Additional Insured") is an insured but only with respect to liability arising out of "your work" for the Additional Insured, or acts or omissions of the Additional Insured in connection with the general supervision of "your work" to the extent set forth below.
[. . .]
c. Except when expressly required by the contract, this insurance does not apply to "Bodily Injury" or "Property Damage" occurring after:
(1) All work on the project (other than service, maintenance or repairs) to be performed by or
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on behalf to the Additional Insured(s) at the site of the covered operations has been completed; or
(2) That portion of "your work" out of which the injury or damage arises has been put to its intended use by any person or organization other than another contractor or subcontractor engaged in performing operations for a principal as part of the same project.
(Doc. #52-4 at 3). Based on this provision, Defendant reasoned, "'your work' would mean the work of the Named Insured, or the work of UCONN 2000 Phase II OCIP. Thus, the only coverage that would be afforded to [Plaintiff CBC] for this matter as an additional insured under the policy would be with respect to liability arising out of UCONN 2000 Phase II OCIP for [Plaintiff CBC], or arising out of [Plaintiff CBC's] general supervision of UCONN 2000 Phase II OCIP's work." (Doc. #52-4 at 3). Accordingly, Defendant stated that "[a]s the liability at issue arises out of [Plaintiff CBC's] own work, including its role as general contractor and heating and plumbing installation, there can be no coverage for this matter for [Plaintiff CBC] under the policy." (Doc. #52-4 at 3). In reaching this conclusion, Defendant expressly reserved the additional right to deny coverage under any of the remaining exclusions contained in the policy. (Doc. #52-4 at 3). Notably, Defendant's denial did not turn on the timing and, correspondingly, the absence of a "suit," as purportedly required by the policy; instead, Defendant expressly denied coverage on the basis of substantive policy provisions.
Plaintiff CBC responded to the statement of denial with a series of letters, sent by its attorney, requesting Defendant to reconsider its initial determination. (Doc. #52-5). In response, on January
4, 2005 (i.e., approximately one month after having received Plaintiff CBC's demand), an agent for
Defendant's OCIP administrator recommended that Defendant "need[ed] to revisit this coverage
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issue" and opined that "[i]t is probably best to handle [the claim] under a reservation and get involved in the adjustment of the claim." (Doc. #52-6). Although this sentiment was reflected internally, no evidence suggests that Defendant officially communicated this assessment to Plaintiff
CBC.
From Plaintiff CBC's perspective, therefore, Defendant sustained its December 6, 2004 position, which prompted Plaintiff CBC to file a lawsuit against Defendant on April 4, 2005 in the
Circuit Court of Jefferson County, Alabama. (Doc. #52-7 at 2). In particular, Plaintiff CBC requested, inter alia, that the court "declare that the subject insurance policy obligates [Defendant] to provide coverage to [Plaintiff CBC] for the University's claims and contentions against [it]."
(Doc. #52-7 at 3). On March 31, 2006, Defendant removed the case to this court, and the case proceeded as Capstone Building Corporation v. Kemper Insurance Company, et al., No. 2:06-CV-
639-JHH (N.D. Ala.). On April 17, 2007, Judge Hancock dismissed without prejudice the declaratory judgment action because Plaintiff CBC had failed to join the University of Connecticut, which, at that time, was an indispensable party as to the insurance dispute. (Doc. #52-10 at 13).
Regarding the other claims for breach of contract and bad faith, Judge Hancock dismissed them without prejudice on ripeness grounds:
The complaint alleges that [Defendant] breached the insurance contract by "denying coverage" to [Plaintiff] CBC. However, when the lawsuit was filed, there was nothing for [Defendant] to cover; there was no "suit" as defined by the policy. [Plaintiff] CBC essentially concedes as much in its opposition brief when it argues that [Defendant] had a duty to defend [Plaintiff] CBC when, in May 2006, the University presented a mediation demand, which [Plaintiff] CBC contends "meets the definition of a 'suit' under the" insurance policy. This mediation demand, whether or not it meets the definition of a "suit," occurred thirteen months after the complaint was filed in
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this case. It cannot be the basis for either the breach of contract or bad faith claims.
(Doc. #52-10 at 12). Neither party appealed Judge Hancock's decision or requested reconsideration.
Accordingly, Plaintiff CBC's case did not, through judicial action, reverse Defendant's coverage position.
E. American Motorist Insurance Co., Inc. v. Capstone Development Corp., Inc.
Similarly, on May 9, 2005, Plaintiff CDC sent a letter to Defendant. (2:08-CV-874, Doc.
#48-2 at 2). Plaintiff CDC, pursuant to the policy, requested Defendant to review the claims asserted by the University of Connecticut. (2:08-CV-874, Doc. #48-2 at 2). In response, however, on July
18, 2005, Defendant responded to the request and, after noting that the matter did not "appear[] ...
[to] potentially implicate" the policy, declined to "provide a coverage position at [that] time." (2:08-
CV-874, Doc. #48-3 at 2). Defendant requested that, if Plaintiff CDC disagreed with the assessment, then Plaintiff should "advise [Defendant] immediately." (2:08-CV-874, Doc. #48-3 at 2). Nearly a year later, on February 6, 2006, Plaintiff CDC again sent a letter to Defendant and requested defense against the claims asserted by the University of Connecticut in connection with the mediation demands. (2:08-CV-874, Doc. #48-4 at 2).
Almost two months after Plaintiff CBC filed the above-mentioned lawsuit and Plaintiff CDC again requested Defendant to address the University of Connecticut's claims, on May 31, 2006,
Defendant filed a "Complaint for Declaratory Judgment" against Plaintiff CDC in this court. (2:08-
CV-874, Doc. #48-5 at 2). The case proceeded as American Motorist Insurance Co., Inc. v.
Capstone Development Corp., Inc., Case No. 2:06-CV-1032-WMA (N.D. Ala.). (2:08-CV-874,
Doc. #48-9 at 2). Defendant – the plaintiff in that case – requested the court to declare "that there
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is no responsibility, coverage, protection, or obligation or liability to pay any sums or perform any acts on behalf of [Plaintiff CDC] for the claims asserted by [the University of Connecticut] under the [subject] policy of insurance . . . ." (2:08-CV-874, Doc. #48-5 at 14). In the complaint,
Defendant did not allege that the mediation demand was insufficient to trigger coverage; instead,
Defendant identified various substantive exclusions in the policy, presumably on which it relied to assert that coverage did not extend to the underlying claims. (2:08-CV-874, Doc. #48-5 at 5-10).
Additionally, Defendant alleged that, pursuant to the building contract for the Hilltop Apartments project, "[the University of Connecticut] and [Plaintiff] CDC, among others, entered into an Owner
Controlled Insurance Program" and Plaintiff "CDC and [the University] were joint participants in the UCONN 2000 PHASE II OCIP." (2:08-CV-874, Doc. #48-5 at 3-4).
Nevertheless, on May 18, 2007, Plaintiff CDC filed a motion requesting dismissal for
Defendant's failure to join the University of Connecticut, which Plaintiff CDC contended was an indispensable party under Federal Rule of Civil Procedure 19. (2:06-CV-1032, Doc. #46). Judge
Acker granted the motion and "agree[d] that [the University of Connecticut] [was] a necessary and indispensable party to [that] action." (Doc. #48-9 at 4). Judge Acker, therefore, dismissed the case without prejudice. (2:08-CV-874, Doc. #48-9 at 10). Neither party appealed the decision or sought reconsideration.
F. Mediation between Plaintiffs and the University of Connecticut
During the pendency of those cases, and as referenced in Judge Hancock's decision, on May
16, 2006, the University of Connecticut sent to Plaintiffs CDC and CBC, as well as others, a letter formally requesting their participation in mediation. (Doc. #53-1 at 1). On the same day, Plaintiff
CBC sent a letter to Defendant and, again, demanded its defense in conjunction with the mediation.
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(Doc. #53-5 at 1). On May 31, 2006, Defendant responded to Plaintiff CBC's demand and represented that it had no obligation to defend Plaintiff CBC during the course of the mediation.
(Doc. #53-6 at 1-2). As a basis for its position, Defendant directed Plaintiff CBC to its answer in the case pending before Judge Hancock. (Doc. #53-6 at 1). According to Defendant's answer, aside from generic affirmative defenses, the following was the only context-dependent response:
"[Defendant] den[ies] that it has a contract with Plaintiff and further denies a breach of any performance thereunder." (2:06-CV-639, Doc. #3 at 1). From this representation, Plaintiff CBC concluded, in response, that it was "once again left with only the December 6, 2004 denial letter ... as apparently articulating the basis for the insurer's original and on-going declination." (Doc. #52-5 at 3).
On October 25, 2006, Plaintiff CBC, Plaintiff CDC, and the University of Connecticut, among others, finalized their deadlines for the proposed mediation. (Doc. #52-8). According to their schedule, no later than December 31, 2006, the University would submit its revised demand package with supporting documentation. (Doc. #52-8). By March 15, 2007, the parties would exchange position papers, and by April 1, 2007, the parties would exchange replies. (Doc. #52-8).
Tentatively, the mediation was set to last for six days – two days per month for three consecutive months. (Doc. #52-8).
In light of the agreed upon schedule, on December 28, 2006, the University issued a "Revised
Demand for Mediation and Summary of Claims." (2:08-CV-874, Doc. #47-4, Ex. 4 at 1). In the
Revised Demand, the University claimed that, as a result of the various building and design defects,
Plaintiffs CDC and CBC, as well as others, breached their agreement with the University by failing to properly implement the construction plans. (2:08-CV-874, Doc. #47-4 at 9). Additionally, the
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University asserted that Plaintiffs CDC and CBC had been negligent and breached their warranties under the contract as a result of the identified defects. (2:08-CV-874, Doc. #47-4 at 12-17). The
University claimed damages in excess of $25,000,000, which included "necessary corrective work,"
"the need for peer reviews . . . to review and design proposed changes and revisions," "loss of use of the premises resulting in rebates of rent to students for the periods of evacuation of the housing units or for periods when systems[] such as . . . air conditioning . . . was not operational," and
"damages associated with [Plaintiffs'] failure to perform [their] work in compliance with the
Contract, codes, State laws, and regulations." (2:08-CV-874, Doc. #47-4 at 17).
The University also detailed its remediation efforts, which the University divided into two phases. (2:08-CV-874, Doc. #47-4 at 18-25). According to the attachments to the Revised Demand, in Phase One (2004-2005), the University required the following updates to ensure code, contract, and safety compliance:
(1) The installation of heating units and flue vents in mechanical closets "violated the State Building Code in that flue vents were not installed in shaft enclosures through fire-resistant floor assemblies and the flue vents from multiple stories were stacked into a common flue vent." (2:08-CV-874, Doc. #47-4 at 18). The University estimated the cost of remediation at $10,849,492. (2:08-CV-874, Doc. #47-4 at 18). (2) The vent for the washing and drying machines exceeded the code specifications by nineteen inches. (2:08-CV-874, Doc. #47-4 at 18). The University estimated the cost of remediation at $636,206. (2:08-CV-874, Doc. #47-4 at 18). (3) "The State Building Code requires that 4% of the student apartments be handicapped accessible. During the design phase, [Plaintiff CDC] failed to properly plan for the proper number of apartments. To comply with the State Building Code additional apartments had to undergo significant modifications to allow accessibility." (2:08-CV-874, Doc. #47-4 at 18). The University estimated the cost of remediation at $595,835.
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(4) "At various locations in the installation liquid tight flexible non-metallic conduit was employed. In many instances, an inadequate number of supports were installed, especially adjacent to the exterior condenser units." (2:08-CV-874, Doc. #47-4 at 19). The University estimated the cost of remediation at $35,264. (5) "The design documents called for metal drain pans to be located under air handling units to comply with the State Building Code and to protect the adjacent area surrounding the mechanical equipment in the event the primary drain is blocked. The auxiliary pans were not installed." (Doc. #47-4 at 19). The University estimated the cost of remediation at $409,063. (2:08-CV-874, Doc. #47-4 at 19). (6) "The electrical design called for recessed light fixtures in the ceilings of many of the units. The units specified were replaced with a substitution by the electrical contractor and approved by [Plaintiff] CDC's electrical engineer. The substituted units, however, did not allow contact with insulation, as was required for that application." (2:08-CV- 874, Doc. #47-4 at 19). The University estimated the cost of remediation at $25,545. (2:08-CV-874, Doc. #47-4 at 19). (7) "The plans for the units included many exit doors that led only a short distance from the apartment buildings. The State Building Code requires that the exit discharge must lead from the exit doors to a public way. Further, it was revealed that there were missing handrails, improper slopes and inaccessible egress." (2:08-CV-874, Doc. #47-4 at 19). The University estimated remediation at $86,094. (2:08-CV-874, Doc. #47-4 at 19). (8) "[T]he stair rails did not extend at least 12" beyond the top riser and the depth of one tread beyond the bottom riser. The rails had to be extended to meet the code. Also . . . there were not barriers underneath the stairs to protect people from colliding with the bottom of the stairs." (2:08-CV-874, Doc. #47-4 at 19). The University estimated remediation at $122,323. (2:08-CV-874, Doc. #47-4 at 19). (9) Cabinets containing fire extinguishers "protrude[d] more than 4" into egress paths, resulting in a code violation." (2:08-CV- 874, Doc. #47-4 at 19). The University estimated remediation at $139,758. (2:08-CV-874, Doc. #47-4 at 19). (10) "The design of the structures designated the buildings as Type 5A wood framed structures with sprinkler protection. Based on that designation, the drawings further provided fire-rating
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requirements for floor and roof assemblies. Notwithstanding those designations, the actual installation compromised the fire-rating because of numerous heater flues, light fixtures and ductwork penetrations into those fire-rated assemblies." (2:08-CV-874, Doc. #47-4 at 20). The University estimated the cost of remediation at $2,363,085. (2:08-CV-874, Doc. #47-4 at 20). (11) At odds with the State Building Code, "gypsum wallboard was installed adjacent to Fire Sprinkler devices and valves in stair shafts." (2:08-CV-874, Doc. #47-4 at 20). The University estimated the cost of remediation at $9,011. (2:08- CV-874, Doc. #47-4 at 20). (12) "[E]lectrical panels in buildings 19 and 20 had been designed and installed in clothes closets which is a violation of the State Building Code." (2:08-CV-874, Doc. #47-4 at 20). The University estimated the cost of remediation at $36,696. (2:08-CV-874, Doc. #47-4 at 20).
Following Phase One, the University initiated Phase Two of its remediation efforts, which occurred during 2006:
(1) "[T]he lack of continuity of the stair shaft wall was a violation of code." (2:08-CV-874, Doc. #47-4 at 21). "[A]n additional code deficiency of the penetration of the shaft wall assemblies by floor trusses also existed." (2:08-CV-874, Doc. #47-4 at 21). While the University began repairing these issues with the stair shafts, "water damage was discovered in the stair shaft wall of building 19. Upon further investigation, it was discovered that the water damage originated from a leak in a water pipe due to its penetration by a screw during the original construction. The water leak led to the discovery of plumbing systems penetrating the shaft wall which was also a code violation." (2:08-CV-874, Doc. #47-4 at 21). "During this process [of addressing the aforementioned problems], condensate piping and refrigerant piping was found penetrating the fire separation assembly. In some buildings, this work required the existing kitchen fixtures and cabinetry to be removed, utilities to be removed and relocated and the original kitchen fixtures and cabinetry reinstalled." (2:08- CV-874, Doc. #47-4 at 21). The University estimated the cost of remediation at $5,900,000 and the lost revenue associated
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with the evacuation of students at $1,160,000. (2:08-CV-874, Doc. #47-4 at 22). (2) "The design and installation of the Hilltop Apartment fire protection system resulting in several code deficiencies." (2:08-CV-874, Doc. #47-4 at 22). The University estimated the cost of remediation at $1,800,000. (2:08-CV-874, Doc. #47-4 at 22). (3) "[T]he design and construction of firewalls and attic spaces" resulted in "several code deficiencies." (2:08-CV-874, Doc. #47-4 at 22). The University estimated the cost of remediation at $82,462. (2:08-CV-874, Doc. #47-4 at 22). (4) Electrical installations violated the State Building Code. (2:08-CV-874, Doc. #47-4 at 23). For example, "electrical panels [were] installed in fire rated walls along with duplex receptacles that were loose, device face plates . . . were improperly installed, and outlet and switch device boxes . . . were recessed more than 1/4" from the finished surface." (2:08-CV-874, Doc. #47-4 at 23). Additionally, "no warning ribbon was installed over some of the secondary direct burial cables and the warning ribbon that was in place was installed improperly, less than 12" above the service lateral. . . . [I]nadequate grounding was provided at each main panel board." (2:08-CV-874, Doc. #47-4 at 23). Finally, "outlets for the kitchen range . . . had connectors left unattached to the device boxes and exposed copper conductors in the wall cavity. . . .[,] time delay relay devices for the bathroom exhaust fans [were improperly installed, and] fire alarm audible sound in individual apartments [was] set to the wrong tone." (2:08-CV-874, Doc. #47-4 at 23). The University estimated the cost of remediation at $784,995. (2:08-CV-874, Doc. #47-4 at 23). (5) Regarding interior egress, the following State Building Code violations were discovered: "(1) handrails that were located less than 34" from the nose of the tread in the exit stair enclosures; (2) exit stair enclosures that did not contain tactile signage; (3) a lobby entrance/exit in building 22 that was not constructed as shown on the drawings [which] result[ed] in non-compliant doors; and (4) there was only one exit for lower level units in buildings 19 and 20, where the code required two exits." (2:08-CV-874, Doc. #47-4 at 23). The University estimated the cost of remediation at $487,701. (2:08-CV-874, Doc. #47-4 at 23).
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(6) Exterior code violations were also discovered. (2:08-CV-874, Doc. #47-4 at 24). In particular, "[t]read and riser dimensions on exterior egress stairs were found to exceed the required dimensional uniformity. Several rear exists discharged onto the lawn without clear paths to travel to public way and erosion was observed on temporary gravel walkways." (2:08- CV-874, Doc. #47-4 at 24). Because the University, at the time of the Revised Demand, was investigation possible solutions, the cost was not yet determined. (2:08-CV-874, Doc. #47-4 at 24). (7) The University discovered that "the rigid metal conduits used to sleeve the direct burial cables into the transformer pads . . . were not properly bonded resulting in a code deficient installation. . . . [I]mproper backfill material was used around the direct burial of secondary cables." (2:08-CV-874, Doc. #47-4 at 24). At the time of the Revised Demand, the University was exploring possible remediation approaches, and consequently, the cost was not yet determined. (2:08-CV- 874, Doc. #47-4 at 24). (8) "[A] sample of magnetic door hold-open devices . . . appeared to be operating at higher than normal temperatures[, which] result[ed] in . . . code discrepancies." (2:08-CV-874, Doc. #47-4 at 24). At the time of the Revised Demand, the cost was not yet determined. (2:08-CV-874, Doc. #47-4 at 24). (9) Finally, the University "identified various code issues that [were] considered maintenance issues . . . : (1) roof trusses that had been cut in the mechanical room of apartment buildings; (2) incandescent light fixtures that were improperly installed in closets; (3) temporary lighting cords and applicant cords that were found to be improperly installed in various locations; (4) missing escutcheon plates, electrical box covers and light fixture covers, along with broken light fixtures and sprinkler heads; (5) water flow devices mounted too close to the ceiling and an improperly mounted smoke detector; and (6) . . . CO detector cables in mechanical closets . . . were not supported or properly protected." (2:08-CV-874, Doc. #47-4 at 24-25). Similarly, "two aluminum conductors rated at 500 amps were improperly connected to a 600 amp breaker and inadequate ground rod protection was used at each main panel board in the original construction . . ." (2:08-CV-874, Doc. #47-4 at 25).
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Based on these deficiencies and remediation projects implemented in Phases One and Two, the
University demanded from Plaintiffs, as well as others, a total amount in excess of $25,000,000.
(2:08-CV-874, Doc. #47-4 at 25).
On December 26, 2007, the parties to the mediation finalized and signed the proposed settlement agreement. Plaintiffs CDC and CBC agreed to each pay the University of Connecticut
$1 million. In addition to the actual value of the settlement, Plaintiffs CDC and CBC incurred substantial attorney's fees in the course of defending themselves against the claims asserted by the
University of Connecticut.
G. The Present Lawsuits
On February 27, 2008, Plaintiff CBC filed the instant lawsuit in the Circuit Court of Jefferson
County, Alabama. (Doc. #1-1 at 6). In its complaint, Plaintiff CBC alleged against Defendant the following causes of action: (1) breach of contract; and (2) bad faith. (Doc. #1-1 at 10-11). On
March 24, 2008, Defendant removed the case to this court. (Doc. #1-1 at 1). Similarly, on April 28,
2008, Plaintiff CDC filed a lawsuit against Defendant in the Circuit Court of Jefferson County,
Alabama. (2:08-CV-874, Doc. #1 at 11). In its complaint, Plaintiff CDC made similar allegations as Plaintiff CBC. (2:08-CV-874, Doc. #1 at 17-18). On May 16, 2008, Defendant removed that case to this court. (2:08-CV-874, Doc. #1 at 1).
On May 19, 2008, Defendant filed a motion to consolidate Plaintiff CBC's lawsuit with
Plaintiff CDC's lawsuit, then pending before Magistrate Judge Davis. (Doc. #10). The next day, the court granted the motion and consolidated the cases. (Doc. #11). Accordingly, the cases have proceeded as a consolidated action for all pre-trial and trial-related purposes.
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On January 29, 2009, the court entered an order bifurcating this action. (1/29/09 Order).
According to the order, which divided the case into two phases, the parties were required to first address, through discovery and dispositive motions, the preliminary question of coverage and, relatedly, breach of contract. (1/29/09 Order). Only if the cases survive the threshold issues related to coverage would they proceed to the second phase of litigation, which would concern Plaintiffs' asserted claims for extra-contractual liability against Defendant. On that basis, this case is before the court on Defendant's motion for summary judgment requesting that the court declare, as a matter of law, that (1) there are no genuine issues of material fact as to any coverage issue and (2) Plaintiffs' claims were not covered by the subject policy. The matter has been fully briefed and is now properly under submission.
II. STANDARD OF REVIEW
Summary judgment is appropriate when “the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” FED. R. CIV. P. 56(c). “Genuine disputes are those in which the evidence is such that a reasonable jury could return a verdict for the non- movant.” Mize v. Jefferson City Bd. of Educ., 93 F.3d 739, 742 (11th Cir. 1996) (quoting Hairston v. Gainesville Sun Publ’g Co., 9 F.3d 913, 918 (11th Cir. 1993)). In making this assessment, the court must view the evidence “in the light most favorable to the nonmoving party.” Thomas v.
Cooper Lighting, Inc., 506 F.3d 1361, 1363 (11th Cir. 2007) (citing Damon v. Fleming Supermarkets of Fla., Inc., 196 F.3d 1354, 1357 (11th Cir. 1999)). But while that is the case, “[a] court need not permit a case to go to a jury . . . when the inferences that are drawn from the evidence, and upon
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which the nonmovant relies, are ‘implausible.’” Mize, 93 F.3d at 743 (quoting Matsushita Elec.
Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 592-94 (1986)).
Alternatively, there is no genuine issue of material fact if “the nonmoving party fails to make a showing sufficient to establish the existence of an element essential to that party’s case and on which the party will bear the burden of proof at trial.” Jones v. Gerwens, 874 F.2d 1534, 1538 (11th
Cir. 1989) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-24 (1986)). Consequently , the court
“must view the evidence presented through the prism of the [movant’s] substantive evidentiary burden.” Celtoex Corp., 477 U.S. at 254.
To respond, the nonmoving party “may not rely merely on allegations or denials in its own pleadings; rather, its response must . . . set out specific facts showing a genuine issue for trial. If the opposing party does not so respond, summary judgment should, if appropriate, be entered against that party.” FED. R. CIV. P. 56(e)(2). Importantly, “[t]he mere existence of a scintilla of evidence in support of the plaintiff’s position will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986).
The underlying substantive law determines the materiality of a dispute and, hence, whether the dispute is sufficient to create a question of fact for the jury. The parties agree that Connecticut law governs this controversy. Under well-established Connecticut law, it "is the function of the court to construe the provisions of the contract of insurance." Springdale Donuts, Inc. v. Aetna Cas. &
Sur. Co., 724 A.2d 1117, 1119 (Conn. 1999) (citation omitted). "An insurance policy is to be interpreted by the same general rules that govern the construction of any written contract and enforced in accordance with the real intent of the parties as expressed in the language employed in the policy." Imperial Cas. & Indem. Co. v. Connecticut, 714 A.2d 1230, 1236 (Conn. 1998) (citation
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omitted). Accordingly, a dispute regarding the legal meaning of an insurance policy's term is a question of law that is insufficient, on its own, to overcome a motion for summary judgment. See, e.g., Martinez v. Roberts, No. CV085020486, 2009 U.S. Conn. Super. LEXIS 1902, at *3-4 (Conn.
Super. Ct. July 8, 2009) ("Issues of insurance coverage are appropriate for summary judgment as the meaning of insurance contracts present questions of law that are not generally suitable for jurors.").
Nevertheless, when the underlying evidence affecting the applicability and/or extent of coverage is in dispute, then, and only then, is there a genuine issue of material fact sufficient to defeat a motion for summary judgment. See generally COUCH ON INSURANCE § 247:26 (3d ed. 2010) ("Generally, it is improper to grant a summary judgment where there is an issue of fact which must be determined before the merits of the claim can be judged.").
III. DISCUSSION
A. Plaintiffs' Expert Report
Plaintiffs retained Jeffrey J. Vita, a Connecticut lawyer, for the purpose of analyzing the instant insurance agreement and determining Defendant’s alleged responsibilities vis-a-vis the allegations in this lawsuit. In particular, Plaintiffs requested that Vita “provide an opinion regarding whether the defense and indemnify costs incurred by [CBC] and [CDC] . . . related to their dispute with the University of Connecticut . . . arising out of the Hilltop Apartments Project . . . are covered by the [CGL] portion of OCIP policy number NGB60218000 . . . issued by Reliance National
Insurance Company, as assigned to American Motorist Insurance Company, Inc. . . .” (2:08-CV-874,
Doc. #48-14 at 2. According to Vita, “[i]t is [his] opinion that [Plaintiffs are] entitled to coverage for both defense and indemnity pursuant to the terms of the Policy and Connecticut law.” (2:08-CV-
874, Doc. #48-14 at 2).
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In response, Defendant filed a motion in limine requesting the court to strike the expert report from consideration. (Doc. #44). In support of the motion, Defendant argues that “the opinions proffered by [Vita] are not only opinions of contract or policy interpretation, or of what the law of
Connecticut is, but for the most part are speculative opinions concerning how he anticipates
Connecticut appeals courts would decide the dispositive issues in this case.” (Doc. #44 at 5).
Accordingly, Defendant contends, “any testimony of [Vita], or portions of his report, which
[Plaintiffs] might offer for any reason in this case, and which would be opinions of law rather than statements of act, are inadmissible and should be prevented and excluded.” (Doc. #44 at 6). The court agrees, and for the following two reasons, the court concludes that Vita’s report is due to be stricken.
First, the court finds that Plaintiffs have waived any objection to the motion. Pursuant to this court’s Exhibit B (Doc. #15 at 3-6), entered June 10, 2008, the opponent’s responsive brief “shall be filed no later than seven (7) calendar days” after “the filing of any non-summary judgment motion
. . . .” Moreover, the court specified that “[a]ny non-summary judgment motions filed after [June
10, 2008] shall comply with the provisions of Exhibit B without further order from the court.” (Doc.
#15 at 1). A motion to strike is a “non-summary judgment motion” and, consequently, subject to the scheduling requirements of Exhibit B; nevertheless, Plaintiffs never responded to the motion within or outside of the seven day requirement. But it is a party’s “responsibility to present its arguments to the court; it is not the court’s responsibility to go in search of them.” Bd. of Water &
Sewer Comm’rs of the City of Mobile v. Ala. Dep’t of Transp., No. 08-718, 2009 U.S. Dist. LEXIS
16593, at *2 n.1 (S.D. Ala. Mar. 3, 2009). Accordingly, the court concludes that Plaintiffs have waived any entitlement to Vita’s expert report as probative evidence in this case.
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Second, and even putting aside the waiver, the court concludes that the motion to strike is firmly supported by legal precedent. As the Eleventh Circuit has explained, “[d]omestic law is properly considered and determined by the court whose function it is to instruct the jury on the law; domestic law is not to be presented through testimony and argued to the jury as a question of fact.”
United States v. Oliveros, 275 F.3d 1299, 1306-07 (11th Cir. 2001) (affirming district court’s exclusion of purportedly expert testimony, offered by an attorney, on the topic of immigration law).
Indeed, in this Circuit, a district court abuses its discretion in insurance cases by permitting a witness to testify regarding “what result to reach” or “the legal implications of conduct” as it relates to coverage and, relatedly, the duty to defend. Montgomery v. Aetna Cas. & Sur. Co., 898 F.2d 1537,
1541 (11th Cir. 1990). Vita’s report, however, is riddled with precisely these improper conclusions.
Thus, on the merits, Defendant’s motion to strike is due to be granted.
On a motion for summary judgment, the court is not engaged in fact-finding; rather, the court evaluates solely whether genuine issues of material fact exist and, if not, whether judgment as a matter of law is due to be entered. FED. R. CIV. P. 56(c). But in this posture, the court may consider only evidence otherwise reducible to an admissible form at trial when making these determinations.
See, e.g., Thomas v. IBM, 48 F.3d 478, 485 (10th Cir. 1995) ("[T]he nonmoving party need not produce evidence in a form that would be admissible at trial, but the content or substance of the evidence must be admissible.") (citations omitted). Because, for the reasons stated above, the content of Vita’s report would be inadmissible at trial, the court disregards his legal conclusions for the purpose of the instant summary judgment motion.2
2Additionally, his deposition testimony is similarly due to excluded from consideration. During the course of the deposition, Defendant merely tested the scope and contours of Vita's opinions as memorialized in the report. Because the report is due to be stricken, the deposition testimony is similarly assigned no probative value.
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B. Coverage Dispute
1. Plaintiffs' Insured Status
At the threshold, the court must determine whether Plaintiffs are "named insureds."
According to Defendant, the subject insurance policy defines the "you" and "your" as "the Named
Insured shown in the Declarations . . . ." (Doc. #48-5 at 4). On this policy's declaration page, the named insured is listed as "UCONN 2000 PHASE II OCIP," which, according to Defendant, is an unambiguous identification and necessarily precludes either Plaintiff from asserting "named insured" status. In response, Plaintiffs have presented extrinsic evidence suggesting that "UCONN 2000
PHASE II OCIP" is an owner controlled insurance program (or "OCIP") that enrolled them as
"named insureds" under the policy. The resolution of these arguments turns on application of the parol evidence rule.
Although the Supreme Court of Connecticut has carved out narrow exceptions to the parol evidence rule, Sims v. Honda Motor Co., 623 A.2d 995, 1002-03 (Conn. 1993), the law comports with the traditional view that, in the absence of ambiguity within the "four corners" of a contract (i.e., a patent ambiguity), extrinsic evidence is inadmissible to "clarify" the parties' intention. See, e.g.,
United Illuminating Co. v. Wisvest-Connecticut, LLC, 791 A.2d 546, 670-71 (Conn. 2002) ("[A] contract is ambiguous if the intent of the parties is not clear and certain from the language of the contract itself.") (citing Levine v. Massey, 654 A.2d 737 (Conn. 1995)). In other words, an
"ambiguity in a contract must emanate from the language used' by the parties." Id. at 671 (quoting
Levine, 654 A.2d at 741). Only "[i]f the language of the contract is susceptible to more than one reasonable interpretation" is the contract ambiguous. Id. (citing Lopinto v. Haines, 441 A.2d 151
(Conn. 1981)). And further solidifying this approach, "a presumption that the language used is
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definitive arises when, as in the present case, the contract at issue is between sophisticated parties and is commercial in nature." Id. at 670 (citing Tallmadge Bros., Inc. v. Iroquois Gas Transmission
Sys., L.P., 746 A.2d 1277 (Conn. 2000)).
The Supreme Court of Connecticut has applied this framework in the context of coverage disputes as they relate to the identity of the insured. For example, in Ceci v. National Indemnity
Company, the court addressed whether the plaintiff was "entitled to underinsured motorist benefits, as a 'family member' of the insured, pursuant to the business automobile insurance policy issued by the defendant to the plaintiff's corporate employer." 622 A.2d 545, 546 (Conn. 1993). In Ceci, the insurer issued a policy to Victor Ceci Refuse, Inc., "a corporation operated by the plaintiff's family" and the only named insured on the policy's declaration page. Id. The underinsured motorist provision extended coverage to "you or any family member." Id. The plaintiff, whose brother was
Victor Ceci (i.e., the sole shareholder of Victor Ceci Refuse, Inc.), submitted a claim to the insurer.
Id. The insurer denied coverage on the basis that an individual cannot be a "family member" of a corporation. Id. at 546-47. The Supreme Court of Connecticut, however, reversed the grant of summary judgment in favor of the insurer because an ambiguity existed in the policy insofar as
"corporations do not have families." Id. at 550. Indeed, according to the court, adopting the insurer's position would require nullifying the "or any family member" provision, a result wholly at odds with a cardinal rule of interpretation requiring "every provision of an insurance policy [to] be given operative effect." Id. Accordingly, the court located ambiguity in the terms of the policy rather than by considering evidence extrinsic to the agreement.
In this case, it is virtually undisputed that, by the terms of the insurance policy, there is no ambiguity regarding the "named insured." According to the policy, "you" and "your" refer only to
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the "Named Insured" as identified on the declaration affixed to the agreement. (Doc. #48-5 at 4).
On the declaration, the "named insured" is unambiguously defined as "UCONN 2000 PHASE II
OCIP" with an address of "181 Auditorium Road, Stors, Connecticut 06269." (Doc. #48-5 at 4).
And Plaintiffs have not identified any terms in the agreement in tension with this designation. Thus, this case is unlike Ceci because the coverage itself is not at odds with the designee on the policy's declaration; rather, Plaintiffs argue that the identification of "UCONN 2000 PHASE II OCIP" is ambiguous if extrinsic evidence is first considered.
Importantly, the exclusion of extrinsic evidence presupposes the presence of a patent rather than a latent ambiguity. However, under established Connecticut law, a latent ambiguity permits the introduction of extrinsic evidence to give meaning to the terms of a written agreement and to unearth an ambiguity otherwise not apparent. See, e.g., Averill v. Sawyer, 27 A. 73, 75 (Conn. 1893) ("The rule which prohibits the introduction of parol evidence to contradict, vary or explain a written agreement, except in case of a latent ambiguity, is undoubted.") (emphasis added). Latent ambiguities, unlike patent ambiguities, "are those which appear as the result of extrinsic or collateral evidence showing that a word, thought to have but one meaning, actually has two or more meanings." Ranfone v. Ranfone, 987 A.2d 1088, 1091 (Conn. App. Ct. 2010) (citations omitted).
In this regard, the court finds the Supreme Court of Virginia's analysis in Southern Insurance
Company of Virginia v. Williams, 561 S.E.2d 730 (Va. 2002), to be highly persuasive. There, the court concluded that a latent ambiguity existed because, among other reasons, "the named insured
[was] not a legal entity." Id. at 733. Accordingly, the court reasoned that the consideration of extrinsic evidence "to determine the original intention of the parties to that policy" was appropriate.
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Id. The Williams court reached that conclusion despite acknowledging that the "specific definitions of the 'insured' in [the] policy are not, when read in isolation, ambiguous." Id.
Like the policy in Williams, the policy here presents a similar dilemma regarding interpretation. As noted, the policy itself, insofar as the "named insured" is concerned, does not present a patent ambiguity. Nevertheless, Plaintiffs have produced substantial evidence suggesting that (1) "UCONN 2000 PHASE II OCIP" is not a legal entity and (2) the parties' intentions contemplated coverage as to Plaintiffs. In particular, according to Bonney Hebert, who served as
Account Executive for Accordia Northeast, Inc., which was the insurance broker for the University of Connecticut, "'UCONN 2000 PHASE II OCIP' is not an entity but, rather, an insurance program consisting of parties that were involved in [a] phase of the University's construction and that enrolled within the owner controlled insurance program." (Doc. #48-2 at 2). Indeed, according to Hebert, the "intent and reasonable expectations of Accordia and the University were that [Defendant's] policy would provide general liability coverage to all enrollees of the 'UCONN 2000 PHASE II OCIP,' including [Plaintiff CBC], as automatic insureds under the policy." (Doc. #48-2 at 2). Similarly,
Helen Dickie, also on behalf of Accordia, explained to Plaintiff CDC that, because Plaintiff CDC was an "enrolled contractor," insurance coverage extended to it as a "named insured" rather than an
"additional insured." (2:08-CV-874, Doc. #48-11 at 2).3 Corroborating these accounts, Accordia issued a Certificate of Liability Insurance to Plaintiff CBC on or about August 10, 2000. (2:08-CV-
3In response, Defendant identifies a purported discrepancy between the letter to Plaintiff CDC and the Hebert Affidavit. (Doc. #56 at 28). According to Defendant, Accordia described Plaintiff CDC's status as a "named insured" but "backed away from that status" in the Hebert Affidavit by describing Plaintiff CBC as an "additional insured." (Doc. #56 at 28). First, in the Hebert Affidavit, she designated Plaintiff CBC as an "automatic insured" – not an "additional insured." (Doc. #48-2 at 2). Second, and in any event, Hebert's language is ambiguous insofar as it is uncertain whether she meant "automatic additional insured" or "automatic named insured." But if there is a tension in the evidence, that is an issue to be resolved by the trier of fact, and it is emphatically not the court's role to make factual findings, as Defendant argues.
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874, Doc. #49-2). On that Certificate, Defendant's predecessor is listed as the insurer for a commercial general liability policy bearing the same policy number as that which was on the policy issued to "UCONN 2000 PHASE II OCIP." (2:08-CV-874, Doc. #49-2 at 2).4 Thus, there are two conflicting inferences that flow from this evidence: either (1) Accordia unilaterally and/or ineffectively enrolled Plaintiffs as "named insureds" under the policy, or (2) Accordia effectively enrolled Plaintiffs as "named insureds" under the policy. Viewing the evidence in the light most favorable to Plaintiffs, the court concludes that Plaintiffs have produced sufficient evidence to withstand a motion for summary judgment on this basis.
In short, the evidence accords with the customary practice in the insurance industry where,
"[u]nder an OCIP, the owner buys a policy of insurance that will cover all of the subcontractors. By absorbing the cost of insurance itself, the owner averts the need for each subcontractor to include the cost of insurance in its bid." Pride v. Liberty Mutual Ins. Co., No. 04-703, 2007 U.S. Dist. LEXIS
40833, at *4 (E.D. Wis. June 5, 2007) (citing Casey v. Vanderlande Indus., Inc., No. 01-413, 2002
U.S. Dist. LEXIS 11956 (W.D. Ky. June 28, 2002)). "OCIP," therefore, is not necessarily a standalone "insured," as Defendant appears to suggest; rather, "OCIP" may be simply a shorthand bookkeeping reference to a program covering the constituents of, in this case, a construction project.
See 4 BRUNER & O'CONNOR ON CONSTRUCTION LAW § 11:310 (2010) ("These policies place many of the construction participants under one coverage program."); see also 4 BRUNER & O'CONNOR ON
CONSTRUCTION LAW § 11:310.10 (2010) (noting that the "named insured" definition under an OCIP is typically very broad). At the very least, Plaintiffs' evidence creates a reasonable inference that
4 Defendant, quoting Couch on Insurance § 40:30, concedes that, although a Certificate of Insurance does not create a legal obligation, it is "evidence of the insurance." (Doc. #56 at 27 n.16). At this stage, the court merely considers whether there is evidence to support Plaintiffs' claims.
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Defendant's policy issued to "UCONN 2000 PHASE II OCIP" was intended to cover Plaintiffs as
"named insureds," and Accordia, as the OCIP administrator for the University of Connecticut, enrolled them as such.
Accordingly, based on Plaintiffs' evidence, to reach the contrary conclusion – that the named insured is "UCONN 2000 PHASE II OCIP" – would require the court to accept the proposition that
Defendant had issued a policy to a non-existent entity.5 Perhaps anticipating this observation,
Defendant argues that "UCONN 2000 PHASE II OCIP" is a trade name and, consequently, the
University of Connecticut, as the operator of the trade name, is the insured pursuant to the policy declaration. To support this claim, Defendant asserts that "UCONN 2000" is merely the "building initiative" for the University. (Doc. #41 at 41). Evidence in the Rule 56 record supports the suggestion that "UCONN 2000 PHASE II" referenced a series of building projects engaged at the
University of Connecticut during the relevant time frame. (Doc. #48-2 at 1). Conspicuously absent from the Rule 56 record, however, is any evidence whatsoever that the University publicly or internally designated these projects with an "OCIP" suffix. Indeed, the more plausible explanation is that the "OCIP" acronym, located on an insurance declaration page, referenced a term understood within the insurance field (i.e., "owner controlled insurance program"). But in any event,
Defendant's unsubstantiated assertion that "UCONN 2000 PHASE II OCIP" references a trade name
5In response to this point, Defendant argues that, if "UCONN 2000 PHASE II OCIP" is not a legal entity, then the policy sold to the University of Connecticut is a nullity because an "essential element to any contract, including policies of insurance, is that it have identifiable parties who are competent to contract, and whose minds have met on all essential element to contract formation." (Doc. #56 at 25-26). This argument simply misses the mark. First, the argument begs the question by assuming that the parties' intention, at the initiation of the policy, was to insure only "UCONN 2000 PHASE II OCIP" rather than the construction project participants. Until the evidence is tested for credibility and authenticity, no conclusion can be reached regarding whether the parties intended to insure only an allegedly non-existent entity. Second, and perhaps more importantly, the court certainly hopes that Defendant is not suggesting that it accepted premium payments from the University for a void and unenforceable policy.
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– and therefore the University of Connecticut – is unavailing in the absence of any corroborating evidence.6
At this juncture, the court simply notes that there is evidence in the Rule 56 record that would permit the trier of fact to conclude that "UCONN 2000 PHASE II OCIP" on the declaration page was intended to be a placeholder reference to the contractors and developers, such as Plaintiffs in this case, involved in the various construction projects, including the Hilltop Apartments. Resolving this dispute of fact, however, requires an assessment of credibility and authenticity beyond the scope of summary judgment review. Because there exists a genuine issue of material fact as to this threshold question, Defendant's motion for summary judgment is due to be denied insofar as "named insured" status is concerned. See generally Metro. Life Ins. Co. v. Aetna Cas. & Surety Co., 765 A.2d 891,
897 (Conn. 2001) ("If the extrinsic evidence presents issues of credibility or a choice among reasonable inferences, the decision on the intent of the parties is a job for the trier of fact.") (citation omitted).
Relatedly, each party alternatively argues that the other is estopped from either suggesting or denying "named insured" status. First, Defendant contends that Plaintiff "CDC should be
'judicially estopped' to contend that [the University of Connecticut] was not a Named Insured under the Policy." (Doc. #41 at 40). In the previous case between Plaintiff CDC and Defendant, Plaintiff
CDC argued in its motion to dismiss that Defendant had "failed to join an indispensable party, The
6At best, one of Defendant's representative has testified that the designation "UCONN 2000 PHASE II OCIP" was understood, at least at the time of his deposition, to mean "the University of Connecticut." (2:08-CV-874, Doc. #48- 8 at 2). Another representative did not know what the designation referenced. (2:08-CV-874, Doc. #48-7 at 3). From the former statement, there is an inference that Defendant extended coverage solely to the University, but as detailed above, Plaintiffs have offered evidence suggesting that Defendant issued the policy with those, such as Plaintiffs, in mind as the named insureds. This comparison of evidence further reinforces the conclusion that a genuine issue of material fact exists regarding Defendant's intention as to the "UCONN 2000 PHASE II OCIP" listing in the policy.
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University of Connecticut, who is the named insured under the policy." Accordingly, Defendant argues that, because Judge Acker granted the motion to dismiss for Defendant's failure to join an indispensable party (i.e., the University of Connecticut), Plaintiff CDC is estopped in this case from denying that the University is the only "named insured."
Regarding judicial estoppel, "three factors typically inform the decision" whether the court should prohibit a party from changing an earlier asserted judicial position: "(1) whether the present position is clearly inconsistent with the earlier position; (2) whether the party succeeded in persuading a court to accept the earlier position, so that judicial acceptance of the inconsistent position in a later proceeding would create the perception that either the first or second court was
[misled]; and (3) whether the party advancing the inconsistent position would derive an unfair advantage." Robinson v. Tyson Foods, Inc., 595 F.3d 1269 (11th Cir. 2010) (citing New Hampshire v. Maine, 532 U.S. 742, 750-51 (2001)). Although (1) Plaintiff CDC asserted that the University is
"the" named insured and (2) Judge Acker granted Plaintiff CDC's motion, a closer inspection of
Judge Acker's decision reveals that Plaintiff CDC was not successful "in persuading [him] to accept the earlier position."
Specifically, in Judge Acker's Memorandum Opinion, he first observes, based on Defendant's complaint for declaratory relief, that the "named insured on [Defendant's] policy was UCONN 2000
Phase II OCIP, an entity comprised of CDC, [the University of Connecticut], and others." (2:08-CV-
874, Doc. #48-9 at 2) (emphasis added). Therefore, Defendant has not shouldered its burden of establishing the facts necessary to invoke judicial estoppel because Judge Acker endorsed
Defendant's interpretation of the named insured rather than Plaintiff CDC's version. Alternatively, judicial estoppel requires "intentional contradictions, not simple error or inadvertence." Robinson,
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595 F.3d at 1275 (citing Am. Nat'l Bank of Jacksonville v. FDIC, 710 F.2d 1528, 1536 (11th Cir.
1983)). Here, Plaintiff CDC acknowledges that the singular "named insured" designation in its brief was unintentional and should have stated that the University is "an insured" rather than "the insured."
(Doc. #46 at 8). Judge Acker's decision confirms this representation because the prejudice inquiry under Rule 19 was a key feature of his analysis: "First, there is no doubt that UConn could be highly prejudiced by a judgment in favor of [Defendant] rendered in its absence. It is just as much a member of the OCIP as CDC is." (2:08-CV-874, Doc. #48-9 at 5). On this basis, the court concludes that, despite Plaintiff CDC's inadvertent suggestion that the University is "the" named insured, the motion, taken as a whole and viewed through the lens of Judge Acker's analysis, conveyed a position consistent with the position taken in this case, and an error in using the appropriate English article does not indicate an intent "to make a mockery of the judicial system," as is required before the court may impose the bar of judicial estoppel. Robinson, 595 F.3d at 1273
(citing Burnes v. Pemco Aeroplex, Inc., 291 F.3d 1282, 1285 (11th Cir. 2002)).
Turn about seems to be fair play as Plaintiff CDC argues that Defendant is now estopped from denying "named insured" status because, in the proceedings before Judge Acker, Defendant claimed that Plaintiff CDC was a member of the OCIP. (Doc. #46 at 48-49). In Defendant's complaint before Judge Acker, Defendant among other things alleged the following:
. . . . 6. Beginning in the year of 2000, [Plaintiff] CDC contracted with the University of Connecticut in Storrs, Connecticut (hereinafter "UCONN") to act as a design/builder/developed in regard to a University Commons project (Hilltop Apartments.) No. BI-900943. As a part and parcel of that contract, UCONN and CDC, among others, entered into an Owner Controlled Insurance Program (hereinafter "OCIP"). . . . .
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10. CDC has demanded that [Defendant] represent it, and participate on its behalf in a mediation of the claims of UCONN, and to protect it and its interest in such mediation. That upon information and belief of [Defendant], [Plaintiff] CDC will attempt to reach a resolution of the UCONN claims by mediation rather than a civil action. [Plaintiff] CDC and UCONN were joint participants in the UCONN 2000 PHASE II OCIP, will have a mutuality of interest in imposing responsibility for any mediated settlement upon any purported insurer of said OCIP, and propose an implied consent to such mediation by [Defendant], and/or any other insurers such as sureties, performance bond insurers, building risk insurers, warranty insurers, and other insurers with connection to the foresaid OCIP. . . . .
(2:08-CV-874, Doc. #48-5 at 3-4) (emphasis added). The court concludes that these allegations, although nearing an admission that Plaintiff CDC was a "named insured," are carefully qualified so to avoid the imposition of judicial estoppel. First, in the Sixth Allegation, Defendant admitted that the University and Plaintiff CDC participated in an OCIP but did not identify the underlying insurer of such a plan. Second, in the Tenth Allegation, in the phrase immediately following the apparent admission, Defendant stated that Plaintiff CDC intended to impose the settlement "upon any purported insurer of said OCIP." This allegation sufficiently hedges (or at least qualifies) the preceding statement by leaving uncertain the insurer for the plan. Moreover, a critical requirement for judicial estoppel is that the party must persuade the court, on the basis of its earlier inconsistency, to adopt its position. Here, allegations in the complaint do not meet this standard because Judge
Acker dismissed the case on Plaintiff CDC's motion to dismiss and, more specifically, the absence of the University as a party to the litigation. That basis, however, does not necessarily depend on the allegation in the complaint that Plaintiff CDC participated in the University-sponsored OCIP.
Accordingly, application of judicial estoppel is inappropriate.
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2. Additional Insured Status
Alternatively, Plaintiffs argue that, even if they are not found to be "named insureds" and it is concluded that the University of Connecticut is the "named insured," they nevertheless qualify as
"additional insureds." In response, Defendant concedes that "both CBC and CDC could qualify as additional insureds under the Automatic Additional Insured Endorsement . . . ." (Doc. #56 at 23).
According to that provision:
5. Any entity you are required in a written contract ("the contract") to name as an insured (the "Additional Insured") is an insured but only with respect to liability arising out of "your work" for the Additional Insured, or acts or omissions of the Additional Insured in connection with the general supervision of "your work" to the extent set forth below. . . . . b. All insuring agreements, exclusions, terms and conditions of the Policy shall apply to the coverage(s) provided to the Additional Insured, and such coverage shall not be enlarged or expanded by reason of the contract.
(Doc. #49-1 at 19).
First, and contrary to Plaintiffs' suggestion, Subpart B to the Endorsement does not extend coverage beyond that which is specified generally in the first paragraph of the provision. To interpret
Subpart B as expanding coverage to the limit set for the "named insured" in the policy would nullify the "but only with respect to" qualification contained in Paragraph 5. Under well-established
Connecticut law, when possible, the court must "give operative effect to every provision" of an insurance policy. Zulick v. Patrons Mut. Ins. Co., 949 A.2d 1084, 1088 (Conn. 2008) (citation omitted). An important corollary to this principle is that "a policy should not be interpreted so as to render any part of it superfluous." Conn. Med. Ins. Co. v. Kulikowski, 942 A.2d 334, 342 (Conn.
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2008) (citation omitted). Therefore, the more coherent interpretation of Paragraph 5 vis-a-vis
Subpart B is that (1) Paragraph 5 defines the outer bounds of "coverage" generally for an "additional insured" and (2) to the extent that "coverage" is present, Subpart B clarifies that the specified conditions and exclusions generally stated in the policy apply with equal force to the particular
"coverage" extended to an "additional insured."
Second, Plaintiffs argue that the University's claims against them fit the coverage limitation contained in Paragraph 5. Assuming that Plaintiffs are "additional insureds" and the University is the "named insured," as Plaintiffs concede solely for the purpose of the "additional insured" analysis, then the "you" in Paragraph 5 references the University because the policy specifies that
"[t]hroughout this policy the words 'you' and 'your' refer to the Named Insured . . . ." (Doc. #48-5 at 4). Because an endorsement constitutes a component of the policy, Liberty Mut. Ins. Co. v. Lone
Star Indus., Inc., 967 A.2d 1, 27 (Conn. 2009), "you" and, relatedly, "your work" reference the
University and its actual work. Paragraph 5, therefore, contemplates only two scenarios to which coverage extends. In the first, coverage extends insofar as the claimed liability arises out of the
University's work for Plaintiffs, and in the second, coverage extends insofar as the claimed liability arises out of acts or omissions by Plaintiffs in connection with the general supervision of the
University's work. The first scenario is clearly inapplicable because the University did not perform work "for" either Plaintiff; rather, the alleged property damage arose out of Plaintiffs' work "for" the
University. The second scenario, on the other hand, is not so cut and dried and demands additional analysis.
The policy defines "your work" as "mean[ing]: (a) Work or operations performed by you or on your behalf; and (b) Materials, parts or equipment furnished in connection, with such work or
40 Case 2:08-cv-00874-RDP Document 52 Filed 09/23/10 Page 41 of 81
operations." (Doc. #48-5 at16). Addressing these in reverse order, subpart B of the definition is inapplicable because there is no evidence to suggest that the claimed defects stemmed from
"materials, parts, or equipment" supplied by the University to Plaintiffs. Alternatively, Subpart A presents a closer question. Because Plaintiffs, among others, were responsible for constructing the
Hilltop Apartments rather than the University, the first part of Subpart A – "[w]ork or operations performed by you" – is inapplicable because the University did not "perform" the construction out of which the defects arose.
The second part of Subpart A, however, is availing. Under that provision, "your work" includes "[w]ork or operations performed . . . on your behalf." The policy does not specify what constitutes work "on [the named insured's] behalf." When a court considers the language in an insurance policy, the words "are given their natural and ordinary meaning, and any ambiguity is resolved in favor of the insured." Wentland v. Am. Equity Ins. Co., 840 A.2d 1158, 1163 (Conn.
2004) (citation omitted). To ascertain the "natural and ordinary meaning" of a word, "it is appropriate to look to the dictionary definition of the term." Buell Indus., Inc. v. Greater N.Y. Mut.
Ins. Co., 791 A.2d 489, 498 (Conn. 2002) (citations omitted).
Here, the performance of work "on behalf of" another is subject to two definitions. Working on another's "behalf" may suggest acting "as a representative of" another. "Behalf," Merriam-
Webster Online, http://www.merriam-webster.com/dictionary/behalf (last visited Sept. 7, 2010). In that regard, coverage is narrow and subject only to an "additional insured" that maintains a
"representative" relationship with the "named insured." Alternatively, working on another's "behalf" may suggest acting in the "interest" of or for the "benefit" of another. Id. This definition reflects a broader application of coverage because, provided that the "additional insured" works "for the
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benefit of" the "named insured" and despite the absence of a representative relationship, there is coverage under the policy. "Because two equally reasonable definitions of the term ['behalf'] exist, the broad definition must, in preference, be adopted because it will sustain the claim and cover the loss." R.T. Vanderbilt Co. v. Cont'l Cas. Co., 870 A.2d 1048, 1060 (Conn. 2005) (citations omitted).
Accordingly, the court concludes that, under Subpart A of the "your work" definition, because
Plaintiffs supervised work performed for the benefit of the University as the "named insured,"
Plaintiffs' acts or omissions giving rise to liability meet the initial qualification for coverage under the Automatic Additional Insured Endorsement.
Defendant responds that, notwithstanding the foregoing analysis, "liability insurance, and
CGL coverage in particular, is intended to only protect against third party damages, not damages to an insured like first party coverage." (Doc. #56 at 24). According to Defendant, "for third party liability coverage to attach, the damage sought must be to someone who is not a party to the policy."
(Doc. #56 at 24). Thus, Defendant argues, if the University is the "named insured" and Plaintiffs are
"additional insureds," the policy does not extend coverage to claims asserted by the University against Plaintiffs. (Doc. #56 at 24). Defendant bases this argument on Yale University v. Cigna
Insurance Co., 224 F. Supp. 2d 402 (D. Conn. 2002).
In that case, several insurers issued third-party liability policies to Yale. 224 F. Supp. 2d at
406. According to the terms of the policies, and in particular an owned-property exclusion, the insurance did not cover damage to property owned by the insured. Id. Accordingly, the insurance extended coverage only to Yale's liability for damage caused to third-party's property. Id. at 407.
Yale argued that, because governmental directives required it to expend money on the removal of asbestos from various building that it owned, the policy coverage was triggered because of "third-
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party directives" aimed at its property. Id. According to the court, however, the polices' owned- property exclusions precluded coverage despite the source of the directive being a third-party because the focus is on property ownership – not the instigator of the claim. Id. at 407-08.
In this regard, Defendant's reliance on Yale University for the proposition that claims cannot be asserted by a "named insured" against an "additional insured" is perplexing. Nowhere in the Yale
University opinion does the court reach (or even mention) that rule of law. Indeed, the sources of the cleanup directives in Yale University were strangers to the policy – they were government entities separate from Yale University – yet the court concluded that coverage was unavailable. Accordingly,
Defendant's suggestion that a "hallmark" of Connecticut law is the prohibition against coverage when a "named insured" asserts a property claim against an "additional insured" is without any supporting caselaw.
In any event, despite the absence of corroborating caselaw, a review of the policy's provisions does suggest a possible tension between the owned-property exclusion and the separation of insureds provision. According to the policy, property damage to "[p]roperty you own, rent, or occupy" is excluded from coverage. (Doc. #48-5 at 7). As mentioned throughout, the policy identifies "you" as the "named insured," which for the sake of this analysis, the court and the parties assume is the
University. According to Defendant, even if Plaintiffs are "additional insureds," the owned-property exclusion, because it contains the pronoun "you," eliminates coverage when the third-party claimant is the "named insured" and the property is subject to the owned-property exclusion from the perspective of the "named insured." In response, Plaintiffs rely on the separation of insureds clause, which provides that "this insurance applies . . . separately to each insured against whom claim is made or 'suit' is brought." (Doc. #48-5 at 13). Specifically, Plaintiffs urge an interpretation of this
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provision as requiring application of the owned-property exclusion from the perspective of the claimant under the policy rather than, as Defendant argues, from the perspective of the "named insured."
The seminal case in Connecticut concerning separation of insureds clauses is Sacharko v.
Center Equities Limited Partnership, 479 A.2d 1219 (Conn. App. Ct. 1984). In Sacharko, Center
Equities leased premises to Edelweiss Restaurant. Id. at 1220. Pursuant to the lease, Edelweiss agreed to carry liability insurance at its own expense and to name Center Equities as an additional insured under the policy. Id. Edelweiss obtained the policy from Insurance Company of North
America ("ICNA"). Id. at 1220-21. Sacharko, an employee of Edelwiss, sued Center Equities for personal injuries that she sustained as a result of icy pavement on the rear of the premises. Id. at
1221. ICNA asserted that it had no duty to defend Center Equities. Id. at 1222. In support of this contention, ICNA pointed to the policy's employee exclusion clause, which excluded from coverage a suit involving "personal injury to any employee of the Insured arising out of and in the course of his employment by the Insured . . . ." Id. at 1222, 1222 n.4 (emphasis added). Nevertheless, the policy additionally contained a severability of interests clause, which provided that "the insurance afforded applies separately to each Insured against whom claim is made or suit is brought, except with respect to the limits of the Company's liability." Id. at 1222 n.5.
Consequently, the court observed that, "[w]here a policy contains a severability of interests clause, it is a recognition by the insurer that it has a separate and distinct obligation to each insured under the policy, and that the exclusion under the policy as to employees of the insured is confined to the employee of the insured who seeks protection under the policy." Id. at 1222 (citations omitted). Thus, as the Sacharko court reasoned, "ICNA [could not] use the employee exclusion
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clause as a basis for abandoning its duty to defend Center Equities" even though "it would have had no duty to defend the named insured Edelweiss had Sacharko sued Edelweiss directly . . . ." Id.
The Sacharko decision concerned application of the employee exclusion clause rather than an owned property exclusion clause, but the significance of the separation of insureds clause is manifest. In particular, based on Sacharko's analysis of a separation of insureds clause, the clause precludes the insurer from using an exclusion, admittedly applicable to one insured, as the basis for denying coverage against a separate insured. Critically, however, the terminology in the policy considered by the Sacharko court is materially distinct from the terminology in this case.
Here, the policy clarifies at the outset that "you" and "your" refer to the "named insured" as identified in the declaration. (Doc. #48-5 at 4). There is no other provision in the policy to suggest, implicitly or otherwise, that "you," under any circumstances, could refer to any party other than the
"named insured." The exclusivity of the reference is underscored by the policy's next paragraph, which defines the "insured" as "any person or organization qualifying as such under Section II" of the policy. (Doc. #48-5 at 4). Pursuant to the Automatic Additional Insured Endorsement, an
"additional insured" qualifies as an "insured" under Section II. (Doc. #48-5 at 40). Accordingly, when the policy references an "insured," the "additional insured" is included, but when the policy references "you" or "your," then only the "named insured" applies. The policy at issue in Sacharko, however, designated all insureds – whether named or otherwise – as "insured" for purposes of the exclusion, and the subject of the separation of insureds clause coincided insofar as it similarly referenced the "insured." 479 A.2d at 1222 nn.4-5. Thus, Sacharko's holding (i.e., that a separation of insureds provision prohibits the insurer from using an exclusion applicable to one insured against the other) is inapposite because the same policy structure is not at play in this case.
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Specifically, under the owned property exclusion here, coverage is withheld from property damage to "[p]roperty you own, rent, or occupy." (Doc. #48-5 at 7) (emphasis added). In this regard, the exclusion could have been worded, "property owned, rented, or occupied by the insured."
Indeed, other exclusions in the policy apply to the "insured" rather than "you." For example:
This insurance does not apply to: . . . . "Bodily injury" or "property damage" expected or intended from the standpoint of the insured. . . . . "Bodily injury" or "property damage" for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement. . . . . Any obligation of the insured under a workers' compensation, disability benefits or unemployment compensation law or any similar law. . . . . "Bodily injury" to: (1) An "employee" of the insured arising out of an in the course of: (a) Employment by the insured; or (b) Performing duties related to the conduct of the insured's business. . . . .
(Doc. #48-5 at 4-5) (emphasis added). The examples continue throughout the policy's exclusions section. In context, the court concludes that, the parties intended to apply the owned property exclusion only to the "named insured's" property damage rather than to the broader class included as "insureds." This Rule 56 finding is appropriate for at least three reasons: (1) the policy distinguished between "you" and "insured;" (2) these terms' definitions are not coextensive; and (3) the policy variously used the terms, which strongly suggests intentional characterizations. That is, by substituting "named insured" for "you," as the policy indicates, the owned property exclusion may be rewritten as follows: "This insurance does not apply to . . . '[p]roperty damage' to . . . [p]roperty
[the named insured] own[s], rent[s], or occup[ies]."
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Under this plain reading, therefore, Plaintiffs cannot avoid the conclusion that the property damage claimed by the University (i.e., the "named insured" or the "you") against Plaintiffs (i.e., the
"insureds") is excluded from coverage in this case if Plaintiffs are "additional insureds." Indeed, the
Automatic Additional Insureds Endorsement incorporates "[a]ll . . . exclusions . . . of the Policy" and applies them equally to the coverage extended to "additional insureds" as "insureds" under
Section II of the policy. (Doc. #49-1 at 19). Given the language in the owned property exclusion, however, the exclusion is a barrier to coverage in this case unless either (1) the exclusion is altogether ignored when the "named insured" asserts a claim against the "additional insured" for damage to the "named insured's" property or (2) the exclusion is judicially rewritten to substitute
"insured" for "you," in which case the "named insured's" ownership of the property becomes analytically irrelevant by operation of the separation of insureds clause.
Plaintiffs seem to endorse the second option by appealing to the policy's separation of insureds clause, which provides as follows:
Except with respect to the Limits of Insurance, and any rights or duties specifically assigned in this Coverage Part to the first Named Insured, this Insurance applies: a. As if each Named Insured were the only Named Insured; and b. Separately to each insured against whom claim is made or "suit" is brought.
(Doc. #48-5 at 13). According to Plaintiffs' interpretation of Subpart B, "the insurance applies as if [they are] the only insured. Accordingly, the 'owned property' exclusion does not apply since
[Plaintiffs do] not own the damaged property." (2:08-CV-874, Doc. #45 at 27). The court agrees that, if both the University and Plaintiffs are "named insureds," then the suggested conclusion follows from the separation of insureds clause. But because the policy explicitly contemplates two
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classes of insureds and includes unique designations throughout the exclusions section, the term
"you" references only the University, and the separation of insureds clause does not escape that conclusion. Accordingly, the court concludes that, by virtue of the owned-property exclusion, the policy explicitly withheld coverage for damage to the named insured's property in the event that a non-named insured claims coverage.
This conclusion is consistent with the analysis of the Fifth Circuit in Abbeville Offshore
Quarters, Inc. v. Taylor Energy Co., 286 Fed. App'x 124 (5th Cir. 2008). There, Taylor Energy, as an additional insured under a policy with substantially identical terms, sought from the insurer its defense costs associated with the underlying lawsuit wherein Abbeville sued Taylor Energy for causing damage to Abbeville's property. Id. at 127-28. Under the policy, Abbeville was the named insured, and the policy contained an owned-property exclusion that referenced "you" (i.e., the named insured) rather than merely an insured, such as an additional insured. Id. at 128. The insurer argued that, based upon the language of the owned-property exclusion, the "policy precludes any insured from obtaining coverage based on a claim of damage to property owned by Abbeville." Id. In other words, the insurer contended "that because 'you' is synonymous with 'Abbeville,' [the owned-property exclusion] excludes coverage for property damage to property owned by Abbeville" despite the identity of the claimant. Id.
Taylor Energy, in an argument identical to Plaintiffs' contention here, responded by referencing the separation of insureds clause. Id. The Fifth Circuit, however, squarely rejected this construction of the policy:
Based upon the language of [the owned-property exclusion], we agree with [the insurer] that the . . . policy excludes a specific class of losses – namely property damage to property owned by Abbeville –
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irrespective of whether Abbeville, Taylor, or any other additional insured is seeking coverage. "[Y]ou" in [the owned-property exclusion] undisputably means Abbeville, such that the meaning of "you" does not alter depending upon which insured seeks coverage (e.g., Abbeville as named insured or Taylor as an additional insured). We find that the plain language of [the owned-property exclusion] excludes coverage for damage to property owned by Abbeville, notwithstanding the existence of a separation of insureds clause. Taylor, therefore, is not entitled to coverage from [the insurer] for its defense costs in the underlying Taylor-Abbeville suit.
Id. at 128-29. Accordingly, the court finds persuasive the Fifth Circuit's analysis of the same dynamic at work in this case, and Defendant's interpretation of the policy is more in harmony with the words and structure than Plaintiffs' interpretation, which requires the court to either ignore or rewrite certain provisions. Thus, assuming that Plaintiffs are "additional insureds" under the policy, the owned-property exclusion eliminates coverage altogether, which undercuts any claim to a breach of contract or duty. There are a number of genuine issues of fact that preclude summary judgment in this case. This is not one of them.
3. Necessity of a "Suit"
Under Connecticut law, the duty to defend is not a free floating legal construct; instead, the insurance agreement sets the particular contours of the rights and responsibilities attendant to each party. See, e.g., Hartford Cas. Ins. Co. v. Lichtfield Mut. Fire Ins. Co., 876 A.2d 1139, 1146 (Conn.
2005) ("After all, the duty to defend derives from the insurer's contract with the insured, not from the complaint.") (citation omitted); Sec. Ins. Co. of Hartford v. Lumbermens Mut. Cas. Co., 826 A.2d
107, 123 (Conn. 2003) ("The duty to defend arises solely under contract."); Arrow Elecs., Inc. v. Fed.
Ins. Co., No. X01CV000167080, 2002 Conn. Super. LEXIS 60, at *30 (Conn. Super Ct. Jan. 7,
2002) ("It is well established in this state that an insurance policy is a contract, and it is to be
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construed in accordance with principles generally applicable to construction of contracts.") (citation omitted). And absent clear contractual direction to the contrary, “where there is no duty to defend, there is no duty to indemnify, given the fact that the duty to defend is broader than the duty to indemnify.” Qsp, Inc. v. Aetna Cas. & Sur. Co., 773 A.2d 906, 930 (Conn. 2001) (citations omitted).
Assuming that Plaintiffs are not strangers to the policy, Defendant purportedly accepted the duty to defend Plaintiffs "against any 'suit' seeking" damages for "bodily injury" or "property damage" not otherwise excluded by the policy. (Doc. #48-5 at 4). According to the policy, a "suit" means "a civil proceeding in which damages because of 'bodily injury,' 'property damage' or 'personal and advertising injury' . . . are alleged." (Doc. #48-5 at 16). In particular, a "suit" includes "[a]n arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with [Defendant's] consent" and "[a]ny other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with [Defendant's] consent."
(Doc. #48-5 at 16). On this basis, Defendant contends that, because there was no "suit" as defined by the policy, its duty to defend was not triggered. Specifically, Defendant argues that, because it withheld consent to Plaintiffs' participation in the mediation with the University, the second definition of "suit" concerning alternative dispute resolution is inapplicable. In response, Plaintiffs argue that (1) the mediation demand was the functional equivalent of a "suit," as defined by the policy, sufficient to trigger Defendant's duty to defend; and, in the alternative, (2) under Connecticut law and the facts of this case, a formal lawsuit was unnecessary once Defendant denied coverage.
According to Plaintiffs, the University's mediation demand was analogous to the filing of a lawsuit and, therefore, sufficient to trigger Defendant's duty to defend under the terms of the policy.
To support this claim, Plaintiffs rely on R.T. Vanderbilt Co., Inc. v. Continental Casualty Co., 870
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A.2d 1048 (Conn. 2005). In that case, the Supreme Court of Connecticut considered whether a potentially responsible party ("PRP") letter issued by the Environmental Protection Agency pursuant to its authority under the Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA") constitutes a "suit" as required under a comprehensive general liability insurance policy. Id. at 1052. The policy at issue required the insurer to defend against "any suit against the insured" that alleged non-excluded injuries. Id. at 1053. The plaintiff-insured received two letters from the EPA explaining that it was a PRP for environmental contamination at various work sites.
Id. at 1052. The plaintiff-insured notified the insurer and requested defense in response to the PRP letters. Id. at 1054. The defendant-insurer agreed to contribute to the plaintiff's defense but under a complete reservation of rights. Id. Thereafter, the plaintiff-insured filed a declaratory judgment action and requested the court to determine whether coverage existed under the policy in light of the
PRP letters. Id. The defendant-insurer contended that the PRP letter did not constitute a "suit" within the intended meaning of the policy because, inter alia, interpreting "'suit' to mean a proceeding filed in court helps preserve a distinction between the terms 'claim' and 'suit.'" Id. at
1054-55. The trial court agreed and granted summary judgment in the defendant's favor. Id. at 1054.
On appeal, the Supreme Court of Connecticut reversed and held that, under the facts of the case, the PRP letters were sufficient to trigger the insurer's duty to defend. Id. at 1052. Specifically, the court "emphasize[d] that [its] determination in the present matter [was] predicated on CERCLA's extremely burdensome provisions and the immediate legal consequences that arise upon the receipt of a PRP letter." Id. at 1060-61. Indeed, the court specifically distinguished the PRP letter scenario from "a conventional demand letter based on a personal injury claim." Id. at 1061 (citing Hazen
Paper Co. v. U.S. Fid. & Guar. Co., 555 N.E.2d 576 (Mass. 1990)). As the court explained, in this
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particular context, a PRP's refusal to voluntarily settle with the EPA immediately results in serious legal action: either (1) "the EPA can issue an administrative order compelling the PRP to clean up the hazardous waste site," and the PRP's "failure to comply . . . can result in an action brought . . . to enforce such order and a fine not more than $25,000 for each day in which such violation occurs or such failure to comply continues;" or (2) "the EPA can clean up the hazardous waste site itself and pursue a cost recovery action," which authorizes the federal government to "place a federal lien on
[the] PRP's property . . . ." Id. at 1057 (citations omitted). Further underscoring the "significant" legal effect of refusing to voluntarily comply with the PRP letter, the court identified the following consequences:
(1) large fines that may include treble punitive damages; (2) an inadequate administrative record affecting the insured's interests; (3) use of the insured's non- compliance against the insured in the apportionment of cleanup costs in subsequent litigation; (4) forfeiture of special rights against [later] actions for contribution of response cost payments; and (5) other parties (including perhaps the EPA) cleaning up the site at a higher cost, which will [later] be demanded of the insured.
Id. at 1061 n.26 (quoting Johnson Controls v. Employers Ins. of Wausau, 665 N.W.2d 257 (Wis.
2003)). Thus, given the imminent legal consequences of refusing to voluntarily comply with a PRP demand from the EPA as well as the EPA's broad administrative power under CERCLA, a PRP letter is an "attempt to recover a right or claim through legal action" and, correspondingly, constitutes a
"suit" under the policy. Id. at 1060.
In short, the R.P. Vanderbilt decision is narrow and carefully tuned to the unique dynamics associated with the initiation of an EPA administrative action under CERCLA. Plaintiffs, therefore, are mistaken that traction can be gained from the case and applied here. In this case, unlike in R.P.
Vanderbilt, Plaintiffs' refusal to participate in the mediation requested by the University would not
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necessarily have exposed them to the dire legal consequences as the failure to voluntarily comply with a PRP demand letter. Plaintiffs attempt to blunt this concern by noting that the building contract obligated them to mediate "in good faith" with the University in the event that a claim arose.
The assumption behind the argument is that, if they had refused to mediate, then they would have breached the agreement and incurred liability thereunder. The assumption, however, is insufficient to warrant extending R.P. Vanderbilt to the facts of this case. Under the construction agreements, if the parties had unsuccessfully attempted mediation, then the aggrieved party had the option of either litigating or arbitrating. If the University had pursued either litigation or arbitration, then it is undisputed that the proceeding would have constituted a "suit" under the policy. Confronted with that posture, Plaintiffs could have conveyed to the University the need to pursue either litigation or arbitration in order to secure Defendant's participation in potential settlement of the claims. Whether stymieing mediation on that basis constitutes "good faith" negotiation by Plaintiffs is uncertain, but the critical point is that the uncertainty clearly establishes that the similarly harsh enforcement proceedings necessarily following a PRP's failure to voluntarily comply are not present here.
Accordingly, R.P. Vanderbilt's consideration of a non-traditional legal proceeding is inapposite to this case or, at the very least, does not operate to remove a coverage barrier.7
7In this regard, Plaintiffs' reliance on EDO Corp. v. Newark Insurance Co., 898 F. Supp. 952 (D. Conn. 1995), is unhelpful. There, the District of Connecticut, applying Connecticut substantive law, addressed whether a PRP letter constitutes a "suit" sufficient to trigger the insurer's duty to defend. Id. at 955-56. To assist with its inquiry, the court adopted a contextual analysis: First, in assessing whether there has been a "suit," courts look to the language of the claim itself to determine whether it is adversarial or coercive. The purpose of this inquiry is to assess whether the claim has the "hallmarks of litigation." Second, courts look to the context in which the claim is made and consider its potential legal consequences. The purpose of this inquiry is to gauge whether the claim is the "functional equivalent" of a "suit" sufficient to trigger the duty to defend. Both of these inquiries are "inherently fact-intensive." Id. at 958 (citations omitted). On this account, Plaintiffs note that the revised mediation demand was structured as a formal complaint with
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More helpful, however, is Plaintiffs' second argument, which relies on Alderman v. Hanover
Insurance Group, 363 A.2d 1102 (Conn. 1975), for the proposition that "the insurer [is] still obligated to both indemnify and pay defense costs where coverage existed for the underlying claim and the insurer wrongfully denied coverage." Embedded in Plaintiffs' discussion of Alderman is the suggestion that, notwithstanding "nuances in policy language," Connecticut law imposes upon an insurer the duties to defend and to indemnify the insured when (1) the insurer denies coverage; (2) the insurance policy covers a third party's claim against the insured; and (3) the insured settles the case before the third party initiates litigation. (Doc. #45 at 19). From this extrapolation, the implication of Plaintiffs' argument is clear: they contend that the Alderman court's purported holding nullifies the instant policy's condition precedent requiring a "suit."
A closer inspection of the decision is required. In Alderman, the Hamilton Industrial Center hired the plaintiff to remove equipment from its boiler room. 363 A.2d at 1104. The plaintiff, along with her employees, attempted to remove a coal conveyor tower, but during the move, the equipment toppled and caused significant damage to the Hamilton Industrial Center's building. Id. For almost a year thereafter, the plaintiff demanded that her insurance company, the defendant in Alderman, make payment pursuant to the policy. Id. In response, the defendant claimed that the damage caused was not covered because of various policy exclusions. Id. The Hamilton Industrial Center threatened to sue the plaintiff for the property damage. Id. Before the lawsuit was actually filed,
causes of action, an ad damnum clause, and factual allegations. Critically, however, when the Supreme Court of Connecticut analyzed the same issue as the EDO Corp. court nearly ten years later in R.T. Vanderbilt, the Supreme Court did not endorse the District of Connecticut's functional analysis; instead, the court carefully limited the scope of its decision to the unique considerations attendant to PRP letters. R.T. Vanderbilt, 870 A.2d at 1060-61. Accordingly, the revised settlement demand, with its close approximation to a formal complaint, is irrelevant because, under R.T. Vanderbilt, unlike EDO Corp., it is the consequence of failing to comply that guides the inquiry – not the cosmetic presentation of the demand.
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however, the Hamilton Industrial Center and the plaintiff settled the dispute. Id. After resolving the predicate claims, the plaintiff sued her insurance company for breach of contract for failing to defend and to indemnify. Id.
On appeal, the Supreme Court of Connecticut reached two conclusions. First, and perhaps most importantly, the court held that the policy's exclusions were inapplicable to the damage claims against the plaintiff. Id. at 1104-06. Second, and predicated on the first conclusion as to coverage, the court held that, because the defendant wrongfully denied coverage, the plaintiff was relieved of her covenant against settlement and, consequently, the defendant was required to pay the costs of investigation, legal fees, and the value of the settlement. Id. at 1107.
Importantly, contained in the insurance agreement was the following provision: "With respect to such insurance as is afforded by this policy for bodily injury liability and for property damage liability, the [defendant] shall . . . defend any suit against the insured alleging such injury, sickness, disease or destruction and seeking damages on account thereof . . . ." Id. at 1106 n.2 (emphasis added). At first blush, this provision undeniably conditions defense on the existence of a "suit." In
Alderman, however, the court concluded that a "suit" is not required when "an insurer refuses to acknowledge any duty or obligation arising under the contract of insurance" because "the insured is in much the same position whether or not suit has actually been filed." Id. at 1107. Accordingly,
Alderman does not stand for the proposition that a duty to defend is triggered by any claim asserted without an actual suit filed; instead, the contextual reading of Alderman establishes that, when the insurer at the outset denies coverage altogether (i.e., according to the insurer, under no set of circumstances does the insurer believe that coverage is extended to the presented claims), with or without an actual lawsuit, the insurer's position remains the same, and the insured is not required to
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sit idle when confronted with a settlement offer. See Nat'l Union Fire Ins. Co. v. Porter Hayden Co.,
No. 03-3408, 2009 U.S. Dist. LEXIS 61992, at *22 (D. Md. July 7, 2009) ("[I]n [Alderman], the
Connecticut Supreme Court held that the insurer breached its duty to defend when it failed to defend the insured after the insurer had denied coverage but before the claimant filed suit.").
In this case, Plaintiff CBC has produced evidence demonstrating that its position was akin to the plaintiff in Alderman. Specifically, Plaintiff CBC received a denial of coverage letter from
Defendant on December 6, 2004. (Doc. #52-4). According to the letter, issued in response to a forwarded copy of the University's mediation demand, which included the itemized damage claims,
Defendant concluded that the damage arose "out of [Plaintiff CBC's] own work [and, therefore,] there can be no coverage for this matter for [Plaintiff CBC] under the policy." (Doc. #52-4 at 3).
To reach this conclusion, Defendant relied on the Automatic Additional Insured Endorsement, which supposedly limits coverage for "additional insureds" only to liability arising out of either (1) the
"named insured's" work for the "additional insured" or (2) acts or omissions of the "additional insured" in connection with general supervision over the "named insured's" work. (Doc. #52-4 at
2-3). Accordingly, this position, which Defendant never repudiated during the course of Plaintiff
CBC's repeated requests for defense, foreclosed any coverage as to the University's asserted claims against Plaintiff CBC because, according to Defendant, the limitation precluded coverage when liability stemmed from the work of the "additional insured."
Importantly, the December 6, 2004 letter hinged not on the nature of the University's demand
(i.e., in the form of a mediation demand pursuant to the building contract), but on a substantive provision of the policy. In this regard, Plaintiff CBC was in a position substantially analogous to the plaintiff in Alderman. Like the plaintiff in Alderman, Plaintiff CBC received an unequivocal denial
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of coverage on the basis of an exclusion, and once Plaintiff CBC received the denial and was thereafter presented with a settlement offer, Plaintiff CBC, as Alderman explains, was not required to ignore the offer and convert the negotiation into a formal civil action. Accordingly, merely because Plaintiff CBC settled with the University pre-lawsuit does not dispose of its now-asserted coverage claim against Defendant.
Defendant unsuccessfully invokes issue preclusion in response. In particular, Defendant argues that, in the case before Judge Hancock, Judge Hancock made a "specific finding" that "when the lawsuit was filed, there was nothing for [Defendant] to cover; there was no 'suit' as defined by the policy." (Doc. #42-2 at 13). Defendant's reference to Judge Hancock's decision, however, is misleading. The full passage actually reveals that Judge Hancock did not make a "specific finding" that the December 6, 2004 letter was not a denial of coverage:
The complaint alleges that [Defendant] breached the insurance contract by "denying coverage" to [Plaintiff] CBC. However, when the lawsuit was filed, there was nothing for [Defendant] to cover; there was no "suit" as defined by the policy. [Plaintiff] CBC essentially concedes as much in its opposition brief when it argues that [Defendant] had a duty to defend [Plaintiff] CBC when, in May 2006, the University presented a mediation demand, which [Plaintiff] CBC contends "meets the definition of a 'suit' under the" insurance policy. This mediation demand, whether or not it meets the definition of a "suit," occurred thirteen months after the complaint was filed in this case. It cannot be the basis for either the breach of contract or bad faith claims.
(Doc. #42-2 at 13) (citations omitted). In context, therefore, it is readily apparent that Judge
Hancock did not make a "specific finding," as Defendant suggests. Instead, Judge Hancock accurately noted that, if Defendant's duty to defend had been triggered, the trigger, based on the record evidence, occurred after the filing of the lawsuit, which necessarily rendered the lawsuit's
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allegations unripe. In that regard, Judge Hancock carefully circumscribed the scope of his decision and expressed no definitive conclusion regarding the merits of the underlying dispute. Consequently, the court concludes that issue preclusion does not address Plaintiff CBC's reliance on Alderman because, as detailed, Judge Hancock did not make the finding Defendant now claims.
Plaintiff CDC, in its complaint in this case, admits that Defendant "never sent CDC a reservation of rights letter and never denied CDC's demands." (2:08-CV-874, Doc. #1 at 15).
Although Plaintiff CDC filed a claim, Defendant responded by "not provid[ing] a coverage position at [that] time." (2:08-CV-874, Doc. #48-3 at 2). Unlike Plaintiff CBC, therefore, Plaintiff CDC did not have a formal denial setting forth the basis for Defendant's position vis-a-vis the claims asserted and Plaintiff CDC's purported status as insured. The Alderman court, however, did not limit the scope of its rule only to situations where the insurer formally denies coverage via letter:
Where an insurer refuses to acknowledge any duty or obligation arising under the contract of insurance, the insured is in much the same position whether or not suit has actually been filed. He assumes the duties which the insurer had contracted to perform, and in doing so incurs the same type of expenses whether he defends against suit or negotiates a presuit settlement. Therefore, the fact that suit has not actually been instituted should not bar recovery of costs incurred in effecting a presuit settlement.
Alderman, 363 A.2d at 1107 (emphasis added).
In this case, the evidence is undisputed that Defendant "refuse[d] to acknowledge any duty or obligation arising under the contract of insurance." Plaintiff CDC requested that Defendant reconsider its earlier neutrality as to the coverage question, and Defendant responded by filing a declaratory judgment action against Plaintiff CDC approximately two months later. In that proceeding, Defendant made the following allegations in its complaint against Plaintiff CDC: "it is
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not responsible under the [insurance policy] to provide to [Plaintiff CDC] the protection from [the
University] claimed by [Plaintiff CDC]; that the claims presented by [the University] are not claims or losses for which there is coverage under the [insurance policy]; [and] that [Defendant] has no obligation to participate in any mediation urged by [Plaintiff CDC] . . . ." (2:08-CV-874, Doc. #48-5 at 5). And after Judge Acker dismissed the case on Rule 19 grounds, there is no evidence in the Rule
56 record to suggest that Defendant reversed its position as articulated in its pleading. Indeed, as
Plaintiff CDC alleged in this case, Defendant "failed to respond to [Plaintiff CDC's] demands for coverage, defense, and indemnity." (2:08-CV-874, Doc. #1 at 15). Accordingly, although Defendant did not formally "deny" coverage as it did with Plaintiff CBC, Defendant's coverage position was apparent, and that position remained constant during the underlying settlement between Plaintiff
CDC and the University.
In sum, although the subject policy requires a "suit" to trigger the duty to defend, Connecticut law has loosened the rigidity of such provisions. When an insurer communicates its coverage position to the insured prior to the filing of a suit by a third party and the coverage position is predicated on the substance of the policy rather than timing (i.e., whether a "suit" has been filed), the insured is not required to sit like a potted plant. That is, it is not obliged to decline settlement offers, wait for the filing of a lawsuit, and thereby unnecessarily increase its costs of litigation. See
Alderman, 363 A.2d at 1107. Applied here, the rule saves Plaintiffs' breach of contract claims against Defendant, at least on the basis that their demands were premature. This conclusion, however, merely eliminates one basis for summary judgment insofar as Defendant has argued that, because there was not a "suit," its duty to defend was dormant. Critically, Alderman additionally
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requires a "wrongful denial" of coverage before the insurer is liable for the value of and costs attendant to settlement. Whether Defendant "wrongfully denied" coverage is addressed infra.8
4. Timing Issues
Defendant argues that coverage is precluded because the University's asserted damage occurred after the expiration of the policy. The declaration specifies that the policy period begins on February 1, 2000 and ends on February 1, 2003. (Doc. #48-5 at 1). Defendant contends that because the University did not suffer injury until mid-2004 insofar as remediation efforts began at that point, there is no coverage. Defendant hinges this argument on the Supreme Court of
Connecticut's decision in Tiedemann v. Nationwide Mutual Fire Insurance Co., 324 A.2d 263 (Conn.
1973). In that case, the insurer issued to a construction company a policy that began on April 25,
1961 and ended on April 25, 1962, but the insurer canceled the policy on December 29, 1961. Id. at 263. On April 27, 1961, the plaintiffs entered into a contract with the construction company for work on their home. Id. at 265. The construction company completed the project during the policy period. Id. Nevertheless, almost two years later, a fire, allegedly the result of the construction company's negligent performance, caused damage to the plaintiffs' home. Id. The plaintiffs filed suit against the construction company, but the insurer denied that it had a duty to defend. Id. The
Supreme Court of Connecticut agreed with the insurer's position because the subject "'accident' was the event causing injury, not the cause of that event." Id. at 266 (citation omitted). Accordingly,
8Provided that Plaintiffs ultimately establish that Defendant wrongfully denied coverage, then under Connecticut law, Defendant is obligated to reimburse Plaintiffs for the value of the settlement in addition to reasonable costs. See Missionaries of the Co. of Mary, Inc. v. Aetna Cas. & Sur. Co., 230 A.2d 21, 26 (Conn. 1967) ("The defendant having, in effect, waived the opportunity which was open to it to perform its contractual duty to defend under a reservation of its rights to contest the obligation to indemnify the plaintiff, reason dictates that the defendant should reimburse the plaintiff for the full amount of the obligation reasonably incurred by it. The defendant, after breaking the contract by its unqualified refusal to defend, should not thereafter be permitted to seek the protection of that contract in avoidance of its indemnity provisions.") (citation omitted).
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although the construction company's negligence may have occurred during the policy period and the fire was traceable to the negligence, because the fire occurred after the coverage period, the insurer was not required to defend. Id.
The Tiedemann decision, however, has limited utility for Defendant here.9 In this case, unlike Tiedemann, the subject policy contains a completed operations/products liability extension.
See id. at 266 ("There is no evidence that [the contractor] received insurance protection for accidents occurring after its operations had been completed."). Specifically, as an endorsement to the policy,
Defendant agreed to extend coverage "for a period of five (5) years after completion of each individual project . . . or until the appropriate statute of limitations expires, [whichever] comes first."
(Doc. #48-5 at 21). According to Defendant, the relevant statute of limitations is three years.
Defendant accurately states that, under Connecticut law, "[n]o action to recover damages for injury to . . . real . . . property, caused by negligence, or by reckless or wanton misconduct . . . shall be brought but within two years from the date when the injury is first sustained or discovered or in the exercise of reasonable care should have been discovered," and "that no such action may be brought more than three years from the date of the action or omission complained of . . . ." CONN. GEN.
9 Plaintiff CDC contends that Tiedemann does not accurately state the law of Connecticut. According to Plaintiff CDC, the District of Connecticut's decision in Aetna Casualty & Surety Co. v. Abbott Laboratories, Inc., 636 F. Supp. 546 (D. Conn. 1986), provides the better analysis. First, Tiedemann is a decision by the Appeals Court of Connecticut, which this court, sitting in diversity, must follow despite a seemingly contrary federal district court decision supposedly applying Connecticut substantive law. See, e.g., Bravo v. United States, 577 F.3d 1324, 1325 (11th Cir. 2009) ("[F]ederal courts are bound by decisions of a state's intermediate appellate courts unless there is persuasive evidence that the highest state court would rule otherwise.") (citation omitted). Second, the District of Connecticut did not purport to resolve the choice of law analysis; instead, the court observed that the law of "every state whose law might govern this litigation" mandated the result reached. Abbott Labs., 636 F. Supp. at 549 (emphasis added). Consequently, Plaintiff CDC's suggestion that the court applied Connecticut substantive law is mistaken, and this conclusion is amplified by that court's reliance on American Home Products Corp. v. Liberty Mutual Insurance Co., 748 F.2d 760 (2d Cir. 1984), which considered New York insurance law. Finally, Abbott Laboratories confined its review to the policy's "bodily injury" coverage and expressed no apparent view as to whether the analysis should apply to "property damage" claims. See Abbott Labs., 636 F. Supp. at 549-50.
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STAT. § 52-584. Applying the statute to this case, Defendant (who concedes that for purposes of the completed operations extension, the subject project was completed by August 23, 2001), argues that coverage expired on August 23, 2004 because Connecticut's statute of repose is shorter than the five- year outer boundary contained in the endorsement. From this conclusion, Defendant contends that the University's third-party claims against Plaintiffs fall beyond the scope of coverage.10
Defendant's argument, however, is off the mark. Under well-settled Connecticut law, an arm of the State of Connecticut is not subject to a statute of limitations unless specifically declared to be so by the legislature. See, e.g., Towbin v. Bd. of Examiners of Psychologists, 801 A.2d 851, 867
(Conn. App. Ct. 2002) (citing Joyell v. Comm'r of Educ., 696 A.2d 1039 (Conn. App. Ct. 1997)).
The Supreme Court of Connecticut has classified the University as an arm of the state for sovereign immunity purposes. See Fetterman v. Univ. of Conn., 473 A.2d 1176, 1181-82 (Conn. 1984). The
University, as a political subdivision of the State of Connecticut, is not required to assert claims within the statute of limitations identified by Defendant, which does not contain an express legislative application of the provision to the State. By operation of the policy, coverage extended from August 23, 2001 until August 23, 2006 (i.e., five years post-project completion) under the
Completed Operations / Products Liability Extension. Thus, Defendant's contention that the claims asserted fall outside the coverage period is without merit.
10The three-year limitation identified by Defendant is properly considered as a statute of repose rather than a statute of limitations. Both Plaintiffs and Defendant assume that "statute of limitations," as referenced in the endorsement, includes the relevant "statute of repose." Because neither party questions the incorporation of the repose – rather than the limitations – statute to the endorsement, the court assumes its applicability.
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5. Existence of Property Damage Resulting from an Occurrence
Defendant next contends that, even if Plaintiffs are insureds under the policy, the damages claimed by the University do not constitute "property damage" within the meaning of the policy.
Defendant identifies various bases for this contention, and the court addresses each in turn.
First, Defendant argues that the damages are not "property damage" because Plaintiff CDC, in its position statement to the mediator, asserted that none of the University's claims constitute property damage. In anticipation of the negotiation, Plaintiff CDC, through its attorney, made the following representation to the mediator:
It is undisputed that none of the alleged code violations identified by UConn have resulted in bodily harm or property damage. In fact, UConn has continued to generate revenue from the Project by keeping it, for the most part, fully occupied and continuously rented out to students. . . . . Of course, many of the alleged damages UConn lists in its Demand are not actually damages at all, but improvements to the Project for which UConn was not originally willing to pay.
(Doc. #42-4 at 31, 33). First, Defendant has identified no authority for the proposition that a comment made in connection with a mediation, rather than a judicial proceeding, is a basis for estoppel. Indeed, in this Circuit, estoppel-based arguments are keyed expressly to the impact the allegedly prior inconsistent statement had on the court system. See, e.g., Robinson, 595 F.3d at 1273
("[S]uch inconsistencies must be shown to have been calculated to make a mockery of the judicial system.") (emphasis added) (citation omitted). Second, and more importantly, to the extent that this is "evidence," it is irrelevant to whether the University's damages are "property damage" under the policy. These statements in the letter are analogous to testimony containing a legal conclusion, which axiomatically fails threshold admissibility requirements when offered to prove the asserted
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legal position. See, e.g., HomeBingo Network, Inc. v. Chayevsky, 428 F. Supp. 2d 1232, 1239 (S.D.
Ala. 2006) (striking certain aspects of affidavits "because they state unvarnished legal conclusions and are therefore improper"). The court expressly declines to address whether these statements are admissible for another purpose; instead, the court simply notes that a conclusory legal classification stated in a mediation letter does not foreclose an actual legal analysis, and Defendant’s suggestion to the contrary is simply wrong.
Second, Defendant argues that faulty workmanship is excluded from the scope of "property damage" as contemplated by the policy. Under the policy, "property damage," which must be caused by an "occurrence," means either:
a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the "occurrence" that caused it.
(Doc. #48-5 at 4, 16).11 An "occurrence" means "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." (Doc. #48-5 at 15). According to
11Defendant additionally claims, without elaboration, that the University did not experience a "loss of use" sufficient to create "property damage." The analysis of this contention does not require any heavy lifting. As one court explained, "loss of use" occurs "when some accident makes the property unusable." Erie Ins. Exchange v. Maier, 963 A.2d 907, 910 (Pa. Super. Ct. 2008). Plaintiffs have supplied clear evidence suggesting that the University, due to required evacuations allegedly resulting from Plaintiffs' faulty workmanship, had to refund rent to students for the Hilltop Apartments: "Loss of use of the premises resulting in rebates of rent to students for the periods of evacuation of the housing units or for periods when systems, such as but not limited to, air conditions [were] not operational." (Doc. #47-1 at 16). At first glance, this plainly suggests a loss of use. Defendant's sole argument against this conclusion is that Plaintiffs appear to have taken a different position during mediation. This response, however, is insufficient to overcome the existence of probative evidence to this point and, more importantly, indicates a genuine issue of material fact as to whether the University experienced a loss of use. Moreover, in this regard, although the court agrees with Defendant that elevated carbon monoxide, on its own, is insufficient to constitute "property damage," see, e.g., Manhattanville Coll.v. James John Romeo Consulting Eng'r, P.C., 774 N.Y.S.2d 542, 546 (N.Y. App. Div. 2004), the resulting loss of use of the Hilltop Apartments would bring the incident or incidents within the definition.
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the Supreme Court of Connecticut, an "occurrence" "ordinarily is understood to denote 'something that takes place,' especially 'something that happens unexpectedly without design.'" Metro. Life Ins.
Co. v. Aetna Cas. & Sur. Co., 765 A.2d 891, 898 (Conn. 2001) (citations omitted). "[T]he last event in the causal chain in what should be examined in order to determine whether an 'occurrence' has been alleged." Harris v. Hermitage Ins. Co., No. CV085021329S, 2009 Conn. Super. LEXIS 2723, at *9 (Conn. Super. Ct. Oct. 13, 2009) (citing Metro. Life Ins. Co., 765 A.2d at 900).
In this case, Plaintiffs concede that not all of the University's claims of damage trigger coverage under the policy, but they have identified the following purportedly covered property damage: (1) water damage resulting from a screw that penetrated a pipe; (2) mold produced by water accumulation due to a cracked sanitary line; (3) elevated carbon monoxide levels resulting from inadequate venting; (4) debris in pipes that obstructed the flow of exhaust from the water heaters;
(5) condensate and refrigerant piping that penetrated the fire separation assembly; and (6) compromised structural integrity resulting from cut trusses and roof sheathing.12 In response,
Defendant argues that these claims, as a matter of contract interpretation, fall outside the scope of the "occurrence" and "property" definitions.
Defendant's sole support for this contention is Philbin Brothers, LLC v. Hartford Fire
Insurance Co., No. X10UWYCV075007640S, 2008 WL 5540428 (Conn. Super. Ct. Dec. 11, 2008), in which the Superior Court of Connecticut considered whether coverage under a commercial general
12 In passing, Defendant suggests that some of these items, although noted in the various mediation letters, were not specifically detailed on a per-cost basis like other claims against Plaintiffs. Consequently, Defendant argues, they did not reflect an actual claim made by the University. But viewing the evidence in the light most favorable to Plaintiffs, the reasonable inference is that the University included the references within its broader $26 million demand because they reflected actual components of the total remediation cost. The less reasonable inference, which Defendant advocates, is that the University superfluously included the descriptions of property damage in letters for no apparent reason. Whether Plaintiffs and the University understood these claims as being part of the demand package presents a genuine issue of material fact for trial.
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liability policy extended to construction defects. Specifically, the Heinzmans purchased a house constructed by Philbin Brothers LLC. Id. at *1. They sued Philbin Brothers LLC for various defects, including improper installation of the wood flooring, the use of wood for the floor that had not been properly seasoned, loose stair railing and spindles creating a risk of injury; and failing to warn the
Heinzmans not to place a pool table on the first floor. Id. at *1 & *6. Hanford Fire Insurance
Company had issued a commercial general liability policy to Philbin Brothers LLC with operative provisions substantially identical to those in this case's policy. Id. at *3. Hartford, however, denied coverage when Philbin Brothers LLC requested its defense. Id. Thereafter, Philbin Brothers LLC sued for a judicial declaration regarding Hartford's defense obligations. Id.
On motion for summary judgment, the court concluded that Hartford's obligations under the policy were not activated because, inter alia, the construction defects alleged by the Heinzmans against Philbin Brothers LLC did not constitute "occurrences." Id. at *6. In particular, the court reasoned that "[e]xamination of the insurance policy reveals that it was not intended to insure Philbin
[Brothers LLC] against claims of poor workmanship but only negligence claims that may arise during the performance of the work itself, for example, a ladder falling on a car or a visitor slipping on building materials improperly stored at the site." Id.
The court has serious doubts that Philbin Brothers, LLC is an accurate statement of
Connecticut law. But that question need not slow down the court’s analysis of this issue for two reasons. First, this court, sitting in diversity, and applying the substantive law of Connecticut, is not required to defer to that decision. See, e.g., Mesa Air Group, Inc. v. Delta Air Lines, Inc., 573 F.3d
1124, 1131 n.8 (11th Cir. 2009) ("On no interpretation of Erie of which we are aware is a decision by a state trial court be credited as determining the law of the state."); Roecker v. United States, 379
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F.2d 400, 406 (5th Cir. 1967) ("Even where state law applies of its own force, as under [Erie], a federal court need not necessarily defer to state trial court decisions.") (citation omitted); Golatte v.
Mathews, 394 F. Supp. 1203, 1206 (M.D. Ala. 1975) ("[A] federal court in determining State law is not necessarily bound by the holding of a State trial court, even in the absence of controlling decisions by the State's highest court; rather, all the federal court need do in that situation is to apply what they find to be the state law after giving proper regard to the relevant rulings of other (lower) courts of the State.") (citations omitted). Here, the court in Philbin Brothers, LLC did not engage in a comprehensive synthesis of controlling Connecticut appellate court decisions to reach its conclusion. Instead, the court summarily determined that construction defects, as a matter of policy interpretation, are excepted from the scope of the term "occurrence" as defined in the insurance agreement. In that regard, the decision carries marginal predictive value as to the Supreme Court of Connecticut's future treatment of the issue.
Second, in any event, analysis of Philbin Brothers, LLC is unnecessary because the court finds that the instant policy language is unambiguous and subject to simple interpretation. Defendant asks this court to superimpose over the policy a preference for excluding construction related defects from the definition of "occurrence" and, closely related, "property damage." Defendant's request is not unsupported by caselaw. The origin of this rule is the assumption that CGL policies are intended to cover only tort-based – rather than mere contract-based – claims:
The coverage is for tort liability for physical damages to others, and not for contractual liability of the insured for economic loss suffered because the completed work is not what the damaged person bargained for. . . . When the contractor's work is faulty, either express or implied warranties are breached, and a dissatisfied customer may recover the cost of repair or replacement of the faulty work from the contractor as the standard measure of damages for breach of warranty.
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This consequence of not performing well is part of every business venture, and the repair or replacement of faulty goods and work is a business expense, to be borne by the contractor in order to satisfy customers.
R.N. Thompson & Assocs., Inc. v. Monroe Guar. Ins. Co., 686 N.E.2d 160, 162 (Ct. App. Ind. 1997).
But as the Supreme Court of Wisconsin persuasively explained, "there is nothing in the basic coverage language of the current CGL policy to support any definitive tort/contract line of demarcation for purposes of determining whether a loss is covered by the CGL's initial grant of coverage. 'Occurrence' is not defined by reference to the legal category of the claim. The term 'tort' does not appear in the CGL policy." Am. Family Mut. Ins. Co. v. Am. Girl, Inc., 673 N.W.2d 65, 77
(Wis. 2004). Instead, the policy extends coverage for an "accident" notwithstanding its legal classification as a breach of contract or negligence. In fact, the cases excluding contract-based claims from the definition of an "occurrence" or "property damage" assume that a breach of contract cannot be "accidental" and, therefore, an "occurrence." See, e.g., 9A COUCH ON INSURANCE § 129:4
(3d ed. 2010) ("In essence, this principle stems from the fact that commercial general liability insurance policies are intended to provide coverage only for events which are fortuitous, unforeseeable events, and not for the foreseeable results of an insured's deliberate conduct, which would include a claim for breach of contract."). This assumption has no basis in fact. In this case, for example, Defendant certainly does not suggest that Plaintiffs' penetration of a water pipe and the resulting water damage were intentional, at least in the colloquial sense. Although the penetration and byproduct damage likely constituted a breach of agreement between Plaintiffs and the
University, that classification does not diminish the corresponding conclusion that the act which
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constitutes the breach was, itself, an "accident," as contemplated by the policy. In short, Defendant has failed to establish that breaches of an agreement cannot occur accidentally.
The Supreme Court of Tennessee similarly rejected such a distinction in Travelers Indemnity
Co. of America v. Moore & Associates, Inc., in the context of damages resulting from improperly installed windows and shingles:
[T]he determination of whether an "accident" has occurred under the terms of a CGL requires us to determine whether damages would have been foreseeable if the insured had completed the work properly. An example is instructive. [The insurer] concedes that if a contractor improperly installs a shingle that later falls and hits a passerby, this event is unforeseeable and is an "occurrence" or "accident." However, [the insurer] simultaneously insists that if a contractor improperly installs windows that leak and cause flood damage to the hotel, this event is foreseeable because it is a natural consequence of improperly installed windows. We are unpersuaded by this distinction. A shingle falling and injuring a person is a natural consequence of an improperly installed shingle just as water damage is a natural consequence of an improperly installed window. If we assume that either the shingle or the window installation will be completed negligently, it is foreseeable that damages will result. If, however, we assume that the installation of both the shingle and the window will be completed properly, then neither the falling shingle nor the water penetration is foreseeable and both events are "accidents." Assuming that the windows would be installed properly, [the insured] could not have foreseen the water penetration.
216 S.W.3d 302, 309 (Tenn. 2007). The court finds that analysis well-reasoned and consistent with
Connecticut law. Thus, according to Defendant's logic and considering Connecticut's definition of
"occurrence," only if the court first assumes that Plaintiffs planned on building Hilltop Apartments negligently may the conclusion be reached that the resulting damage was foreseeable and, thus, not an accident. But the more realistic analysis presumes, in the absence of evidence to the contrary, that
Plaintiffs intended to construct the project according to the terms of the contract and the relevant
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standards of care. On this presumption, the accidental penetration of a pipe and the resulting water damage, the accidental obstruction of a sanitary line and the resulting mold, etc. were unplanned for and, therefore, quintessential accidents. The court finds this approach more appropriate than
Defendant's suggested fiction that it is reasonably foreseeable, as a matter of law, that an insured intentionally will breach its contractual duties attendant to the third-party project's execution.
Additionally, Defendant further argues that extending the definition of "occurrence" to cover construction defects and their consequences would convert the agreement into a surety-like arrangement or a performance bond – either of which, according to Defendant, neither party intended. This argument is unavailing based on the plain language in the agreement. "Any similarities between CGL insurance and a performance bond under these circumstances are irrelevant, however. The CGL policy covers what it covers. No rule of construction operates to eliminate coverage simply because similar protection may be available through another insurance product." Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1, 10 (Tex. 2007). Defendant has not located any case from the Supreme Court of Connecticut advising courts, when construing policy provisions, to consider the availability of alternative insurance (or quasi insurance) as a basis for expanding or contracting the scope of coverage. In fact, such a rule of construction would defy the Supreme Court of Connecticut's axiom that the parties' intention (and, thus, the meaning of the terms) is adjudged by the unambiguous language of the agreement rather than extraneous evidence.
See, e.g., Auto Glass Express, Inc. v. Hanover Ins. Co., 975 A.2d 1266, 1275 (Conn. 2009) ("The interpretation of an insurance policy . . . involves a determination of the intent of the parties as expressed by the language of the policy . . . .") (citation omitted).
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Alternatively, Defendant obliquely suggests that, because the project itself was damaged by the defects, they are excluded from the scope of the term "occurrence." Although some courts have endorsed that position, see, e.g., Auto-Owners Ins. Co. v. Home Pride Cos., Inc., 684 N.W.2d 571,
577-78 (Neb. 2004), importantly, the policy at issue here "does not define 'occurrence' in terms of the ownership or character of the property damaged by the act or event. Rather, the policy asks whether the injury was intended or fortuitous, that is, whether the injury was an accident." Lamar
Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1, 9 (Tex. 2007); see also Erie Ins. Exch. v.
Colony Dev. Corp., 736 N.E.2d 950, 952 n.1 (Ohio Ct. App. 2000) ("The logical basis for the distinction between damage to the work itself (not caused by an occurrence) and damage to collateral property (caused by an occurrence) is less than clear. Both types of property damage are caused by the same thing: negligent or defective work. One type of damage is no more accidental than the other."). Defendant's proposed interpretation of "occurrence" would require this court to engraft onto the policy an additional provision demanding the property's third-party ownership to be a necessary precondition to coverage. But, as the Supreme Court of Connecticut consistently has observed, the policy's "language must be given its ordinary meaning unless a technical or special meaning is clearly intended, and where the terms of a policy are clear their meaning is not to be forced." Lyon v. Aetna Cas. & Sur. Co., 99 A.2d 141, 143 (Conn. 1953) (citations omitted) (emphasis added). The onus, therefore, is on the insurer, in drafting the policy, to specify less-than-natural meanings of a term, when intended; otherwise, the term's ordinary usage governs. See, e.g., Nat'l Grange Mut. Ins.
Co. v. Santaniello, 961 A.2d 387, 394 n.13 (Conn. 2009) ("[T]he policy language will be construed as laymen would understand it and not according to the interpretation of sophisticated underwriters
. . . ."). If Defendant had intended not to insure against these defects, then simple language
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memorializing that understanding could easily have been inserted without occasion. The absence of such language, however, strongly suggests that the term "occurrence" or "accident" should be given its usual meaning as an unexpected fortuity rather than a particular sub-class of accidents, as
Defendant urges. Accordingly, even if the Hilltop Apartments, rather than a third party's property, was damaged as a consequence of the breaches, it is analytically irrelevant to the decision whether the breaches themselves were accidents and property damage within the meaning of the policy.
Even more problematically, Defendant's analysis of the term "occurrence" essentially nullifies the business risk exclusions contained in the policy. As the Supreme Court of Wisconsin explained:
The business risk exclusions eliminate coverage for liability for property damage to the insured's own work or product – liability that is typically actionable between the parties pursuant to the terms of their contract, not in tort. If the insuring agreement never confers coverage for this type of liability as an original definitional matter, then there is no need to specifically exclude it. Why would the insurance industry exclude damage to the insured's own work or product if the damage could never be considered to have arisen from a covered "occurrence" in the first place?
Am. Family Mut. Ins. Co., 673 N.W.2d at 78. This approach comports with the Supreme Court of
Connecticut's admonition that, when possible, policy interpretations should not render certain provisions either superfluous or inoperative. See, e.g., Kulikowski, 942 A.2d at 343 (citation omitted). Absent the interpretation advanced by the Supreme Court of Wisconsin, however, if the business risk exclusions in the subject policy were given Defendant's suggested construction, they would be rendered wholly redundant. Interpreting the term "occurrence" and "property" broadly, however, ensures that both coverage and exclusions retain some field of operation unique to the other.
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In any event, the court concludes that the evidence, when viewed in the light most favorable to Plaintiffs, suggests that the damage to the Hilltop Apartments constituted "property damage" and resulted from an "occurrence." This conclusion, however, does not foreclose the required factual finding. Indeed, the "determination of whether an insured's faulty workmanship was intended or accidental is dependent on the facts and circumstances of the particular case." Lamar Homes, Inc.,
242 S.W.3d at 9; see also Aetna Cas. & Sur. Co. v. Best, No. 93-526114, 1996 Conn. Super. LEXIS
229, at *15 (Conn. Super. Ct. Jan. 23, 1996) (concluding that the deciding whether the underlying facts constituted an occurrence was a question of fact sufficient to defeat summary judgment).
6. Applicability of Exclusions13
Finally, Defendant contends that three business risk exclusions apply to the allegedly covered claims. Specifically, Defendant claims that the following exclusions preclude coverage: (1) the
"your work" exclusion; (2) the "damage to property" exclusion; (3) the "impaired property" exclusion; and (4) the "sistership" exclusion. The court addresses each in turn.
a. The "Your Work" Exclusion
The policy excludes from coverage "'[p]roperty damage' to 'your work' arising out of it or any part of it and included in the 'products-completed operations hazard.'" (Doc. #48-5 at 7). The policy defines "your work" as meaning:
a. Work or operations performed by you or on your behalf; and b. Materials, parts or equipment furnished in connection with such work or operations.
13 The court explicitly rejects Plaintiff CDC's suggestion that Defendant is estopped from asserting exclusions to coverage. Even if Defendant raises exclusions that it did not previously assert in the declaratory judgment action before Judge Acker, Defendant consistently reserved all right to deny coverage on any other basis. Moreover, under Connecticut law, it is settled that "waiver and estoppel cannot be used to extend the coverage of an insurance policy or create a primary liability but may only affect rights reserved therein . . . ." Harris v. Hermitage Ins. Co., No. CV085021329S, 2009 Conn. Super. LEXIS 2723, at *11 (Conn. Super. Ct. Oct. 13, 2009).
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(Doc. #48-5 at 16). "Your work" additionally includes:
a. Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of "your work"; and b. The providing of or failure to provide warnings or instructions.
(Doc. #48-5 at 16). The policy defines the "products-completed operations hazard" as follows:
a. Includes all "bodily injury" and "property damage" occurring away from premises you own or rent and arising out of "your product" or "your work" except: (1) Products that are still in your physical possession; or (2) Work that has not yet been completed or abandoned. However, "your work" will be deemed completed at the earliest of the following times: (a) When all of the work called for in your contract has been completed. (b) When all of the work to be done at the job site has been completed if your contract calls for work at more than one job site. (c) When the part of the work done at a job site has been put to its intended use by any person or organization other than another contractor or subcontractor working on the same project. Work that may need service, maintenance, correction, repair or replacement, but which is otherwise complete, will be treated as completed. b. Does not include "bodily injury" or "property damage" arising out of: (1) The transportation of property, unless the injury or damage arises out of a condition in or on a vehicle not owned or operated by you, and that condition was created by the "loading or unloading" of that vehicle by any insured. (2) The existence of tools, uninstalled equipment or abandoned or unused materials; or (3) Products or operations for which the classification, listed in the Declarations or in a policy schedule, states that products-completed operations are subject to the General Aggregate Limit.
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(Doc. #48-5 at 16).
Additionally, the policy carves out the following exception to the "your work" exclusion:
"This exclusion does not apply if the damaged work or the work out which the damage arises was performed on your behalf by a subcontractor." (Doc. #48-5 at 7).
Plaintiffs seem to concede that the damage stems from their work but contest qualification for the "products-completed operations hazard" and the subcontractors exception. Regarding the first issue, a products-completed operations hazard provision "is an exception to [an exclusion]. Or, stated in another way, the PCOH provision is simply a category of losses that are covered even though these losses might otherwise be excluded. Viewed in this light, the PCOH provision does not create a separate category of coverage. Rather, any loss falling with the PCOH provision must still meet all the requirements of the policy, like any other loss, except the exclusion from which the losses are excepted." Pursell Constr., Inc. v. Hawkeye-Sec. Ins. Co., 596 N.W.2d 67, 69 (Iowa 1999)
(citing 1 APPLEMAN ON INSURANCE § 4.20 (2d ed. 1996)). In this case, the court merely notes that there are questions of fact as to when the alleged property damage occurred and was discovered by the University. Viewing the evidence in the light most favorable to Plaintiffs, the court concludes that the evidence is sufficient to withstand a motion for summary judgment on the basis of the "your work" exclusion, at least insofar as the interplay with the PCOH provision is concerned.
Second, and alternatively, regarding the subcontractor exception to the exclusion, Plaintiffs have submitted evidence demonstrating that subcontractors were retained to perform the predominant if not exclusive work on the Hilltop Apartments project. (Docs. #50, 51). If Plaintiffs are able to prove that the claimed damage arose from the work of subcontractors on their behalf (and there is evidence in the Rule 56 record to support such a finding), then the "your work" exclusion
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is inapplicable, and coverage exists. But like the timing issues noted above, the trier of fact is charged with this responsibility of fact finding – not the court. Accordingly, assuming no other exclusion applies to the claimed property, the applicability of this exclusion is a question of fact for the jury.
b. The "Damage to Property" Exclusion
Under the "damage to property" exclusion, the policy excludes from coverage the following otherwise covered damage:
j. Damage To Property "Property damage" to: (1) Property you own, rent, or occupy; (2) Premises you sell, give away or abandon, if the "property damage" arises out of any part of those premises; (3) Property loaned to you; (4) Personal property in the care, custody or control of the insured; (5) That particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the "property damage" arises out of those operations; or (6) That particular part of any property that must be restored, repaired or replaced because "your work" was incorrectly performed on it.
(Doc. #48-5 at 7). Defendant argues that Subpart 6 excludes coverage in this case. Nevertheless, the policy creates an exception to that particular exclusion: "Paragraph (6) of this exclusion does not apply to 'property damage' included in the 'products-completed operations hazard.'" (Doc. #48-5 at
7). Assuming the applicability of the exclusion, the critical issue is whether the exception applies.
As discussed above, however, there are substantial questions of fact in the Rule 56 record regarding when the property damage identified occurred within the meaning of these provisions. The court,
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therefore, avoids a detailed analysis of this matter and reserves a final determination regarding the exclusion and its exception's applicability for the trier of fact to pass on the underlying factual dispute.
c. The "Impaired Property" Exclusion
Under the "impaired property" exclusion, the policy excludes from coverage the following otherwise covered damage:
j. Damage To Your Work "Property damage" to "impaired property" or property that has not been physically injured arising out of: (1) A defect, deficiency, inadequacy or dangerous condition in "your product" or "your work"; or (2) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms. This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to "your product" or "your work" after it has been put to its intended use.
(Doc. #48-5 at 7). The policy defines "impaired property" as follows:
"Impaired property" means tangible property, other than "your product" or "your work," that cannot be used or is less useful because: a. It incorporates "your product" or "your work" that is known or thought to be defective, deficient, inadequate or dangerous; or b. You have failed to fulfill the terms of a contract or agreement; If such property can be restored to use by: a. The repair, replacement, adjustment or removal of "your product" or "your work"; or b. Your fulfilling the terms of the contract or agreement.
(Doc. #48-5 at 14).
Defendant gives short shrift to this exclusion without any corresponding analysis of the term's language in light of the factual record in this case:
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Exclusion "m" is commonly called the "impaired property" exclusion. Cases too numerous to list treat the impaired property exclusion as unambiguous and interpret it according to the plain meaning of its language. [Citations Omitted]. The exclusion has been applied in various construction circumstances and its application is demonstrated by cases such as Dorchester Mut. Fire Ins. Co. v. First Kostas Corp., Inc., 49 Mass. App. Ct. 651, 653-56, 731 N.E.2d 569, 571-73 (Mass. App. Ct. 2000), which involved claimed for remediation because of escape of lead based paint chips and dust. The chips and dust did not physically damage any property, but required removal to eliminate the condition.
(Doc. #41 at 67). And that is the sum and substance of Defendant's argument as to the purported applicability of this exclusion to the present case. First, the court is uncertain to which alleged property damage category this exclusion applies. Second, the exclusion clearly limits application only to damage to "impaired property," but "impaired property," by definition, means only tangible property other than "your work." As Plaintiffs accurately note, most, if not all, of the Hilltop
Apartments project likely falls within the general definition of "your work." Accordingly, this exclusion plainly does not apply because there is no readily identifiable "impaired property" at issue in this case.
d. The "Sistership" Exclusion
Finally, Defendant contends that the recall, or "sistership," exclusion precludes Plaintiffs' coverage argument:
n. Recall Of Products, Work or Impaired Property Damages claimed for any loss, cost or expense incurred by you or others for the loss of use, withdrawal, recall, inspection, repair, replacement, adjustment, removal or disposal of: (1) "Your product"; (2) "Your work"; or (3) "Impaired property"; if such product, work or property is withdrawn or recalled from the market or from use by any person or organization because of known
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or suspected defect, deficiency, inadequate or dangerous condition in it.
(Doc. #48-5 at 7).
The Fifth Circuit, interpreting an earlier version of this exclusion, concluded that it
"exclude[s] from coverage the cost of preventative or curative action by withdrawal of a product in situations in which a danger is to be apprehended. It is not, however, intended to exclude from coverage damages caused by the very product whose failure to perform properly aroused apprehension about the quality of 'sister' products. Still less is it intended to exclude from coverage damages arising from the malfunctioning of a product where no 'sister' products are involved." Todd
Shipyards Corp. v. Turbine Serv., Inc., 674 F.2d 401, 419 (5th Cir. 1982) (citations omitted).
Similarly, the Supreme Court of Illinois observed that "[t]he 'sistership' exclusion excludes coverage in cases where, because of the actual failure of the insured's product, similar products are withdrawn from use to prevent the failure of these other products, which have not yet failed but are suspected of containing the same defect. The exclusion applies only to the costs associated with the withdrawal and repair or replacement of 'sister' products which have not yet failed. It does not apply, however, to the product that has already failed while in use and caused damage to the property of a third party." U.S. Fid. & Guar. Co. v. Wilkin Insulation Co., 578 N.E.2d 926, 934 (Ill. 1991)
(citations omitted). The District of Minnesota reached a similar conclusion and noted that to qualify for this exclusion, "the repair or replacement process must include more than [the] product that has already failed, because there is no withdrawal or recall where no attempt is made to prevent future failures. The Sistership exclusion has no application when the product in question is not withdrawn from the market because of a suspected defect in another product but is withdrawn because it was
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[itself] damaged by defective construction." Corn Plus Coop. v. Cont'l Cas. Co., 444 F. Supp. 2d
981, 991 (D. Minn. 2006) (citations omitted). And the Supreme Court of Minnesota observed that a "majority of courts . . . have adopted the view that repair and replacement of just those products that actually failed in use, with no attempt to prevent future failures by removal of other similar suspect products, does not constitute withdrawal." Atl. Mut. Ins. Co. v. Judd Co., 380 N.W.2d 122,
125 (Minn. 1986) (citations omitted).
In this case, Defendant identifies only two instances where the exclusion arguably applies.
First, the University removed the hot water heaters after detecting elevated levels of carbon monoxide, and second, the University evacuated students from the Hilltop Apartments, which purportedly constituted the University's withdrawal of the building's use. The court agrees that the removal of hot water heaters, an act undoubtedly intended to prevent future elevated carbon monoxide release, falls within the ambit of the exclusion. See Tweet/Garot-August Winter, LLC v.
Liberty Mut. Fire Ins. Co., No. 06-800, 2007 WL 445988 (E.D. Wis. Feb. 7, 2007) (concluding that the sistership exclusion barred coverage as to the cost of removing defective valves because they would continue to be defective). Even applying the narrow approach detailed above, the removal constitutes preventative action. But Defendant's argument is a straw man tactic because, importantly, neither Plaintiff has suggested that removing the hot water heaters resulted in a cost covered by the policy. Instead, Plaintiffs have represented that the elevated levels of carbon monoxide and the consequent (and arguable) losses of use are the only justifications for claiming coverage. In any event, the evacuation of students, however, presents a closer question because, as detailed supra, the facts surrounding that event are disputed by both parties. Accordingly, at this stage, the court
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expresses no view whatsoever as to the purported applicability of this exclusion. Without the benefit of a factual determination, any judgment would be premature.
IV. CONCLUSION
For the above reasons, the court concludes that Defendant's motion to strike is due to be granted and Defendant's motion for summary judgment is due to be denied. An order consistent with this Memorandum Opinion will be entered separately.
DONE and ORDERED this 23rd day of September, 2010.
______R. DAVID PROCTOR UNITED STATES DISTRICT JUDGE
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