Opinion
CIVIL ACTION NO. 3:18-CV-746-DPJ-FKB
2020-07-21
CENTURY SURETY COMPANY, Plaintiff v. S AND R DEVELOPMENT, INC., and CMP Construction, Inc., Defendants
Bradford D. Box, Rainey, Kizer, Reviere & Bell, PLC, Jackson, TN, for Plaintiff. Carson H. Thurman, Carroll Bufkin, PLLC, Ridgeland, MS, John C. McCants, III, Preston O. Lee, Maron Marvel Bradley Anderson & Tardy, LLC, Jackson, MS, for Defendants.
Bradford D. Box, Rainey, Kizer, Reviere & Bell, PLC, Jackson, TN, for Plaintiff.
Carson H. Thurman, Carroll Bufkin, PLLC, Ridgeland, MS, John C. McCants, III, Preston O. Lee, Maron Marvel Bradley Anderson & Tardy, LLC, Jackson, MS, for Defendants.
ORDER
Daniel P. Jordan III, CHIEF UNITED STATES DISTRICT JUDGE The parties in this insurance-coverage dispute have filed cross-motions for summary judgment. Mot. [23]; Mot. [25]. Because Plaintiff Century Surety Company has a duty to defend but not indemnify its insured in the underlying arbitration, both motions are granted in part and denied in part.
I. Facts and Procedural History
Plaintiff Century Surety Company (Century) issued a commercial lines insurance policy to Defendant S and R Development, Inc. (S & R), for the policy period running from May 6, 2011, to May 6, 2012. By endorsement to the policy, Defendant CMP Construction, Inc. (CMP), was added as a named insured on June 29, 2011. The question is whether Century had a duty to defend or indemnify CMP for claims it faced related to a hotel-construction project; more specifically, whether the alleged property damage occurred before or after the policy period ended in May 2012.
On August 18, 2011, CMP and Cushing Hospitality, LLC, signed a contract naming CMP as the general contractor over a project to build a Best Western Hotel in Cushing, Oklahoma. In July 2012—after the policy period ended—CMP hired MG Pools, LLC, to install an indoor swimming pool at the hotel. Construction on the hotel was substantially complete by November 2, 2012, and a certificate of occupancy was issued on December 2, 2012.
On May 18, 2017, Cushing filed an Arbitration Demand against CMP with the American Arbitration Association alleging: "The hotel was completed in or about October, 2012, after which problems were discovered including, but not limited to, drywall cracking, problems with wall finishes, windows, doors, drainage and the concrete slab (heaving)." Arbitration Demand [1-1] at 3. Cushing later supplemented its demand on February 1, 2018, identifying deficiencies that occurred "during construction of the hotel." Supp. [25-2] at 1. MG Pools was then added as a party to the arbitration at CMP's request on November 26, 2018, but it neither appeared nor defended itself.
After the arbitration, the arbitrator entered an award for Cushing, finding CMP liable for breach of warranty. The arbitrator concluded that "the installation of the pool and the lack of proper installation of the swimming pool filler pipe caused tens of thousands of gallons of water to be released in the soil under the slab." Arb. Award [23-3] ¶ 33. The arbitrator concluded that MG Pools "was, at a minimum 95%" to blame and that other potential sources of moisture "would not have resulted in an amount of property damage to the Hotel that has occurred." Id. He awarded Cushing $1,840,577.77 in damages, costs, and expenses. Id. at 19.
While the arbitration was pending, Century, which was defending CMP under a reservation of rights, filed this lawsuit against CMP and S & R seeking a declaratory judgment as to its obligations of defense and indemnity. Following the close of discovery, both sides filed their summary-judgment motions, which are now fully briefed.
II. Standard
Summary judgment is warranted under Federal Rule of Civil Procedure 56(a) when evidence reveals no genuine dispute regarding any material fact and the moving party is entitled to judgment as a matter of law. The rule "mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett , 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
The party moving for summary judgment "bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact." Id. at 323, 106 S.Ct. 2548. The nonmoving party must then "go beyond the pleadings" and "designate ‘specific facts showing that there is a genuine issue for trial.’ " Id. at 324, 106 S.Ct. 2548 (citation omitted). In reviewing the evidence, factual controversies are to be resolved in favor of the nonmovant, "but only when ... both parties have submitted evidence of contradictory facts." Little v. Liquid Air Corp. , 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc). When such contradictory facts exist, the court may "not make credibility determinations or weigh the evidence." Reeves v. Sanderson Plumbing Prods., Inc. , 530 U.S. 133, 150, 120 S.Ct. 2097, 147 L.Ed.2d 105 (2000). Conclusory allegations, speculation, unsubstantiated assertions, and legalistic arguments have never constituted an adequate substitute for specific facts showing a genuine issue for trial. TIG Ins. Co. v. Sedgwick James of Wash. , 276 F.3d 754, 759 (5th Cir. 2002) ; Little , 37 F.3d at 1075 ; SEC v. Recile , 10 F.3d 1093, 1097 (5th Cir. 1993).
III. Analysis
Although the duties to defend and indemnify will be separately discussed, both issues begin with the construction of the insurance policy, which presents a question of law in Mississippi. Farmland Mut. Ins. Co. v. Scruggs , 886 So. 2d 714, 717 (Miss. 2004).
Mississippi treats insurance policies as contracts, which "are to be enforced according to their provisions." Noxubee Cty. Sch. Dist. v. United Nat'l Ins. Co. , 883 So. 2d 1159, 1166 (Miss. 2004).... Courts give words "their plain, ordinary, and popular meaning, not a philosophical or scientific meaning." [ Progressive Gulf Ins. Co. v. We Care Day Care Ctr., Inc. , 953 So. 2d 250, 253 (Miss. Ct. App. 2006).]
"[P]rovisions that limit or exclude coverage are to be construed liberally in favor of the insured and most strongly against the insurer." Lewis v. Allstate Ins. Co. , 730 So. 2d 65, 68 (Miss. 1998). But "if a contract is clear and unambiguous, then it must be interpreted as written." U.S. Fid. & Guar. Co. [of Mississippi v. Martin ], 998 So. 2d [956] at 963 [(Miss. 2008)]. "[A] court must refrain from altering or changing a policy where terms are unambiguous, despite resulting hardship on the insured." Titan Indem. Co. v. Estes , 825 So. 2d 651, 656 (Miss. 2002).
State Farm Mut. Auto. Ins. Co. v. LogistiCare Sols., LLC , 751 F.3d 684, 688 (5th Cir. 2014).
Here, Century argues that no duty to defend or indemnify CMP arose under the policy unless property damage occurred during the policy period—i.e., between May 6, 2011, and May 6, 2012. The insuring agreement for the policy's liability coverage provides:
a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend the insured against any
"suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply....
b. This insurance applies to "bodily injury" and "property damage" only if:
(1) the "bodily injury" or "property damage" is caused by an "occurrence" that takes place in the "coverage territory";
(2) the "bodily injury" or "property damage" occurs during the policy period; and
(3) Prior to the policy period, no insured ... knew that the "bodily injury" or "property damage" had occurred, in whole or in part. If ... a listed insured ... knew, prior to the policy period, that the "bodily injury" or "property damage" occurred, then any continuation, change or resumption of such "bodily injury" or "property damage" during or after the policy period will be deemed to have been known prior to the policy period.
c. "Bodily injury" or "property damage" which occurs during the policy period and was not, prior to the policy period, known to have occurred by any insured ... includes any continuation, change or resumption of that "bodily injury" or "property damage" after the end of the policy period.
Policy [1-2] at 11 (emphasis added).
The policy defines "property damage" as including "[p]hysical injury to tangible property, including all resulting loss of use of that property." Id. at 63. So, coverage exists for physical injury to tangible property that occurs during the policy period. Id. at 11, 63. According to Century, that means the actual damage—not its cause—must occur during the policy period. Pl.'s Mem. [24] at 7.
Century is correct. As Judge Bramlette noted when faced with this same policy language in Essex Insurance Co. v. Massey Land & Timber, LLC :
This provision clearly focuses on the time the damage occurs and not on the time of the underlying event that eventually caused the damage. An overwhelming majority of jurisdictions have rejected the argument that coverage is triggered at the time of the injury-causing event because such an interpretation conflicts with this provision of a standard occurrence policy.
No. 5:04-CV-102-DCB-JCS, 2005 WL 3133033, at *1 (S.D. Miss. Nov. 22, 2005) (quoting Joe Harden Builders, Inc. v. Aetna Cas. & Sur. Co. , 326 S.C. 231, 486 S.E.2d 89, 90 (S.C. 1997) ).
Judge Lee also followed the majority approach in Maxum Indemnity Co. v. Wilson , 707 F. Supp. 2d 683, 684 (S.D. Miss. 2010). That case involved construction of a metal building during the policy period. Three years after construction—and well after the policy expired—"the building collapsed following a heavy snow." Id. Judge Lee concluded that because "the only tangible, physical injury ... occurred when [the building] collapsed, after [the] policy had expired, there is no coverage under the ... policy for the loss." Id. at 685 ; see also Travelers Indem. Co. v. Mitchell , 925 F.3d 236, 241 (5th Cir. 2019) (applying Mississippi law and concluding that insurer with similar coverage provision "bargained for an injury-based trigger of coverage, not an act-based trigger"); VRV Dev. L.P. v. Mid-Continent Cas. Co. , 630 F.3d 451, 458 (5th Cir. 2011) (applying Texas law and concluding that "we must focus on the time of the ‘actual physical damage’ to the property, and not the time of the ‘negligent conduct’ or the ‘process ... that later results in’ the damage" (quoting Don's Bldg. Supply, Inc. v. OneBeacon Ins. Co. , 267 S.W.3d 20, 24, 29–30 (Tex. 2008) )).
For its part, CMP never directly challenges this construction and offers no contrary legal authority. It argues instead that the arbitration notice asserted property damage during the policy period and that the facts demonstrated such damage. Accordingly, the Court construes the policy as requiring tangible property damage that occurs during the policy period and will next apply that construction to the facts, starting with the duty to defend.
A. Duty to Defend
"An insurance company's duty to defend its insured is triggered when it becomes aware that a complaint has been filed which contains reasonable, plausible allegations of conduct covered by the policy. However, no duty to defend arises when the claims fall outside the policy's coverage." Hinton v. Pekin Ins. Co. , 268 So. 3d 543, 555 (Miss. 2019), reh'g denied (May 9, 2019) (quoting Baker Donelson Bearman & Caldwell, P.C. v. Muirhead , 920 So. 2d 440, 451 (Miss. 2006) ). "To answer this question, we must look at the facts alleged in the complaint, together with the policy." Auto. Ins. Co. of Hartford v. Lipscomb , 75 So. 3d 557, 559 (Miss. 2011). Thus, an insurer "is justified in refusing to defend only if it is clear from the face of the [underlying] complaint[ ] that the allegations therein are not covered." Am. Guar. & Liab. Ins. Co. v. 1906 Co. , 273 F.3d 605, 610 (5th Cir. 2001) (citing Moeller v. Am. Guar. & Liab. Ins. Co. , 707 So. 2d 1062, 1069 (Miss. 1996) ).
Here, the operative complaint is Cushing's Arbitration Demand [1-1] and the Supplemental Arbitration Demand [25-2]. The initial demand stated that "[t]he hotel was completed in or about October 2012, after which problems were discovered." Arbitration Demand [1-1] at 3. In other words, the damage was discovered some five months after the policy period ended. The Supplemental Arbitration Demand incorporated that averment by reference, and added
that the hotel constructed by CMP experienced significant problems resulting from deficient labor, materials and services provided by CMP and its subcontractors, as well as engineers hired by CMP to perform testing and/or other engineering services during construction of the hotel. In particular, the concrete slabs installed by CMP on the first floor of the hotel experienced "heaving" which, in turn, damaged several areas and components of the hotel on the first, second and third floors, including, but not limited to damage to drywall, interior walls/framing, windows, doors, flooring systems, and many other items.
Supp. [25-2] at 1.
Century's argument that there is no duty to defend hinges on Cushing's claim that the damage was "discovered" after the policy period. See Pl.'s Mem. [24] at 2. But that is not the same as when damage started to occur. Based on the pleaded facts, it is reasonably plausible that some physical injury to tangible property began before it was ultimately discovered. See Hinton , 268 So. 3d at 555. Said differently, it is not "clear from the face of [the arbitration demands]" that no property damage occurred before May 6, 2012, even if more serious damage was discovered later. Am. Guar. & Liab. Ins. Co. , 273 F.3d at 610. Indeed, the property damage described in the supplement would not occur instantaneously, making it plausible that damage began to occur within the policy period. Though a close call, a duty to defend existed.
B. Duty to Indemnify
The duty to indemnify is a different story. As the Fifth Circuit has explained:
Unlike the duty to defend, which can be determined at the beginning of a lawsuit, an insurer's duty to indemnify generally cannot be ascertained until the completion of litigation, when liability is established, if at all.... This is because, unlike the duty to defend, which turns on the pleadings and the policy, the duty to indemnify turns on the actual facts giving rise to liability in the underlying suit, and whether any damages caused by the insured and later proven at trial are covered by the policy.
Estate of Bradley ex rel. Sample v. Royal Surplus Lines Ins. Co. , 647 F.3d 524, 531 (5th Cir. 2011) (applying Mississippi law) (citations omitted).
Although the arbitration demand and supplement presented a plausible claim that property damage began to occur before May 6, 2012, the facts proved otherwise. CMP argued during arbitration that MG Pools was "responsible in whole or in part for Cushing's claims." Arb. Award [23-3] ¶ 55. The arbitrator agreed, finding that the defective pool allowed "tens of thousands of gallons of water to be released into the soil under the slab." Id. ¶ 33 (emphasis added). The arbitrator also concluded that the pool was "at a minimum, 95%" to blame for the resulting damage, id. , and that "construction of the pool was the single most likely cause that led to the water intrusion that resulted in damage to the Hotel," id. ¶ 59. Significantly, CMP hired MG Pools to build the pool after the policy period ended. So while other pre-existing conditions may have existed, it was the massive water intrusion from the pool—built more than three months after the policy closed—that caused property damage. CMP has not shown property damage within the policy period.
CMP attempts to avoid these conclusions in its reply, arguing that it "cited to numerous expert opinions contained in the Arbitration Award ... which strengthen their argument that property damage did, in fact, occur during the policy period." Def.'s Reply [31] at 3. To begin, the arbitrator rejected many of those opinions. Regardless, the opinions CMP references identify potential causes occurring during the policy period but not property damage during that time. See Def.'s Mem. [26] at 4 (citing Coombs Engineering report faulting "soil under the slab ... along with groundwater present at the site"); id. (citing "Mr. Maxwell" who opined about various causes, including leaking pool and earthquakes); id. at 4–5 (citing Robert Wheeler, who "concluded that the slab should not have been tied to piers" so they could float "with the expanding soil"). In summary, the cited expert opinions identified conditions—not property damage—that may have existed during the policy period. In fact, they each linked those alleged pre-existing conditions to the water that escaped the defective pool after the policy period closed.
IV. Conclusion
The Court has considered all arguments. Those not addressed would not have changed the outcome. For the foregoing reasons, a duty to defend existed but not to indemnify. Plaintiff's Motion for Summary Judgment [23] and Defendants' Motion for Summary Judgment [25] are both granted in part and denied in part. A separate judgment will be entered in accordance with Federal Rule of Civil Procedure 58.
SO ORDERED AND ADJUDGED this the 21st day of July, 2020.