Opinion
Civil Action No. 03-678.
July 19, 2004
ORDER AND REASONS
This matter comes before the Court on motion for summary judgment filed by the defendant, Canal Indemnity Company ("Canal") and motion for summary judgment filed by the plaintiffs, Boyd Baker, Sarah Baker and Cameras America, L.L.C. ("Cameras America"). Having considered the record, the memoranda of counsel and the law, the Court has determined that summary judgment in favor of Canal is appropriate for the following reasons.
Relevant policy provisions
The remaining dispute concerns whether Canal owes a duty to defend under the policy it issued to Cameras America. The policy provides as follows:
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.
(Rec. Doc. 84, Exhs. F L, p. 1). "Property damage" is defined in the policy as "[p]hysical injury to tangible property, including all resulting loss of use of that property . . . or . . . [l]oss of use of tangible property that is not physically injured." (Rec. Doc. 84, Exh. L, p. 13).
The policy also provides for coverage if the property damage is caused by an "occurrence . . . that occurs during the policy period." An "occurrence" is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." (Rec. Doc. 84, Exhs. F L, pp. 1 12).
The policy, in its special exclusion endorsement, indicates that the insurance applies to property damage "arising out of only those operations which are classified and shown on the Commercial General Liability coverage Declarations, its endorsements and supplements." (Rec. Doc. 84, Exhs. E L). The application and declaration page indicate that those operations were described as "install, service repair surveillance equipment." (Rec. Doc. 84, Exhs. C, D L). The declaration page provides "THESE DECLARATIONS TOGETHER WITH COMMON POLICY CONDITIONS, COVERAGE PART DECLARATIONS, COVERAGE PART COVERAGE FORM(S) AND FORMS AND ENDORSEMENTS, IF ANY, ISSUED TO FORM A PART THEROF, COMPLETE THE ABOVE NUMBERED POLICY." (Rec. Doc. 84, Exhs. D L). The policy also provides that by accepting the policy, the insured agrees that: "The statements in the Declarations are accurate and complete; . . . Those statements are based upon representations you made to us; and . . . We have issued this policy in reliance upon your representations." (Rec. Doc. 84, Exh. L, p. 10).
Camera Americas mistakenly limits the Special Exclusion Endorsement to pollution damage. (Rec. Doc. 83, p. 16; Rec. Doc. 87, p. 8). The Court's reading of that endorsement is that it clearly contains a series of independent provisions, each distinguished by each other by the use of capital letters in the titles of each section. (Rec. Doc. 84, Exh. E).
The policy excludes coverage to property damage to "your product" and property damage to "your work." (Rec. Doc. 84, Exhs. F L, p. 4). "Your product" is defined in the policy as "'a]ny goods or products, other than real property, manufactured, sold, handled, distributed . . . by . . . you . . . or . . . [a] person or organization whose business assets you have acquired; and . . . materials, parts or equipment furnished in connection with such goods or products." (Rec. Doc. 84, Exh. L, p. 13). "Your product" is defined to include "[w]arranties or representations made at any time with respect to the fitness, quality, durability, performance or use of 'your product;' and . . . [t]he providing of or failure to provide warnings or instructions." (Rec. Doc. 84, Exh. L., p. 13). "Your work" is defined in the policy as ""[w]ork or operations performed by you . . . and . . . [m]aterials, parts or equipment furnished in connection with such work or operations." "Your work" is further defined to include [w]arranties or representations made at any time with respect to the fitness, quality, durability, performance or use of 'your work' . . . and . . . [t]he providing of or failure to provide warnings or instructions." (Rec. Doc. 84, Exh. L, p. 13).
There are two lawsuits for which the plaintiffs seek a defense. The first suit was filed in Civil District Court for the Parish of Orleans, State of Louisiana by Mossy Oldsmobile, Inc. ("Mossy") against Cameras America and Sarah Baker. (Rec. Doc. 84, Exh. A). The Court's reading of the petition in that suit indicates that it is based on the failure to properly monitor Mossy's premises in New Orleans, which allegedly resulted in the theft and damage of Mossy property.
The plaintiffs indicate in supplemental brief that the petition in the Louisiana suit was amended to add Canal as a defendant under the Louisiana Direct Action Statute, La.Rev.Stat. § 22:655.
The second suit for which the plaintiffs seek a defense was filed in Texas State Court by Mossy against Cameras America and Sarah Baker. The Court's reading of the original and first amended petition indicates that the claims arise from the improper functioning of cameras and surveillance equipment installed by Cameras America on Mossy's property in Texas. This Texas suit seeks rescission of the sale, revocation of the contract with Cameras America, violation of the Texas Deceptive Practices — Consumer Protection Act, fraud and negligent misrepresentation and breach of warranty. (Rec. Doc. 84, Exh. B).
Duty to defend and coverage: unambiguous policy provisions
The parties agree that Texas and Louisiana law are in accord with regard to the rules of insurance interpretation.
"When the words of a contract are clear and explicit and lead to no absurd consequences, no further interpretation made be made in search of the parties' intent." La. Civ. Code art. 2046. Under Louisiana law, if a contract is unambiguous on its face, its meaning and the intent of the parties is determined by the four corners of the document and extrinsic evidence as to the intent of the parties is not admissible. Shocklee v. Massachusetts Mutual Life Insurance Co., 369 F.3d 437 (5th Cir. 2004). The parties may not create an ambiguity and the courts may not create contractual obligations based thereon if the contract clearly expresses the intent of the parties. Id. "The words of a contract must be given their generally prevailing meaning." La. Civ. Code art. 2047. The interpretation of a contract based on the language of a contract is a question of law for the court to decide. In re: Liljeberg Enterprises, Inc., 304 F.3d 410 (5th Cir. 2002); Ginger Mae Financial Services, L.L.C. v. Ameribank, FSB, 857 So.2d 546 (La.App. 1st Cir. 2004), writ denied, 864 So.2d 634 (La. 2004).
The Court finds that the language concerning the duty to defend is provided by the policy is clear and unambiguous. The insurer owes the duty to defend a suit seeking damages "to which this insurance applies" and does not have the duty to defend a suit seeking damages "to which this insurance does not apply." By these policy provisions, the duty to defend is determined by whether the insurance applies.
The Court has some difficulty understanding the plaintiffs' argument on this issue. To the extent that they argue that this provision is contra bona mores, no authority for this argument is made. (Rec. Doc. 83, p. 13). The plaintiffs appear to be assuming that the duty to defend is based on something other than policy provisions. While there are numerous cases involving the breadth of an insurer's duty to defend, many of which are cited by the plaintiffs, none of those cases stand for the bold proposition that a duty to defend exists independently of its provision in a policy. In any event, the determination whether a duty to defend necessarily includes consideration whether the policy applies to the claims, and that circumstance is made clear by the provision in the Canal policy.
Indeed, the cases upon which the plaintiffs rely recognize that "[t]he allegations of the petition are liberally interpreted in determining whether they set forth grounds which bring the claims within the scope of the insurer's duty to defend the suit . . ." and "[a]n insurer's duty to defend its insured is determined by consideration of the policy provisions covering the insured . . ." Hanover Insuance Co. v. Highlands Insurance Co., 511 So.2d 1296, 1297 (La.App. 2d Cir. 1987); Bourque v. Lehmann Lathe, Inc., 476 So.2d 1129, 1131 (La.App. 3d Cir. 1985).
The Court also finds that the provisions pertaining to the secondary determination whether the policy applies are equally unambiguous so as to preclude consideration of extrinsic evidence as to intent under Louisiana and Texas law. Cameras America's arguments largely focus on extrinsic evidence to raise an issue of ambiguity, which is clearly inappropriate.
Duty to defend — Louisiana state court suit
The Court finds that the policy unambiguously covers certain risks regarding the plaintiffs' business operations involving the installation, service repair of surveillance equipment, as set forth in the policy. There is nothing in the meanings of any of these words which would include monitoring of the premises of any third party for unlawful or potentially damaging activity. The plaintiffs argue that both "service" and "monitor" are transitive verbs. (Rec. Doc. 87, p. 18). The object of the operations as set forth in the policy is the equipment; the object of any monitoring is the premises of a third party, which are not even described in the policy.
Even if extrinsic evidence was considered, it could be argued that this language should have this distinct meaning to the plaintiffs if they charge an additional amount for monitoring services.
In so concluding, the Court may be in disagreement with Judge Barbier's denial of Canal's motion for summary judgment prior to his recusal. (Rec. Doc. 20). That preliminary ruling, however, was not on plaintiffs' motion, did not result in a judgment, is not a final order and is subject to revision. Judge Barbier clearly found only "that at this juncture summary judgment is inappropriate." The Court is confident that Judge Barbier did not intend to foreclose summary judgment on the issue of coverage at a later date. (Rec. Doc. 20).
In addition, it appears that Judge Barbier may have considered extrinsic evidence to determine whether there was an ambiguity: "Plaintiffs have succeeded in demonstrating that ambiguity exists as to whether the term 'servicing' as used in the context of the policy declarations could be construed as encompassing monitoring; this is especially so given that the Court cannot conceive why plaintiffs would have purchased a CGL policy that did not cover all their operations and considering that Canal was on actual notice of the monitoring operations following its tour of the premises where monitoring was being conducted." (Rec. Doc. 20). The Court notes that discovery has revealed that any "inspection" would have occurred after the loss. To the extent that the plaintiffs would argue that their letter to "Valued Customer" should have triggered a "duty to investigate" the scope of the plaintiffs' operations, the argument is not supported by the clear language of that letter, which primarily announces a change of corporate name, new telephone numbers, but also identifies the appointment of someone to be in charge of "service, maintenance and monitoring." (Rec. Doc. 83, pp. 18-19; Rec. Doc. 87, p. 19, Exh. 1).
The Court also recognizes disagreement with the judge in the Louisiana state court case who granted the summary judgment filed by Mossy and Cameras America as to the duty to defend. In so doing, that court provided no reasons for its ruling, which is being appealed. (Rec. Doc. 84, Exhs. I J).
Duty to defend — Texas suit
Canal challenges its duty to defend in the Texas suit under different policy provisions in three respects. First, it argues that there was no "occurrence" which triggered coverage under the policy because of the non-accidental nature of the claims and the action undertaken by Cameras America. The Court admits to some difficulty understanding the plaintiffs' argument in support of the proposition that the policy does cover damages caused to a third party by the failure of the plaintiffs' "to properly perform a contract." (Rec. Doc. 87, p. 22). The plaintiffs argue that "[i]n any action based on contract there is always a corollary action in tort" and that "the Texas allegations have within them the potential for a judgment against Cameras America based on negligence rather than tort or contract and, therefore, there are specific facts genuinely at issue in the litigation." (Rec. 87, pp. 23, 25). These arguments do not identify where the "occurrence" may lie in the Texas litigation.
It would appear that the requirement for an accidental occurrence and property damage, as defined by the policy, is ignored in the plaintiffs' argument.
It would also appear that the plaintiffs may be assuming that all torts or all negligence are "accidents."
The Court notes that the only use of the word "negligent" in the Texas pleadings is with regard to the allegation of joint and several liability for "common law and negligent misrepresentation" and that "the harm . . . resulted from . . . [the plaintiffs'] malice or fraud." (Rec. Doc. 84, Exh. B, ¶ 13). The Court finds that the gist of the facts and claims set forth in the pleadings are for damages resulting from non-occurrences. Texas courts have held that damages resulting from misrepresentations do not fall within the definition of "property damage." State Farm Lloyds v. Kessler, 932 S.W.2d 732, 738 (Tex.App. 1996).
The Kessler court noted with approval the rule that there is no coverage where, as here, the tort claims alleged are based on contract. Id., 932 S.W.2d at fn. 31.
The plaintiffs also rely on a case originally cited by Canal,Federated Mutual Insurance Co. v. Grapevine Excavation, Inc., 197 F.3d 720 (5th Cir. 2000). (Rec. Doc. 87, p. 25). InFederated Mutual, there was physical damage to the work of a third party caused by the alleged failure of substandard material, whereas Mossy is not alleging that the plaintiffs' negligence caused unexpected physical damage to its property in the Texas suit.
Federated Mutual did recognized that, under Texas law, the term "accident" and "occurrence" are interpreted to include damage that is the "unexpected, unforeseen or undesigned happening or consequence" of the insured's negligent behavior.Id., 297 F.3d at 725.
Canal next argues that the purchase and installation of the surveillance equipment in Texas occurred prior to the policy period. The only argument in opposition is that the date suit was filed governs and that there is a claim for "negligent failure to repair and maintain the surveillance system at issue," which constitutes "occurrences" within the policy period (Rec. Doc. 87, p. 33). The Court does not read the Mossy Texas pleadings as including a claim for "negligent failure to repair and maintain," and fails to see the relevance of the plaintiffs' argument.
Next, Canal argues that the Texas claims do not trigger a duty to defend because the insurance contains a work product exclusion. In support of this argument, Canal cites Valmont Energy Steel, Inc. v. Commercial Union Insurance Co., 359 F.3d 770 (5th Cir. 2004) for solid support.
The plaintiffs argue that Valmont does not apply because the damage was "specifically to the product at issue and not beyond," and that summary judgment is premature "because "the ultimate coverage issue is dependent completely on the nature of any judgment that might be eventually rendered and the damages awarded . . ." (Rec. Doc. 87, p. 31). They seem to argue that the product and work exclusions do not apply because "the damages caused by the defective surveillance system are covered to the extent that those damages extend beyond the actual repair of the product or a redo of the work itself." (Rec. Doc. 87, p. 32). The plaintiffs cite a case, Hartford v. Cruse, 938 F.2d 601 (the Cir. 1991), where there was separate property damage, without suggesting to the Court what the separate property damage is at issue in the Texas litigation.
The plaintiffs' argument fails to acknowledge that the general purpose of the work product exclusions is to exclude coverage for property damage "to the insured for damage to his own product or for repair and/or replacement of his defective product" and acts "simply to limit coverage to damage to the products of parties other than the insured." Lindy Investments, LP v. Shakertown Corp., 209 F.3d 802, 810 (5th Cir. 2000) (applying Louisiana law). As explained by Judge Tate:
In general, their purpose is to exclude from coverage any obligation of the policyholder to repair or replace his own defective work or repair or replace his own defective work or defective products; the coverage thus extends only to damages to the products of other than the named insured.Gulf Mississippi Marine Corp. v. George Engine, Inc., 607 F.2d 668, 670 (5th Cir. 1983). Similarly, under Texas law, a work product exclusion such as the one in the Canal policy "does not insure the policyholder against liability for the repair or replacement of his own defective work product, but it does provide coverage for the insured's liability for damages to other property resulting from the defective condition of the work even though the injury to the work product itself is excluded." Dal-Tile Corp. v. Zurich American Insurance Co., 2004 WL 414900 at *5 (N.D. Tex). See also Hi-Port, Inc. v. American International Specialty Lines Insurance Co., 22 F. Supp. 596, 599-600 (S.D.Tex. 1997), aff'd, 162 F.3d 93 (5th Cir. 1998).
Newly acquired organization
The only miscellaneous issue raised in these motions is the plaintiffs' argument that it is covered for its monitoring operations because those activities constitute a "newly acquired organization" for purposes of a provision that provides 90 days of coverage to "[a]ny organization you newly acquire or form, other than a partnership, joint venture or limited liability company, and over which you maintain ownership or majority interest . . ." (Rec. Doc. 83, p. 19; Rec. Doc. 84, Exh. L, p. 7). However, this argument is based on the plaintiffs' misreading of the Special Exclusion Endorsement which specifically provides that the "new entities" provision does not apply. (Rec. Doc. 84, Exhs. E, p. 2 L). In addition, the plaintiffs do not identify what new "organization" is involved.
Conclusion
In the end, the Court is presented with a fairly straight-forward unambiguous insurance policy with clear language which has been interpreted by a multitude of courts to exclude the duty to defend with regard to claims such as those presented in the litigation facing the plaintiffs herein.
Accordingly,
IT IS ORDERED that the motion for summary judgment filed by the defendant, Canal Indemnity Company is GRANTED.
IT IS FURTHER ORDERED that the motion for summary judgment filed by the plaintiffs, Boyd Baker, Sarah Baker and Cameras America, L.L.C. is DENIED.