Opinion
CIVIL ACTION, NO. 02-3495, SECTION "C" (3)
August 14, 2003
Order and Reasons
John S. Goehring, a third year law student at Tulane Law School, assisted with the research and preparation of this decision.
This matter comes before the Court on motion to cross-motions for summary judgment by third party plaintiff RNA, Inc. ("RNA") and third party defendant Gemini Insurance Company ("Gemini"). Having considered the record, the memoranda of counsel, and the law, Gemini's motion is DENIED and RNA's motion is GRANTED IN PART and DENIED IN PART.
Background
This action arises from a claim by Bois D'Arc Offshore Ltd.
("Bois D'Arc," the "Bois D'Arc suit") for the alleged failure of drill pipe inspected by RNA, INC. ("RNA," erroneously identified as International Oilfield Services, Inc.) Bois D'Arc contracted Hercules Offshore Corporation ("Hercules") to drill an oil well. According to the complaint Hercules purchased drill pipe from Petroleum Rentals, Inc., and hired RNA to inspect the pipe. Bois D'Arc alleges that RNA failed to properly inspect the drill pipe and should have known that the drill pipe Hercules sold to Bois D'Arc was defective. Bois D'Arc seeks damages from RNA for the loss of approximately 184 joints of drill pipe, remedial drilling and rig expenses, additional sidetrack drilling expenses, and the delay of eventual production of the well. (Rec. Doc. 1 at ¶ XLIX). RNA brought this third party action against Gemini Insurance Company ("Gemini"), on the basis of a policy of Commercial General Liability Insurance (the "Policy") issued by Gemini to RNA. Both RNA and Gemini have moved for summary judgment. The issues before the Court are (1) "whether the CGL policy issued by Gemini provides coverage for the damages alleged by (Bois D'Arc)" (Rec. Doc. 15, Statement of Uncontested Material Facts); (2) "whether RNA is owed a defense under the Gemini policy for indemnity in the event RNA is found liable to (Bois D'Arc)." (Rec. Doc. 20, RNA's Response to Gemini's Statement of Uncontested Material Fact); and (3) whether "RNA is entitled to penalties and attorney's fees as a result of arbitrary and capricious failure of Gemini to defend." (Rec. Doc. 14 at 5).
Standard of Review
A district court can grant a motion for summary judgment only when the "'pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.'" Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986) (quoting Fed.R.Civ.P. 56(c)). When considering a motion for summary judgment, the district court "will review the facts drawing all inferences most favorable to the party opposing the motion." Reid v. State Farm Mut. Auto Ins. Co., 784 F.2d 577, 578 (5th Cir. 1986). The court must find that a reasonable jury could return a verdict for the nonmoving party . . . [and a] fact . . . [to be] 'material' if it might affect the outcome of the suit under the governing substantive law." Beck v. Somerset Techs., Inc., 882 F.2d 993, 996 (5th Cir. 1989) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986)). "If the moving party meets the initial burden of showing that there is no genuine issue of material fact, the burden shifts to the non-moving party to produce evidence or designate specific facts showing the existence of a genuine issue for trial." Engstrom v. First Nat'l Bank of Eagle Lake, 47 F.3d 1459, 1462 (5th Cir. 1995) (citing Celotex, 477 U.S. at 322-24, 104 S.Ct. at 2552-53, 91 L.Ed.2d 265 and Fed.R.Civ.P. 56(e)). The mere argued existence of a-factual dispute will not defeat an otherwise properly supported motion. See Anderson, 477 U.S. at 248, 106 S.Ct. at 2510, 91 L.Ed.2d 202. "If the evidence is merely colorable, or it is significantly probative, 'summary judgement is not appropriate.'" Id., at 249-50, 106 S.Ct. at 2511, 91 L.Ed.2d 202 (citations omitted).
Policy Terms
Under Louisiana Law, an insurance policy, like any contract, constitutes the law between the parties. Pareti v. Sentry Indemnity Co., 536 So.2d 417, 420 (La. 1988). The parties' intent, as reflected by the words of the policy, determines the extent of coverage. Reynolds v. Select Properties, Ltd., 634 So.2d 1180. 1183 (La. 1994). Words and phrases used in the policy are to be construed using their plain meaning, unless the words have acquired a technical meaning. Id. Where the language of the contract is clear and unambiguous, the agreement must be enforced as written. Id. Only upon finding a term of the contract ambiguous will the court consider extrinsic evidence in interpreting its meaning. Lloyds of London v. Transcontinental Gas Pipe Line Corp., 101 F.3d 425 (5th Cir. 1996).
The Court looks to the terms of the insurance policy to determine Gemini's duties to RNA with respect to the Bois D'Arc suit. The Policy provides in Section I.1:
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, (emphasis added).
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."
(Rec. Doc. 14 Ex. A, CGL Coverage Form at 1).
RNA and Gemini dispute what damage, if any, is covered, and whether Gemini owes a defense for all alleged losses in the Bois D'Arc suit. The Court finds that Section I.1 unambiguously states that Gemini has a duty to defend RNA against any suit seeking damages covered by the policy. The plain language of the policy obligates Gemini to defend "any suit" seeking [covered] damages." The Policy does not exclude those suits or portions thereof consisting of mixed covered and uncovered claims. In other words, if any alleged damages are found to be included in the CGL policy, then Gemini has a duty to defend RNA against the entire suit, even though the suit may allege some damages not covered by Gemini.
That this incident involves "property damage" caused by an "occurrence" that took place in the "coverage territory" is not disputed. Rather, Gemini states in its memorandum that the exclusionary provisions in Section I.2. of the Policy "are clearly the basis of denial of the claim." (Rec. Doc. 15 at 3).
Specifically, Gemini cites exclusions "j (6)," "k," and "1". These exclusions incorporate the terms "your work" and "your product." Gemini argues that the inspected pipe is both the "work" and the "product" of RNA, which RNA denies The Policy defines "your work" as:
(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 or failure to provide warnings or instructions.
(Rec. Doc. 14 Ex. A, CGL Coverage Form at 13). The Policy defines "your product," in pertinent part as:
(a) Any manufactured goods or products, other than real property, manufactured, sold, handled, distributed or disposed of by:
(1) You
(b) Containers (other than vehicles), materials, parts or equipment furnished in connection with such goods or products.
"Your product" includes:
(a) Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of "your product"; and
(b) The providing of or failure to provide warnings or instructions.
(Id.)
The Court finds that RNA's inspection of the pipe satisfies the definition of both "your work" and "your product." RNA argues that "in arranging the shipping of pipe owned by Petroleum Rentals to the drilling company by a third party for ultimate use by [Bois D'Arc], [RNA] did not do any work or operations in the form of inspections." (Rec. Doc. 20 at 8). Although this statement may be true with respect to whether an inspection occurred in connection with the shipment, it is not necessarily germane to whether an inspection ever occurred. In fact, it is undisputed that RNA inspected the pipe. In the affidavit of RNA Manager Kevin McKay, which RNA provides, McKay testifies that "RNA performed a Category 3 inspection." (Id., attached Aff. at 2). Further, RNA's inspection of the pipe constitutes "work" within the meaning of the Policy. Because RNA's interaction with the pipe satisfies the plain meaning of the term "handled," the Court finds that RNA "handled" the inspected pipe and thus the pipe is also RNA's "product."
Exclusion "j (6)" provides" that the Policy does not apply to "[p]roperty damage" to "that particular part of any property that must be restored, repaired, or replaced because 'your work' was incorrectly performed on it." (Rec. Doc. 14, Ex. A, CGL Coverage Form at 4). The Policy further provides that exclusion "j (6)" "does not apply to 'property damage' included in the 'products-completed operations hazard.' (Id.). A "products-completed operations hazard" definition "allows generally for coverage for property damage 'arising out of the insured's product.'" Lindy Invs., L.P. v. Shakertown Corp., No. 94-4112, 1998 U.S. Dist. LEXIS 2817, at *8, n. 10 (E.D.La. Mar. 5, 1998) (citations omitted). The Court has previously interpreted language virtually identical to exclusion "j (6)" to mean that "coverage is unambiguously excluded for repair and replacement costs to 'any property' attendant to faulty work under exclusion 'j (6),' except with respect to 'property damage' covered under the 'products completed operations hazard.'" Bollinger Shipyards Lockport, L.L.C. v. Amclyde Engineered Products, Inc., 2003 U.S. Dist. LEXIS 10577, at * 20-21 (E.D.La. June 11, 2003). "This means that repair and replacement costs for the faulty work are excluded, whereas, any damage to other property that may result is included." Id.
The 'products-completed operations hazard' is defined as:
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 that 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 working on the same project.
(Rec. Doc. 14, Exhibit A, CGL Coverage Form at 12).
The Court finds that the work of inspecting the pipes was completed and therefore the property damage is included in the "products-completed operations hazard." As such, the "j (6)" exclusion is not applicable, and damage to property other than the inspected pipe itself is included in the coverage.
Exclusion "k" states that the Policy does not apply to "'property damage' to 'your product' arising out of it or any part of it," and exclusion "l" states that the Policy does not apply to "'property damage' to 'your work' arising out of it or any part of it and included in. the 'products-completed operations hazard.'" (Rec. Doc. 14, Ex. A, CGL Coverage Form at 4). Although this language is arguably somewhat confusing, neither party alleges, nor does the Court find, that exclusions "k" and "1" conflict with the "products-completed operations hazard" in such a way that renders the CGI Policy ambiguous. See Lindy, No. 94-4112, 1998 U.S. Dist. LEXIS 2817 at *8. n. 10. ("The two provisions are reconcilable. The products hazard definition allows generally for coverage for property damages 'arising out of' the insured's product. The work product exclusion precludes recovery for damage to the product itself."). As in Lindy, this Court in Bollinger interpreted virtually identical CGI policy language to mean that "coverage is unambiguously excluded for damage to 'your product' and 'your work' in exclusions 'l' and 'k,' but specifically reserved for 'property damage' arising out of 'your product' or 'your work' in the 'products-completed operations hazard.'" Bollinger, 2003 U.S. Dist. LEXIS 10577 at *20. Applying the reasoning in Bollinger to this case, the Court finds that "coverage for damage to the [pipe] is excluded, whereas, damage that the [pipe] may cause to other property is included." Id.
The CGL Policy contains one more relevant provision in addition to the general exclusions, "j (6)," "k," and "1." The "Oil Industry Limitation Endorsement" provides in pertinent part:
This endorsement modifies insurance provided under the following:
Commercial General Liability Coverage Part.
This insurance does not apply to:
1. Loss of hole or in-hole equipment, including fishing costs.
(Rec. Doc. 15 Ex. A, Oil Industry Limitation Endorsement). RNA acknowledges that this provision excludes coverage for the loss of hole or in-hole equipment, including fishing costs. (Id. at 4). The Court finds this provision is applicable and shall be read in conjunction with the applicable general exclusions.
As to the issue of attorney's fees, RNA rightly points out that where the insurer's denial of a claim is arbitrary and capricious, Louisiana courts have awarded attorney's fees incurred in pursuit of coverage issues under La.R.S. 22:658. (Rec. Doc. 14 at 4); See Clement v. Sontheimer Offshore Catering, 577 So.2d 1083 (La.App. 1st Cir. 1991); Allen v. Keeney, 532 So.2d 521 (La.App. 1st Cir. 1988). However, RNA provides no evidence to show that Gemini's denial was arbitrary or capricious. RNA's request for attorney's fees incurred in pursuit of coverage is therefore denied without prejudice.
Conclusion
The Court finds that exclusion "j (6)," which deals with coverage of the pipe itself during the inspection process, is not applicable because the work had been completed. Exclusions "k" and "l" provide that damage to the inspected pipe is excluded, but damage to other property arising from defective pipe is covered by the CGL Policy, except for the loss of hole or in-hole equipment, including fishing costs. The suit includes both covered and non-covered damages, and the Policy obligates Gemini to defend against "any suit" seeking covered damages. Consequently, Gemini has a duty to defend RNA against the suit in its entirety. Because the denial of coverage was not shown to be arbitrary or capricious, Gemini has not duty to pay attorney's fees incurred from RNA's pursuit of coverage.
Accordingly,
IT IS ORDERED that the motion for summary judgment by third party defendant, Gemini Insurance Company is DENIED.
IT IS ORDERED that the motion for summary judgment by third party plaintiff, RNA, Inc. is GRANTED with respect to coverage and Gemini's duty to defend and DENIED with respect to attorney's fees incurred from its pursuit of coverage.