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concluding that the circumstances were not ripe for a declaration of the scope of indemnification because issues involving causation were still outstanding
Summary of this case from Travelers Indem. v. Miller BldgOpinion
1:01CV00842
August 20, 2003
MEMORANDUM OPINION AND ORDER
This matter is before the Court on a motion by Defendants North River Insurance Company ("North River") and U.S. Fire Insurance Company ("U.S. Fire") for summary judgment. (Pleading No. 26.) The motion has been fully briefed, and the Court heard oral argument from the parties on June 3, 2003. The motion is ready for a ruling.
I. Procedural History
Plaintiff Wayne Brothers, Inc. ("Wayne Brothers") commenced this action on August 2, 2001 in the Superior Court of Cabarrus County, North Carolina seeking a declaratory judgment under section 1-253 of the North Carolina General Statutes that Defendants North River and U.S. Fire have a duty to defend and indemnify Wayne Brothers in an underlying lawsuit pending in the United States District Court for the Western District of North Carolina. The underlying lawsuit, styled MDI Mgt., Inc. v. Facility Constr. Mgt., Inc., 5:99CV86-McK(W.D.N.C. 1999), is based upon allegations that MDI Management, Inc., Merchants Distributors, Inc. and Institution Food House, Inc. (collectively "MDI") suffered damages caused in part by the defective workmanship of Wayne Brothers on a construction project owned by MDI. In its complaint in this action, Wayne Brothers also alleges breach of insurance contracts by North River and U.S. Fire and seeks damages in excess of $10,000. Defendants North River and U.S. Fire removed the case to this Court on September 6, 2001 on the basis of diversity of citizenship. On October 4, 2001, North River and U.S. Fire filed an answer denying the material allegations of the complaint and asserting a counterclaim for a declaratory judgment. The Defendants seek a declaration that they have no duty to defend or indemnify Plaintiff. After a period of discovery, North River and U.S. Fire filed the instant motion for summary judgment.
On June 20, 2003, Defendants submitted a letter termed a "memorandum of additional authorities" which enclosed two cases Defendants believed were relevant to the issues involved in this case ( Penn America Ins. Co. v. Valade, No. 01-1546, 2002 WL 99143 (4th Cir. Jan. 25, 2002) (unpublished opinion) and Travelers Indem. Co. v. Miller Bldg. Corp., No. 7:02-CV-41-BO(3) (E.D.N.C. Mar. 31, 2003) (unpublished opinion)). Counsel for Wayne Brothers responded that pursuant to Local Rule 7.3, addenda to briefs are only permitted where they are suggestions of "subsequently decided controlling authority." See LR7.3. Counsel for Wayne Brothers asserts that neither case is "controlling" authority, because the Fourth Circuit opinion is unpublished and cases from the U.S. District Court for the Eastern District of North Carolina are not binding on this Court. Furthermore, counsel for Wayne Brothers contends that the Fourth Circuit case was not decided "subsequent" to the summary judgment briefing in this case. The Court agrees with counsel for Wayne Brothers and strikes the citation made by Defendants.
II. Statement of Facts
On January 23, 1996, MDI entered into a contract with Facility Construction Management, Inc. ("FCMI") to construct a 900,000 square foot freezer, warehouse and distribution facility located in Hickory, North Carolina for the original sum of $57,653,240. (Pleading No. 27, Defs.' Br. in Supp. of Mot. for Summ. J., App. Ex. 8, ¶ 12.) FCMI retained Facility Engineers, Inc. ("FEI") to perform design and engineering services on the project. Id. ¶ 14. Facility Group, Inc. ("FGI") executed a guaranty in favor of MDI which guaranteed FCMI's performance of all of the covenants, conditions and agreements under the contract. Id. ¶ 17.On April 9, 1996, FCMI entered into a subcontract with Wayne Brothers to construct concrete floors for MDI's distribution facility for the original sum of $1,525,000. (Pleading No. 34, Pl.'s Br. in Opp'n to Defs.' Mot. for Summ. J., App. Ex. 1, Schedule A.) Effective April 1, 1997, Wayne Brothers purchased a commercial general liability ("CGL") insurance policy from Defendant North River, and an umbrella or excess insurance policy from Defendant U.S. Fire. (Defs.' Br., Ex. 1, ¶¶ 4, 5; Exs. 5, 6.) North River and U.S. Fire issued two successive renewal policies covering Wayne Brothers through April 1, 2000. Id.
At some time in 1997, after Wayne Brothers had completed its work on the concrete flooring, the concrete floor in the freezer area of the warehouse developed a problem with surface delamination. (Defs.' Br., Ex. 8, ¶ 21.) After negotiations with MDI, FCMI arranged for the repair of the delamination and then sought to recoup these costs from Wayne Brothers and various other parties in a pair of civil actions filed in Caldwell County Superior Court. Id., Ex. 8, ¶ 23; Ex. 19. These lawsuits culminated in a Mediated Settlement Agreement ("MSA") in which disputes over the costs of repair of the freezer area delamination were resolved and released. Id., Ex. 19. However, the parties acknowledged at the time of the settlement that MDI intended to file a lawsuit for delay and business disruption damages arising out of its inability to use the freezer area for a period of approximately 17 weeks. (Pl.'s Br., Ex. 7, ¶ 7.) The MSA also included U.S. Fire's agreement to defend and indemnify FCMI and Wayne Brothers if "MDI or its affiliates" sued FCMI or Wayne Brothers for any damages arising out of delamination in 1997 in the freezer area of the warehouse. (Defs.' Br., Ex. 19.) As expected by the parties, on May 3, 1999, MDI brought a lawsuit against FCMI, FEI and FGI in Caldwell County Superior Court for delay and business disruption damages arising out of the delamination in the freezer area of the warehouse. Id., Ex. 2.
Delamination occurs when the smooth surface layer of the hardened concrete floor comes loose from the underlying floor, creating an unacceptably rough, coarse surface. See Defs.' Br. at 2.
This lawsuit was removed to the United States District Court for the Western District of North Carolina, MDI Mgt., Inc. v. Facility Constr. Mgt., Inc., 5:99CV86-McK (W.D.N.C. 1999), and is the underlying litigation that is related to the instant suit for a declaratory judgment concerning the Defendants' duty to defend.
In late 1997 and early 1998, MDI employees began noticing delamination in the concrete floors in the dry goods area of the warehouse. Id., Ex. 8, ¶ 40. By 2000, the damage to the concrete floors in the dry goods area had worsened and become more widespread, especially in the aisleways that experienced heavy forklift traffic. Id. ¶¶ 59-60. On December 29, 2000, FCMI brought a third-party complaint against Wayne Brothers, Wayne Brothers' surety (American Insurance Company) and Euclid Chemical Company ("Euclid"), the supplier of the concrete surface hardener, for any and all damages it is forced to pay MDI due to defects in the concrete floor outside the freezer area. Id., Ex. 3. On March 26, 2001, guarantor FGI brought a third-party complaint against Wayne Brothers and Euclid for any and all damages it is forced to pay MDI due to defects in the concrete floor anywhere in the warehouse. Id., Ex. 4. Wayne Brothers made demand upon North River and U.S. Fire to provide a defense in both of these third-party actions. However, both North River and U.S. Fire refused to defend Wayne Brothers in either third-party action, claiming no coverage under the policies and the applicability of several exclusions. In addition, Defendants maintained that the MSA did not require them to provide Wayne Brothers with a defense or indemnification in either third-party action.
In October and November of 2001, tests were performed on the joints in the concrete flooring in the dry goods area to determine a cause of the damage. Id., Ex. 8, ¶¶ 62-63. The tests revealed that the joints were apparently filled with the wrong joint filler material. Id. ¶ 64. On April 22, 2002, MDI formally amended its complaint to include allegations regarding the faulty workmanship of FCMI and two of its subcontractors, Mountain Heritage Associates, Inc. ("Mountain") and John R. Logan Enterprises, Inc. ("Logan"), in the dry goods area and to add claims for equipment, delay and business disruption damage arising out of delamination in the dry goods area of the warehouse. Id. ¶¶ 30-70. Specifically, MDI alleged that FCMI had subcontracted with Mountain and Logan to fill the joints with a substance called "MM-80," that FCMI permitted Logan to fill the joints with "polyurea," a material not permitted under the contract's specifications, and that this improper application of the joint filler material "disguised and covered up the actual condition of the joints" such that the defects in the work "were latent and were not apparent upon visual inspection." Id. ¶¶ 36-37, 54-57, 65, 68.
III. Summary Judgment Standard of Review
The summary judgment standard of review under Rule 56 of the Federal Rules of Civil Procedure is well established. A party is entitled to judgment as a matter of law upon a showing that "there is no genuine issue as to any material fact." Fed.R.Civ.P. 56(c). The material facts are those identified by controlling law as essential elements of claims asserted by the parties. A genuine issue as to such facts exists if the evidence forecast is sufficient for a reasonable trier of fact to find for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). No genuine issue of material fact exists if the nonmoving party fails to make a sufficient showing on an essential element of its case as to which it would have the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). In evaluating a forecast of evidence on summary judgment review, the court must view the facts and inferences reasonably to be drawn from them in the light most favorable to the nonmoving party. Anderson, 477 U.S. at 255.
When the moving party has carried its burden, the nonmoving party must come forward with evidence showing more than some "metaphysical doubt" that genuine and material factual issues exist. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986), cert. denied, 481 U.S. 1029(1987). A mere scintilla of evidence is insufficient to circumvent summary judgment. Anderson, 477 U.S. at 252. Instead, the nonmoving party must convince the court that, upon the record taken as a whole, a rational trier of fact could find for the nonmoving party. Id. at 248-49. Trial is unnecessary if "the facts are undisputed, or if disputed, the dispute is of no consequence to the dispositive question." Mitchell v. Data General Corp., 12 F.3d 1310, 1315-16 (4th Cir. 1993).
IV. Discussion
"`An insurer's duty to defend is ordinarily measured by the facts as alleged in the pleadings; its duty to pay is measured by the facts ultimately determined at trial.'" Prime TV v. Travelers Ins. Co., 223 F. Supp.2d 744, 749 (M.D.N.C. 2002) (quoting Waste Mgt. of the Carolinas, Inc. v. Peerless Ins. Co., 315 N.C. 688, 691, 340 S.E.2d 374, 377 (1986)). As no final adjudication has yet been made on the merits of the underlying litigation, this Court's role is to compare the allegations in the pleadings side-by-side with the policies to determine whether the events as alleged may be covered or excluded. Id.; Waste Mgt. of the Carolinas, Inc., 315 N.C. at 693, 340 S.E.2d at 378. As the duty to defend is broader than the duty to indemnify, insurers are obligated to provide a defense if the pleadings "disclose a mere possibility" that one or more of the claims against the insured may be subject to insurance coverage. Id.; Waste Mgt. of the Carolinas, Inc., 315 N.C. at 691 n. 2, 340 S.E.2d at 377 n. 2.
Because they are prerequisites to coverage under the policies at issue in this case, the critical terms the Court must consider are "property damage" and "occurrence." In construing these terms, the Court will be guided by principles of contract interpretation well-established under North Carolina law:
Where a policy defines a term, that definition is to be used. If no definition is given, non-technical words are to be given their meaning in ordinary speech, unless the context clearly indicates another meaning was intended. The various terms of the policy are to be harmoniously construed, and if possible, every word and every provision is to be given effect. If, however, the meaning of words or the effect of provisions is uncertain or capable of several reasonable interpretations, the doubts will be resolved against the insurance company and in favor of the policyholder.Gaston County Dyeing Mach. Co. v. Northfield Ins. Co., 351 N.C. 293, 299-300, 524 S.E.2d 558, 563 (2000) (quoting Woods v. Nationwide Mut. Ins. Co., 295 N.C. 505, 505-06, 246 S.E.2d 773, 777 (1978)).
Defendants North River and U.S. Fire move for summary judgment on the grounds that (1) a claim for the cost of repair of faulty workmanship does not amount to "property damage" under the insurance policies at issue; (2) a claim for poor workmanship does not amount to an "occurrence" under the insurance policies at issue; (3) the "business risk" exclusions bar coverage for the claims asserted by FCMI and FGI against Wayne Brothers; and (4) the MSA does not entitle Wayne Brothers to a defense to the claims asserted by FGI. As discussed further below, the Court finds that, while the MSA does not obligate U.S. Fire to defend or indemnify Wayne Brothers in the third-party complaint brought by FGI, both North River and U.S. Fire have a duty to defend Wayne Brothers in the underlying litigation that arises from the language of the policies. The Court further finds that the exclusions relied upon by Defendants do not clearly bar coverage.
A. The relevant pleadings disclose a possibility of "property damage" as defined by the CGL and umbrella policies
The CGL and umbrella policies both define "property damage" as:
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.
(Defs.' Br., Ex. 5, § V, definition 17 at 13, Ex. 6, § IV at 9.) Defendants assert that the damaged concrete floors in this case cannot constitute "property damage" because under North Carolina law, the cost of repairing faulty workmanship is not "property damage," citing Hobson Constr. Co. v. Great American Ins. Co., 71 N.C. App. 586, 322 S.E.2d 632 (1984) and Wm. C. Vick Constr. Co. v. Pennsylvania Nat. Mut. Cas. Ins. Co., 52 F. Supp.2d 569 (E.D.N.C. 1999), aff'd per curiam 213 F.3d 634 (4th Cir. 2000).
The Court considers Hobson and Vick to be distinguishable from the facts of this case. In Hobson, the insured was sued when a concrete dam it had constructed failed to retain water, the insured then brought a declaratory judgment action against its CGL carrier when the carrier refused to provide a defense or indemnification. The only damages alleged by the dam's owner in the underlying pleadings were the costs of repair and completion to correct the faulty workmanship. 71 N.C. App. at 587, 322 S.E.2d at 633. On appeal, the insured attempted to argue for the first time that its potential liability included damages arising from the owner's "loss of use" of the dam. The Court of Appeals observed that loss of use damages would have constituted "property damage," but the allegations in the pleadings and the actual damages ultimately awarded by the jury against the insured did not include any loss of use damages. Id. at 591, 322 S.E.2d at 635. Accordingly, the Court of Appeals found no duty to defend or indemnify. In contrast, in this case, MDI is clearly seeking not only the costs of repair of the delamination in the dry goods area, but also damages arising from its loss of use of the freezer area, business disruption and damage to its equipment. (Defs.' Br., Ex. 8, ¶¶ 24-28, 69-70.) Some, if not all, of this liability is, in turn, being asserted against Wayne Brothers by FCMI and FGI in their third-party complaints. Id., Ex. 3, ¶ 15; Ex. 4, ¶¶ 12-13.
In Vick, a subcontractor improperly applied a waterproofing membrane to a roof that led to numerous leaks in the roof. 52 F. Supp.2d at 572-74. The project's owner brought an arbitration proceeding against Vick, the general contractor, for the costs of repair and completion of the defective membrane. Id. at 574, 579. The district court held that the policy requirement for "property damage" necessarily infers that the property alleged to have been damaged must have been "undamaged" at some previous point in time. The court reasoned that because the waterproofing materials either arrived at the project site in a defective condition or were installed at the site in a defective manner, the property in question was never undamaged, and there was no "property damage." Id. at 582.
Here, however, it is unclear, at least at this preliminary stage in the underlying litigation, whether Wayne Brothers' workmanship on the concrete floors was defective ab initio or whether the actions or omissions of other parties subsequently caused Wayne Brothers' work to fail. For example, MDI alleges that FCMI permitted Mountain and Logan to fill the joints in the concrete floors with joint filler material that was not authorized by the contract, resulting in delamination of the floors. (Defs.' Br., Ex. 8, ¶¶ 56-57, 67-68.) Under these circumstances of competing theories as to the causation of the delamination, the Court could not find that Wayne Brothers' work on the concrete slabs was never in an undamaged condition.
The Court further notes that Vick is distinguishable for the same reason as Hobson, i.e., the damages alleged are restricted to the costs of repair and completion only. See 52 F. Supp.2d at 583("It is also significant to note that [the project's owner] did not allege . . . that the damages sought in arbitration were based on `loss of use' of the building addition.")
The Court finds that the allegations in the pleadings sufficiently allege "physical injury to tangible property" and resulting "loss of use" of such property so as to bring the allegations within the definition of "property damage."
B. The relevant pleadings disclose a possibility of an "occurrence" as defined by the CGL and umbrella policies
An "occurrence" is defined by the CGL policy as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." (Defs.' Br., Ex. 5, § V, definition 13 at 12.) The umbrella policy defines an "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions that results in `Bodily Injury' or `Property Damage' that is not expected or intended from the standpoint of the insured." Id., Ex. 6, § IV at 8. The North Carolina Supreme Court has defined "accident" as an "`an unforeseen event, . . . an unexpected, unusual, or undesigned occurrence; the effect of an unknown cause, or, the cause being known, an unprecedented consequence of it. . . .'" Tayloe v. Hartford Accident Indem. Co., 257 N.C. 626, 627, 127 S.E.2d 238, 239-40 (1962). Defendants, again relying on Vick, contend that the damage to the concrete floors were not caused by an "occurrence," because faulty workmanship is always a foreseeable, expected business risk of a contractor such as Wayne Brothers and is thus not an "accident."
Defendants' broad argument may have merit in circumstances where it is established whose faulty workmanship caused the damage at issue. The law in North Carolina is clear that the costs of repair and completion of an insured's own faulty workmanship is a foreseeable business risk that is properly remedied by a performance bond rather than a CGL policy. See, e.g., Hobson Constr. Co., Inc. v. Great American Ins. Co., 71 N.C. App. 586, 322 S.E.2d 632 (1984); Western World Ins. Co. v. Carrington, 90 N.C. App. 520, 369 S.E.2d 128 (1998).
In the case at bar, however, there are competing theories in the pleadings of the underlying case regarding the cause of the delamination of the concrete floor in the freezer area of the warehouse. In MDI's supplemental complaint, MDI alleges that FEI failed to provide or approve an appropriate concrete mix design for the concrete floor slabs. (Defs.' Br., Ex. 8, ¶¶ 86, 112, 138.) In the third-party complaint filed by FGI against Wayne Brothers, FGI alleges that the negligence of both Wayne Brothers and Euclid caused the defects in the concrete floor in the warehouse. Id., Ex. 4, ¶¶ 14-27. In essence, there are potentially three parties whose actions or omissions could have caused or contributed to the delamination in the freezer area of the warehouse — Wayne Brothers, Euclid and FEI.
There are also competing theories in the pleadings as to the cause of the delamination of the concrete floor in the dry goods area. In MDI's supplemental complaint, MDI alleges that FCMI permitted Mountain and Logan to install joint filler material that was not authorized by the contract, which had the effect of covering up the improper condition of the joints. Id., Ex. 8, ¶¶ 56-57, 67-68. In the third-party complaints brought by FCMI and FGI against Wayne Brothers, the plaintiffs allege that Wayne Brothers was negligent and breached its subcontract in constructing the concrete floor slabs outside the freezer area. Id., Ex. 3, ¶¶ 16-19; Ex. 4, ¶¶ 14-15. However, FCMI and FGI also allege that Euclid was negligent and breached express and implied warranties relating to the concrete surface hardener outside the freezer area. Id., Ex. 3, ¶¶ 30-33; Ex. 4, ¶¶ 20-23. There are potentially five different parties whose actions or omissions could have contributed to the delamination in the dry goods area of the warehouse — Wayne Brothers, FCMI, Mountain, Logan, and Euclid.
Defendants take the position that regardless of who is ultimately found responsible for the delamination of the concrete floors, the cause will be "faulty workmanship" by someone, and "faulty workmanship" is always foreseeable and never covered by CGL policies. This generalized statement appears overbroad in light of the actual language of the policies. This Court is not persuaded that the delamination of the concrete floors and the ensuing delay and disruption damage were "foreseeable," "expected," or "intended" from the standpoint of Wayne Brothers, where there were so many other potential intervening causes involved. See Baker v. American Ins. Co., 324 F.2d 748 (4th Cir. 1963) (where a contractor's negligence is accompanied by an unintended and unexpected factor (unprecedented rainfall) effectively contributing to the cause of the damages alleged, the incident can be an "accident" within the policy's coverage). Accordingly, the Court finds that the pleadings in the underlying action raise the possibility that the property damage alleged by MDI was caused by an "accident" and was thus an "occurrence" covered under the CGL and umbrella policies at issue in this case.
C. The relevant pleadings do not demonstrate the clear applicability of either the "Your Work" or the "Impaired Property" exclusions
Defendants assert that even if the facts alleged in the underlying pleadings are sufficient to trigger possible coverage under the policies, the "Your Work" and "Impaired Property" exclusions within the policies bar coverage of the claims brought against Wayne Brothers. Defendants contend that these "business risk" exclusions "were designed to make it clear that there is no coverage for the repair of an insured's shoddy work." (Defs.' Br. at 16.)
The burden of proof is on Defendants to demonstrate that the claims asserted against Wayne Brothers are excluded from coverage. Hobson, 71 N.C. App. at 586, 322 S.E.2d at 635. Moreover, "[e]xclusionary clauses are not favored and are construed against the insurer, in favor of coverage." Washington Housing Auth. v. North Carolina Housing Auths. Risk Retention Pool, 130 N.C. App. 279, 281-82, 502 S.E.2d 626, 628 (1998).
The policies contain identical expressions of the "Your Work" exclusion:
Damage To Your Work
"Property damage" to "your work" arising out of it or any part of it and included in the "products-completed operations hazard."
(Defs.' Br., Ex. 5, § 1.2., exclusion 1 at 6; Ex. 6, exclusion F at 12.) Examination of the plain language of this exclusion makes clear that, at this stage in litigation, Defendants have not carried their burden of demonstrating the applicability of the "Your Work" exclusion as a matter of law. The allegations in the underlying pleadings do not establish that the property damage in question "arises out of Wayne Brothers' work. As discussed in detail above, there are potentially between four and five other parties whose actions or omissions may have caused the damage in issue. Additionally, the damages alleged by MDI and asserted against Wayne Brothers include more than damage to Wayne Brothers' work on the concrete floors. MDI has alleged loss of use damages, business disruption damages and damage to its equipment, see Defs.' Br., Ex. 8, ¶¶ 69-70, and these damages, in turn, have been claimed against Wayne Brothers. Under these circumstances, the "Your Work" exclusion would not apply. See Western World Ins. Co., 90 N.C. App. at 524, 369 S.E.2d at 130 (noting that the "your work" exclusion does not apply where there are claims for damages other than costs for repairing or replacing the insured's defective work.)
Similarly, the Court finds that Defendants have not met their burden of demonstrating that the "Impaired Property exclusion applies in this case. The policies contain virtually identical expressions of the "Impaired Property" exclusion:
Damage To Impaired Property Or Property Not Physically Injured
"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.
(Defs.' Br., Ex. 5, § I.2., exclusion m at 6; Ex. 6, exclusion G at 12.) The policies also contain essentially identical definitions of "impaired property:"
"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.Id. Ex. 5, § V, definition 8 at 11; Ex. 6, § IV at 7. The critical portion of the exclusion for this Court's analysis is the latter portion of the definition of "impaired property" which requires that the "impaired property" be "restored to use" by the "repair, replacement, adjustment or removal" of the insured's work. Here, Defendants have not demonstrated that merely repairing, replacing, adjusting or removing Wayne Brothers' work (or Wayne Brothers' fulfillment of its contractual obligations) will restore MDI's "impaired property" to its intended use. MDI has alleged that it has suffered damage to its equipment, loss of use damages and business disruption damages. Id. Ex. 8, ¶¶ 69-70. These damages cannot be remedied by the mere repair of Wayne Brothers' work. Moreover, the joint filler materials, concrete mix design and surface hardener are all potentially defective and are not the contractual responsibility of Wayne Brothers. See Federated Mut. Ins. Co. v. Grapevine Excavation Inc., 197 F.3d 720, 727-28 (5th Cir. 1999)("Impaired Property" exclusion inapplicable where there was "no suggestion that the damage to the surface of the parking lot can be restored by `the repair, replacement, adjustment or removal of [the insured's] underlying work'")
D. The Mediated Settlement Agreement does not require U.S. Fire to defend or indemnify Wayne Brothers in the third-party complaint brought against Wayne Brothers by FGI
The MSA provides as follows:
U.S. Fire shall under the Wayne Brothers Umbrella Policy indemnify and defend FCMI and Wayne Bros, from and against any and all claims which have been or may be asserted by MDI and/or the affiliates of MDI against FCMI and/or Wayne Bros, resulting from or arising out of the delamination that occurred during 1997 in the freezer area of the MDI project. . . .
(Defs.' Br., Ex. 19 at 1.) Wayne Brothers asserts that this language in the MSA obligates U.S. Fire to defend and indemnify Wayne Brothers in the third-party complaint brought against Wayne Brothers by FGI. However, the plain language of the MSA defeats this argument. U.S. Fire is only obligated to defend and indemnify Wayne Brothers in claims brought by "MDI and/or the affiliates of MDI" against either Wayne Brothers or FCMI. First, the party bringing the third-party suit, FGI, is not "MDI" or an "affiliate" of MDI. Second, the underlying lawsuit, while brought by "MDF" and "affiliates of MDI," is against FGI, not FCMI or Wayne Brothers. Third, the Court notes that FGI is apparently not a party to the MSA and cannot be included in its terms by reference to the opinions of counsel involved in the negotiations leading to the execution of the MSA.
Wayne Brothers does not allege that the MSA obligates U.S. Fire to indemnify and defend Wayne Brothers in the third-party complaint brought against Wayne Brothers by FCMI, because FCMI's third-party complaint is limited to damages arising outside the freezer area. (Defs.' Br., Ex. 3.) According to Defendants' counsel at oral argument, FCMI has not brought a third-party complaint against Wayne Brothers for damages arising inside the freezer area, because FCMI is currently receiving a defense from U.S. Fire for MDI's delay claims relating to damage inside the freezer area pursuant to the terms of the MSA.
V. Conclusion
For the reasons stated above, IT IS HEREBY ORDERED that the motion for summary judgment of Defendants North River and U.S. Fire (Pleading No. 26) is DENIED. The Court DECLARES that North River and U.S. Fire have a duty to defend Wayne Brothers in the third-party complaints against Wayne Brothers by FGI and FCMI. However, circumstances are not ripe for a declaration by the Court whether or not North River and U.S. Fire have a duty to indemnify Wayne Brothers. At this preliminary stage in the underlying litigation, issues regarding the actual causation of the damages involved have not been resolved. Accordingly, given the lack of ripeness of the indemnity issues in this action, IT IS FURTHER ORDERED that, within 30 days, Plaintiff shall show cause why the remaining claims in this action should not be dismissed without prejudice to Wayne Brothers' ability to pursue legal action when, and if, the issue of North River and U.S. Fire's duty to indemnify ripens. If Plaintiff attempts to show cause, Defendants may respond within 20 days thereafter.