MARVIN J. GARBIS, District Judge.
The Court has before it Defendant Massachusetts Bay Insurance Company's Motion for Summary Judgment and Request for Hearing [Document 77], Defendant ATC Associates Inc.'s Motion to Dismiss Second Amended Complaint [Document 78], and documents related thereto. The Court has held a hearing and had the benefit of the arguments of counsel.
In 2001, Wal-Mart contracted with Plaintiff, Konover Construction Corporation n/k/a KBE Building Corporation ("KBE") to build a Wal-Mart store and a Sam's Club store in Port Covington, Maryland. The contract documents provided extensive project specifications (the "Specifications"). KBE subsequently entered into a subcontract with Defendant Superus, Inc., ("Superus") which provided that Superus would construct the concrete masonry walls of the Wal-Mart and Sam's Club stores. As required by its contract with KBE, Superus purchased an insurance policy from Defendant Massachusetts Bay Insurance Company ("Massachusetts Bay"), and named KBE as an "additional insured" on that policy.
In connection with the construction, Wal-Mart contracted with ATC Associates, Inc. ("ATC") to independently test and inspect the concrete, structural steel, and masonry of the buildings' compliance with the Specifications.
Construction on the Wal-Mart and Sam's Club stores took place in late 2001 and early 2002. Superus constructed the masonry walls, and while they did so, ATC's engineers prepared daily reports summarizing their test results and observations, which were transmitted to both Wal-Mart and KBE. ATC's daily reports from November 2001 to January 2002 contain representations that the concrete, masonry, grout, and vertical and horizontal steel reinforcing assemblies were placed in compliance with the projects' Specifications.
Construction on both stores was completed and both buildings were occupied in 2002. By 2007, a large crack appeared in the construction joint on an exterior wall of the Wal-Mart store. Wal-Mart investigated the crack and determined that it was caused by "latent and observable construction deficiencies." Second Am. Compl. ¶ 26. Wal-Mart also noted property damage including "step pattern cracks" on an exterior wall, cracks in the building's concrete footings, uneven slabs, and a crack on the interior floor. These construction deficiencies and other related property damage will collectively be referred to as "Problems."
In November 2007, Wal-Mart notified KBE of the Problems. Wal-Mart hired a consulting firm to conduct follow-up thermographic studies to document the Problems. The firm produced a report which concluded that the Problems consisted primarily of (1) voids or foam in the concrete block surrounding the reinforcing steel in areas that should have been filled with grout; and (2) in limited circumstances, reinforcing steel was missing or not installed in accordance with the Specifications; and (3) the spacing of the walls did not conform to the Specifications.
As the investigation into the Wal-Mart store Problems progressed, Wal-Mart and KBE determined that the Sam's Club store also suffered from Problems. According to KBE, the Wal-Mart and Sam's Club Problems "decreased the capacity of the exterior masonry walls to resist out-of-plane wind loads in violation of the Baltimore City Building Code" and "compromised the structural integrity of the Wal-Mart and Sam's Club buildings in their entirety." Second Am. Compl. ¶¶ 32-33.
KBE completed and paid for the repair and remediation of the Problems. In 2008, Wal-Mart and KBE entered into a settlement agreement and release (the "2008 Settlement") resolving any and all claims by Wal-Mart against KBE relating to the Wal-Mart store Problems upon KBE's repair thereof. In 2009, Wal-Mart and KBE entered into a similar settlement agreement with respect to the Sam's Club store (the "2009 Settlement"). The 2008 and 2009 Settlements contained assignment clauses whereby Wal-Mart assigned to KBE all of Wal-Mart's rights and interests in claims against ATC.
KBE filed the Complaint in the instant case in October 2010. In December 2010, ATC filed a motion to dismiss the Complaint [Document 11] arguing that KBE's claims against ATC failed as a matter of law because Wal-Mart had no valid claims against ATC to assign because KBE had remediated all of the Problems. While the dismissal motion was pending, in January 2011, KBE and Wal-Mart signed two additional agreements superseding the 2008 Settlement and 2009 Settlement, (the "2011 Novation Agreements"). The purpose of the 2011 Novation Agreements was to provide KBE enforceable rights against ATC and Superus. To achieve this end, the 2011 Novation Agreements eliminated the assignment of rights provided in the 2008 and 2009 Agreements and was intended to provide KBE with contribution rights against ATC and Superus.
On January 21, 2011, KBE filed the Amended Complaint [Document 21] that was thereafter superseded by the currently pending Second Amended Complaint [Document 73] filed June 24, 2011.
In the Second Amended Complaint, KBE presents claims in fourteen Counts against ATC, Superus and Massachusetts Bay.
By the instant motions, Massachusetts Bay seeks summary judgment and ATC seeks dismissal of all claims against it.
A motion for summary judgment shall be granted if the pleadings and supporting documents "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)(2).
The well-established principles pertinent to summary judgment motions can be distilled to a simple statement: The Court may look at the evidence presented in regard to a motion for summary judgment through the non-movant's rose-colored glasses, but must view it realistically. After so doing, the essential question is whether a reasonable fact finder could return a verdict for the non-movant or whether the movant would, at trial, be entitled to judgment as a matter of law.
When evaluating a motion for summary judgment, the Court must bear in mind that the "summary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed `to secure the just, speedy and inexpensive determination of every action.'"
A motion to dismiss filed pursuant to Federal Rule of Civil Procedure 12(b)(6) tests the legal sufficiency of a complaint. A complaint need only contain "a short and plain statement of the claim showing that the pleader is entitled to relief, in order to give the defendant fair notice of what the . . . claim is and the grounds upon which it rests."
However, conclusory statements or a "formulaic recitation of the elements of a cause of action" will not suffice.
Inquiry into whether a complaint states a plausible claim is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense."
KBE seeks to recover from Massachusetts Bay, as an additional insured, for the costs it incurred in remedying the Problems caused by Superus' defective work. These included the costs of repairing Superus' own defective work as well as, according to KBE, collateral and/or resulting damage caused by Superus' defective work.
As discussed herein, Massachusetts Bay contends that there was no duty to indemnify for repairing Superus' own defective work, there is no evidence adequate to establish that Superus' defective work caused any collateral and/or resulting damage that was not subject to an Impaired Property exclusion, and that, in any event, no damage occurred during the Policy period.
Massachusetts Bay issued Businessowners Policy Number ODT-572520100 to Superus which was in effect only from November 5, 2001 to February 10, 2002.
The Policy, which the parties agree is to be construed pursuant to the law of Arkansas, provides in pertinent part:
Mot. Summ. J. Ex. 10.
The Policy defines "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."
"Property damage" is defined in the Policy as:
Mot. Summ. J. Ex. 10.
KBE is an additional insured on the Policy, which is modified by a Businessowners Liability Special Broadening Endorsement providing that "any person or organization with whom you agreed, because of a written contract . . . is an insured .. . with respect to . . . `Your work' for the additional insured(s)."
The Impaired Property Exclusion precludes coverage for the cost of repairing the insured's defective work:
Id.
"Impaired property" is defined as:
The Arkansas Supreme Court has held that defective workmanship, standing alone and resulting in damages only to the work product itself, is not an "occurrence" under a similar insurance policy.
However, collateral or resultant damage to property other than the work product itself is covered.
It is clear under Arkansas law, and the parties appear to agree,
KBE's argument that it is entitled to indemnification for any alleged resulting and/or collateral property damage does not prevail.
As discussed herein: (1) KBE is not entitled to indemnification on the ground that the defective walls caused a building code violation and compromised the structural integrity of the building, (2) there is no evidence adequate to prove that any allegedly resultant property damage was caused by Superus' faulty construction of the walls, and (3) KBE has not presented evidence adequate to prove that the Settlement Agreements covered the remediation of collateral damage.
According to KBE, the defective masonry walls "decreased the capacity of the exterior masonry walls to resist out-of-plane wind loads in violation of the Baltimore City Building Code" and "compromised the structural integrity of the Wal-Mart and Sam's Club buildings in their entirety." Second Am. Compl. ¶¶ 32-33. The Policy covers "property damage" ("physical injury to tangible property" including resulting loss of use) that is cause by an "occurrence."
The Court finds the reasoning of the Seventh Circuit persuasive:
Moreover, even if the building code violation and structural integrity problem were "property damage," insurance coverage would be barred by the Impaired Property Exclusion. The Policy does not provide coverage for "property damage" to property other than Superus' masonry walls ("impaired property") that is less useful because it incorporates Superus' defective work product if such property can be restored to use by the repair or replacement of Superus' masonry walls.
KBE argues that the cracked footing, cracked and uneven slab, crack in the interior floor finish, and ponding of roof run-off were "resultant" property damages remediated by KBE that should be covered by the Massachusetts Bay Policy.
KBE has shown that these other building defects were observed. KBE attached two reports prepared by consulting firms to its Sur-Reply Motion [Document 85]. These reports enumerate the defects in the walls, footing, slabs, and roof that were observed at the Wal-Mart store in 2007 and 2008. The first consultant report, dated March 24, 2008, notes that "a foundation settlement occurred at the Port Covington Wal-Mart store" and that "Rimkus Consulting Group was retained to determine the cause and origin of the reported damage." Sur-Reply Ex. A.
However, despite being done by experts retained to determine the cause of the damage, neither report links the defects in the footing, slabs, and roof to the faulty construction of the walls. The consulting reports leave open the possibility that at least the slab problems — inadequate thickness of the concrete slab flooring — were related to the work of other subcontractors. KBE does not identify whether the cracked footing was Superus' work or the work of another subcontractor; if it was Superus' work, it is not a covered "occurrence"; if it is the work of another contractor, there is no evidence to show that the cracked footing was collateral damage caused by Superus' defective walls. So too with the roof drainage problems.
At the hearing, when confronted with the absence of evidence tying these allegedly resultant defects to the defective walls, counsel for KBE conceded that the expert reports "are not saying there is a specific link at this time," but argued that "another expert report can be obtained" to show evidence of causation. Hr'g Tr. Oct. 28, 2011 at 24-25.
Rule 56(e)(2)
(2) Opposing Party's Obligation to Respond:
Fed. R. Civ. P. 56(e) (2).
As is often noted, summary judgment proceedings provide the "put up or shut up" moment in litigation.
Even if the allegedly collateral damages were not subject to exclusion from the Policy and if KBE showed that such conditions were caused by Superus' faulty wall construction, there is no evidence that the settlement agreements required KBE to remediate those problems. The parties agree that the "existence of coverage depends on what claims were settled."
KBE asks this Court to consider its conduct in remediating the defects and not just the words of the Settlement Agreements. KBE has averred that the remediation actually done included repair of the "other property damage" to the two stores. Second Am. Compl. ¶ 39. However, KBE has not provided evidence adequate to establish this alleged fact.
Although the matter is moot, it appears that KBE has not offered evidence adequate to establish that the claimed damages occurred during the policy period, which was November 5, 2001, to February 10, 2002.
It is undisputed that Wal-Mart notified KBE of the Problems some five and a half years after the end of the Policy period.
The parties disagree as to the application of the "injury-in-fact" approach to determine when the Policy is triggered.
Massachusetts Bay contends that insurance policies are triggered under this approach on the date the actual injury and damages occur.
KBE argues that the structural deficiencies and resulting violations of the building code occurred concurrently with construction, and therefore the resulting damages occurred during the policy period, although they did not manifest until several years later.
The Eighth Circuit has stated:
According to KBE, the walls and related building elements were doomed as soon as Superus made its construction errors, and thus, occurred "during the policy period." Whether the buildings were "useless immediately," see
As noted above, KBE asserts claims against ATC on theories of negligence, negligent misrepresentation, fraud, indemnity, and contribution.
It is true that KBE is pleading inconsistently when asserting a claim for negligence based on its not being contributorily negligent and a claim that it and ATC were joint tortfeasors based on its being negligent. However, a party is expressly permitted to plead alternative, mutually inconsistent, claims.
In Count I, KBE claims that ATC was negligent because ATC breached its duty to KBE to provide thorough and accurate inspection and testing services. In Count II, KBE claims that ATC negligently made daily reports about the quality and accuracy of construction that were materially false and which KBE relied upon to its detriment.
A sufficient pleading in a negligence action must "`allege, with certainty and definiteness, facts and circumstances sufficient to set forth (a) a
To assert a claim for negligent misrepresentation, a plaintiff must allege:
ATC argues that these claims are barred because ATC did not owe a tort duty to KBE and because KBE was contributorily negligent as a matter of law.
KBE has adequately pleaded that ATC owed KBE a duty of care that would give rise to an action in negligence.
ATC's failure to exercise due care in its inspection of the masonry walls created only a risk of economic loss for KBE.
In such a case, Maryland courts require "an intimate nexus between the parties as a condition to the imposition of tort liability."
In
In the second case,
The Maryland courts have further explored this nexus requirement. In
540 A.2d at 793.
In
762 A.2d at 596. Stated otherwise, "The common denominator of the Maryland cases, where no contractual privity existed but nevertheless a tort was found, is that in each case the relationship of the litigants was close enough that the defendant knew that the plaintiff was likely to take some action based on what the defendant said or did."
In the instant case, KBE has alleged that ATC transmitted its daily testing and inspection reports of the Wal-Mart and Sam's Club Projects directly to KBE. Here, although there is no contractual privity between KBE and ATC, the relationship between the parties was close. ATC was required to submit laboratory quality assurances to a limited number of parties based on its contract with Wal-Mart.
ATC argues, based on the language of KBE's contract with Wal-Mart, that ATC and/or Wal-Mart did not intend KBE to rely on its reports, that neither of them knew that KBE would so rely, and that it was unreasonable for KBE to do so. While these arguments may be worthy of consideration at the summary judgment stage, on the face of the Complaint KBE has made a plausible claim.
Under Maryland law, contributory negligence of a plaintiff will ordinarily bar its recovery.
ATC cites no cases for the proposition that KBE is contributorily negligent as a matter of law based on the negligent acts of its subcontractor. KBE, on the other hand, has cited
The Court finds that there is a plausible claim by KBE that ATC will not be able to carry its burden of proving that KBE was contributorily negligent.
In Count III, KBE asserts a cause of action for fraud against ATC for making material false factual representations to KBE regarding the quality and accuracy of construction of the walls.
In Maryland, to prevail on a claim for fraud, a plaintiff must show:
Fraud claims are subject to the heightened pleading standards of Federal Rule of Civil Procedure 9(b).
KBE has satisfied the pleading standard for fraud. KBE has sufficiently alleged the circumstances of the false inspection reports. Second Am. Compl. ¶¶ 21-23, 30, 67-69. While KBE has done no more than provide conclusory allegations of defendant's intent to deceive, these conclusory allegations satisfy the pleading requirements at this stage.
While KBE's fraud claim may not now appear likely to have merit, it is above the "plausibility" line.
KBE's indemnity claim is premised on a negligence theory. KBE claims that if it was negligent, its negligence was passive, whereas ATC's negligence was active; KBE was required to compensate Wal-Mart, and KBE is therefore entitled to indemnification from ATC. Second Am. Compl. ¶¶ 79-85.
"A party has a right to tort-based indemnification when, without personal fault, it has become subject to tort liability for the unauthorized and wrongful conduct of another."
For this theory to apply, KBE must be liable in tort to Wal-Mart, such that KBE and ATC were joint tortfeasors.
Maryland recognizes a tort duty of care arising from contractual dealings with professionals:
Maryland has also acknowledged the general rule of liability where the result of negligence is the creation of a dangerous condition.
Wal-Mart, as the occupant of the buildings, was foreseeably subjected to the risk of personal injury because of the allegedly dangerously defective masonry walls.
ATC also argues that the indemnity claim should be dismissed because "KBE's liability is not vicarious, it is contractual and direct." The Maryland Court of Special Appeals explained the active/passive negligence distinction as it relates to indemnification:
As pleaded by KBE, KBE is potentially liable in tort to Wal-Mart for its failure to discover the defects in the walls built by Superus, its subcontractor. The Court is not now determining whether there is a genuine factual question as to whether KBE's potential negligence was active or passive. It suffices, for the present, to find that KBE has plausibly alleged that it was not actively negligent.
In Count V, KBE claims that it is entitled to contribution from ATC under the Maryland Uniform Contribution Act Among Joint Tortfeasors because KBE paid more than its fair share of the common liability when it settled with Wal-Mart.
A statutory right of contribution among joint tortfeasors was created under the Maryland Uniform Contribution Among Joint Tort-Feasors Act. Cts. & Jud. Proc. I § 3-1402. The Act provides a right to contribution among joint tortfeasors on a pro rata basis even if there has been no judgment against them.
To recover for contribution under the Uniform Contribution Among Joint Tort-Feasors Act the plaintiff joint tortfeasor must show that: (1) there is a common liability to an injured person in tort, and (2) the joint tortfeasor has by payment discharged the common liability or has paid more than his or her pro rata share thereof.
As discussed above, KBE's has an independent tort duty to Wal-Mart, which satisfies the first contribution requirement. Although ATC argues that KBE did not "pay" for the remediation efforts, and rather, performed services, ATC has cited no case law to support its contention that the cost of remediation services does not constitute "payment" for purposes of the Uniform Contribution Among Joint Tort-Feasors Act.
Although KBE argues that the 2011 Novation Agreements that supplemented the 2008 and 2009 Settlement Agreements are invalid for lack of consideration, KBE plausibly alleges that the Novation Agreements were executed pursuant to the further assurances clauses of the settlement agreements and are valid.
KBE's claim for contribution shall not be dismissed.
For the foregoing reasons:
SO ORDERED.
