MARK E. FULLER, District Judge.
This is a declaratory judgment action arising out of the construction of a new residence. Before the Court are pending cross-motions for summary judgment filed by Plaintiff and Counterclaim Defendant Pennsylvania National Mutual Casualty Insurance Company ("Penn National"), and Defendants and Counterclaim/Crossclaim Plaintiffs Howard and Pam Snider (collectively, the "Sniders"). (Docs. #85, 86.) Having reviewed the submissions of the parties, the applicable case law, and having had the benefit of oral argument, the Court finds that Penn National's motion is due to be GRANTED in PART and DENIED in PART, and the Sniders' motion is due to be DENIED.
The Court has subject matter jurisdiction over the claims in this action under 28 U.S.C. § 1332 (diversity). The parties do not contest personal jurisdiction or venue, and the Court finds adequate allegations in support of both.
Under Rule 56 of the Federal Rules of Civil Procedure, summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine [dispute] 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, 91 L.Ed.2d 265 (1986). The party asking for summary judgment "always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of `the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrates the absence of a genuine issue of material fact." Id. at 323, 106 S.Ct. 2548. The movant can meet this burden by presenting evidence showing there is no dispute of material fact, or by showing the non-moving party has failed to present evidence in support of some element of its case on which it bears the ultimate burden of proof. Id. at 322-23, 106 S.Ct. 2548.
Once the moving party has met its burden, the non-moving party must "go beyond the pleadings and by ... affidavits, or by the `depositions, answers to interrogatories, and admissions on file,' designate `specific facts showing that there is a genuine issue for trial.'" Id. at 324, 106 S.Ct. 2548. To avoid summary judgment, the non-moving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). On the other hand, a district court ruling on a motion for summary judgment must believe the evidence of the non-movant and must draw all justifiable inferences from the evidence in the
The pertinent facts are largely undisputed. The Court will evaluate each motion on its own merits and, to the extent inferences may be drawn from the undisputed facts, will view all facts and inferences in the light most favorable to the non-moving party on each motion.
In July 2004, the Sniders entered into an oral contract with Jeff Beale ("Beale") and Jeff Beale Homes (collectively, the "Beale Defendants") for the construction of a new residence. The Sniders verbally agreed to pay Beale the cost of construction plus a 15% profit. Beale estimated that construction of the residence would cost approximately $650,000, which Howard Snider ("Mr. Snider") believed included Beale's 15% profit. Beale told Mr. Snider that construction of the residence would take six to eight months and that he expected the home to be ready in early 2005.
Framing of the house, however, did not begin until April 2005. Beale was also building and remodeling other homes at the same time he was constructing the Sniders' residence. By 2005, the Sniders were becoming increasingly displeased with Beale's progress on the construction of their home. They complained to Beale about the slow progress, as well as rental equipment that was often left unused for periods of time.
Beale faxed invoices to the Sniders on a monthly basis, and Pam Snider ("Mrs. Snider") would pay the invoices within three days. According to Mr. Snider, by March 24, 2006, construction costs for the Sniders' residence were approaching $800,000, and the home was not completed. Beale was last at the Sniders' residence on April 6, 2006, when he came to inspect a cracked retaining wall. Beale toured the home at that time, and Mrs. Snider gave him a punch list that needed to be done to complete the house. Several days later, on April 11, 2006, Mr. Snider called Beale and demanded that he focus on finishing their home, but Beale never returned to the Sniders' job site after April 6, 2006. The Sniders hired another contractor who completed the construction of their home.
The Sniders moved into their new home in the summer of 2006. The Sniders had no written warranty with Beale. Instead, it was their understanding that if there was a problem with construction, Beale would fix it. Upon moving into the home, the Sniders discovered several construction defects, including a cracked retaining wall and water intrusion in multiple areas of the home. According to Mr. Snider, this water intrusion caused mold to accumulate in multiple areas of the home, the wood floors to buckle, the electrical system to suffer damages, and the house to smell "musty." Mr. Snider also claimed that the entrance floor was unlevel, the home's paint job was unsatisfactory, and the exterior stucco was cracked. The Sniders paid over $150,000 to repair these defects, to complete certain work that Beale had failed to perform, and to remove the mold. Mr. Snider did not expect the moisture, mold, and other problems that later developed when he and his wife contracted with Beale to construct the home.
Penn National issued a commercial general liability ("CGL") insurance policy to the Beale Defendants during the relevant time period (the "Policy"), which included the following insuring agreement:
(Doc. #87-1.)
The Policy also contained the following definitions:
(Doc. #87-1.)
On April 30, 2007, the Sniders sued the Beale Defendants in the Circuit Court of Montgomery County, Alabama,
In April 2010, the Sniders provided discovery responses in the underlying litigation that could have resulted in them asserting negligence claims based on alleged defects in the construction of the Sniders' home. As a result, the Beale Defendants resubmitted the claim to Penn National for reconsideration, and Penn National subsequently agreed to defend the Beale Defendants under a reservation of rights.
The Sniders, however, never amended the complaint in the underlying litigation to include negligence claims and never submitted any such claims to the jury. Instead, the Sniders submitted to the jury claims for breach of contract and warranty only. On October 2, 2012, the jury returned a verdict in favor of the Sniders for $700,000 in compensatory damages.
The underlying lawsuit was filed in April 2007. On March 25, 2011, Penn National filed its complaint for declaratory judgment against the Beale Defendants and the Sniders seeking a declaration that it (Penn National) owed no duty to defend or to indemnify Beale or Jeff Beale Homes for the claims the Sniders made against them in the underlying litigation. (Doc. #1.) On April 5, 2011, the Beale Defendants filed an answer to the complaint and asserted counterclaims against Penn National for breach of contract and quantum meruit, which stem from Penn National's initial refusal to provide the Beale Defendants with a defense in the underlying litigation. (Doc. #9.) On April 25, 2011, Penn National filed an answer to the Beale Defendants' counterclaims and denied that it was responsible for providing a defense to the Beale Defendants prior to the time that Penn National agreed to provide such a defense under a reservation of rights. (Doc. #16.)
On February 27, 2012, the Court dismissed, without prejudice, Penn National's duty to indemnify claim as premature because a judgment had not yet been reached in the underlying litigation. (Doc. #24.) The Court allowed Penn National to proceed with its duty to defend claim.
On August 30, 2012, Penn National filed a summary judgment motion, its first of many, as to its duty to defend. (Doc. #27.) However, on October 2, 2012, before either the Sniders or the Beale Defendants responded to Penn National's motion, a jury verdict in the amount of $700,000 was entered in favor of the Sniders in the underlying state court litigation. As a result, Penn National moved to amend its complaint to remove its duty to defend claim, as it was moot, and to reassert its duty to indemnify claim. (Doc. #32.) Penn National also withdrew its pending summary judgment motion on its duty to defend. (Docs. #33, 41.)
On November 9, 2012, Penn National filed its amended complaint against the Beale Defendants and the Sniders, this time seeking a declaration that it (Penn National) was not liable for any portion of the $700,000 judgment awarded to the Sniders in the underlying litigation. (Doc. #45.) A few weeks later, on November 26, 2012, Beale filed a notice of bankruptcy with the Court. (Doc. #48.) As a result, this matter was stayed for a period of time until the bankruptcy court lifted the automatic stay for the Sniders and Penn National, which occurred in early 2013. With leave of Court, the Sniders then filed a late answer to Penn National's amended complaint and, under Ala.Code § 27-32-2, asserted a "direct action" counterclaim and crossclaim against Penn National and the Beale Defendants, respectively, for recovery of the $700,000 judgment they received in the underlying litigation. (Doc. #79.) The Beale Defendants never responded to Penn National's amended complaint. Penn National answered the Sniders' counterclaim on September 30, 2013. (Doc. #81.)
Now before the Court are cross-motions for summary judgment filed by the Sniders and Penn National.
In a declaratory judgment action, Alabama law
At the trial in the underlying litigation, the Sniders submitted, and the jury was instructed, on two causes of action based on the faulty construction of their home by the Beale Defendants — breach of contract and breach of the implied warranty of
Based on this, Penn National now argues that it is not obligated to pay any of the $700,000 judgment to the Sniders on the Beale Defendants' behalf because there was no "occurrence" to trigger coverage under the Policy because breach of contract and implied warranty are not "occurrences" under Alabama law. Penn National's argument finds its genesis in the Policy's insuring agreement, which states that Penn National must pay the sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" caused by an "occurrence."
The policy defines "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." (Doc. #57-1.) The Alabama Supreme Court has further defined "accident" in the context of an "occurrence" in a CGL policy, like the one at issue here, as "an unintended and unforseen injurious occurrence; something that does not occur in the usual course of events or that could be reasonably anticipated" or "something unforseen, unexpected or unusual." Shep Jones, 2012 WL 1642169 at *3 (citing Hartford Cas. Ins. Co. v. Merchs. & Farmers Bank, 928 So.2d 1006, 1011 (Ala.2005)); see also U.S. Liab. Ins. Co. v. Sternenberg Const., 2011 WL 3585261, at *4 (M.D.Ala. Aug. 16, 2011). Indeed, "`[a] result, though unexpected, is not an accident; the means or cause must be accidental.'" Emp'rs Mut. Cas. Co. v.
The Court looks to two particular cases in reaching this decision. The first case is Owners Insurance Company v. Shep Jones Construction, 2012 WL 1642169, at *1 (N.D.Ala. May 3, 2012), wherein a district court in the Northern District of Alabama considered facts and issues markedly similar to the ones here. Shep Jones involved a dispute over the insurer's duty to indemnify a general contractor from a judgment entered against it and in favor of the homeowners following a jury trial in state court. The only claim the homeowners submitted to the jury was breach of contract based on a failed renovation of their home. The homeowners sought both property damages and mental anguish damages from the contractor. At the conclusion of the trial, the jury returned a general verdict in the homeowners' favor; however, the verdict form awarded general damages only and did not specify whether the jury was awarding damages for property damage, mental anguish, or both. Id. at *1-3.
In the related declaratory judgment action, both the insurer and the homeowners moved for summary judgment on the issue of indemnification under a CGL policy that the insurer issued to the contractor during the relevant time period, a policy which is nearly identical to the Policy here.
Shep Jones, 2012 WL 1642169 at *5. In other words, a CGL policy protects contractors from true unintended accidents, not poor or substandard workmanship, which, although unexpected and certainly unwanted, is not unforeseeable.
The second case that persuaded the Court in reaching its decision that the Sniders' breach of contract claim is not an "occurrence" under the Policy is Employers Mutual Casualty Company v. Smith Construction & Development, LLC, 949 F.Supp.2d 1159, 1162-63 (N.D.Ala.2013). Smith Construction involved a declaratory judgment action brought by an insurer to determine whether it had a duty to defend and indemnify a general contractor under a CGL policy it issued to the contractor in an underlying state court action brought against the contractor by homeowners after the contractor abandoned the construction of their new home. The insurer moved for summary judgment and argued that it had no duty to defend or to indemnify the contractor on the homeowners' breach of contract claim because that claim did not qualify as an "occurrence" under Alabama law. Like in Shep Jones, the district court agreed with the insurer and for similar reasons. Id. at 1173-74.
Specifically, the district court in Smith Construction found that the homeowners' breach of contract claim, which was based on the contractor's failure to complete construction of their new home in a good and workmanlike manner, was not a "particularly unusual claim" or one "that could not have been reasonably anticipated when the parties formed the contract." Id. at 1173. Thus, it could not be considered an "accident" under Alabama law, and, therefore, it could not qualify as an "occurrence" under the policy. Relying on Shep Jones, the district court in Smith Construction concluded that "[t]he purpose of EMC's Policy was to protect the Smith Defendants from `liability for essentially accidental injury to person or property.' It was not meant to be a `guarantee or a warranty' that EMC certified the `timeliness and quality' of the Smith Defendants' work. Treating a standard contract breach as an `accident' triggering CGL policy coverage would radically alter such insurance agreements." Id. (quoting Shep Jones, 2012 WL 1642169 at *5).
Although the district court in Smith Construction analyzed whether a breach of contract constitutes an "occurrence" in the duty to defend context, this does not make the reasoning of Smith Construction any less applicable in the duty to indemnify context. Indeed, the same considerations and reasoning in Shep Jones and Smith Construction are persuasive here. The Sniders sought, and were awarded damages by a jury, for the Beale Defendants' breach of their construction contract to build the Sniders' residence in a good and workmanlike manner in accordance with the specifications given. The fact that the Beale Defendants did not live up to their end of the bargain, although unexpected and certainly unwanted by the Sniders, was not an unforeseeable or unusual result. "Some of the most foreseeable incidents in the performance of a residential construction contract are that the builders will have cost overruns, use inadequate materials, fail to meet deadlines, or otherwise execute the project improperly." Smith Constr., 949 F.Supp.2d at 1174. In short, although the Court recognizes the unfortunate predicament the Sniders' have faced in connection with the construction of their home, the Beale Defendants'
The same conclusion is warranted with respect to the Sniders' breach of implied warranty claim. The trial court instructed the jury in the underlying litigation that the Sniders' breach of warranty claim was based on the implied warranty of habitability. This is a concept in the law that "implies that the builder warrants that the [newly built] house would be of sound workmanship and proper construction." (Doc. #67-1) (alteration to original). In other words, a claim for breach of the implied warranty of habitability is simply a claim of faulty workmanship.
While the law in Alabama is not always clear as to whether a breach of contract qualifies as an "occurrence" under a CGL policy, it is with respect to claims for faulty workmanship. The Alabama Supreme Court has repeatedly held that faulty workmanship itself is not an occurrence for purposes of a CGL policy. See U.S. Fid. & Guar. Co. v. Warwick, 446 So.2d 1021 (Ala.1984); Town & Country, 111 So.3d at 707. However, as the Sniders discuss in great detail, Alabama law has qualified this general rule. In Moss v. Champion Insurance Company, 442 So.2d 26 (Ala.1983), the Alabama Supreme Court found that there had been an "occurrence" for CGL policy purposes when the contractor's faulty workmanship resulted in not only a poorly constructed roof — the only job the contractor had been hired to perform — but damage to other parts of the plaintiff's home. Id. at 29. Given the seemingly conflicting decisions in Warwick and Moss, the Alabama Supreme Court went on to clarify in Town & Country, holding:
Town & Country, 111 So.3d at 707.
The Sniders rely significantly on Town & Country to support their argument that the underlying state court judgment is covered under the Policy. According to the Sniders, because the Beale Defendants' faulty workmanship caused damage to something other than the Beale Defendants' work — in this case, the mental anguish suffered by the Sniders — Town & Country dictates the conclusion that the Beale Defendants' faulty workmanship qualifies as an "occurrence" under the Policy. The Court understands the connection the Sniders are attempting to make between other damage in Town & Country (to personal property or other parts of the structure which were not part of the contractor's work) and other damage here (bodily injury suffered by the Sniders that was not part of the Beale Defendants' work). However, the cases that rely on Moss and Town & Country to find that faulty workmanship may be an "occurrence" are when that faulty workmanship subjects personal property or other parts of the actual physical structure to damage, such as floors or an attic or interior furnishings. See Moss, 442 So.2d at 29; U.S. Fid. & Guar. Co. v. Bonitz Insulation Co. of Ala., 424 So.2d 569, 573 (Ala.1982). The Sniders have not cited, nor has the
Moreover, the Alabama Supreme Court recently cautioned against "latch[ing] onto the statement in ... Town & Country indicating that `faulty workmanship may lead to an occurrence if it subjects personal property or other parts of the structure to continuous or repeated exposure to some other `general harmful condition[.]''" Owners Ins. Co. v. Jim Carr Homebuilder, LLC, 2013 WL 5298575, at *5 (Ala. Sept. 20, 2013) (quoting Town & Country, 111 So.3d at 706) (internal quotations omitted). Instead, this "isolated statement ... must be considered in the context in which it was made — a discussion of Moss ... and Warwick...."
Id. In this case, there is no "occurrence" because the Beale Defendants' poor workmanship resulted in just a poor final product (the Sniders' residence itself) and not in damage to other unrelated parts of the Sniders' home or their personal property. Because there was no "occurrence" in this case to trigger coverage under the Policy, Penn National is entitled to a summary judgment and a declaration that it owes no indemnity to the Beale Defendants with respect to the judgment entered in favor of the Sniders on their breach of implied warranty claim.
Although the Court's analysis could end here, there is an additional point the Court must address.
An opinion from the Southern District of Florida recently addressed the very argument that the Sniders are making with respect to "additional" coverage provided under the "Products Completed Operations Hazard" of a CGL policy similar to the one at issue here, finding that "the products-completed operations hazard provision does not create distinct coverage separate and apart from the delineated coverage portions of the policy." Sparta Ins. Co. v. Colareta, 990 F.Supp.2d 1357, 1365, 2014 WL 31986, at *6 (S.D.Fla. Jan. 6, 2014). The district court explained:
Id. at 1365-66, at *6.
The same can be said here. "Products-completed operations hazard" is listed in the Definitions section of the Policy only and is not designated as a separate type of coverage. (Doc. #87-1.) Moreover, the Limits of Insurance section in the Policy states that the products-completed operations aggregate limit is the most Penn National will pay
Based on the foregoing, it is hereby ORDERED as follows:
2. Pam and Howard Sniders' Motion for Summary Judgment (Doc. #86) is DENIED.
3. The trial currently set March 10, 2014 is CANCELLED.
A separate final judgment consistent with this Memorandum Opinion and Order will be entered.
(Doc. #87-2.)
According to the verdict form, the jury in the underlying litigation checked the first blank on the verdict form, indicating that they found in favor of the Sniders and against the Beale Defendants, and also checked the lines by each "claim" (breach of contract, implied warranty, emotional distress, and mental anguish). The jury then wrote $700,000 in the blank for the amount of compensatory damages they were assessing against the Beale Defendants, but did not specify what amount, if any, was awarded for emotional distress and mental anguish. (Doc. #56-2.) The verdict form was signed and dated by the forewoman.
