Filed: Sep. 06, 2011
Latest Update: Feb. 22, 2020
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 10-1530 BRETON, LLC; HEMAN WARD, INCORPORATED; B&H MANAGEMENT COMPANY, Plaintiffs - Appellees, v. GRAPHIC ARTS MUTUAL INSURANCE COMPANY, d/b/a Utica National Insurance Group, Defendant – Appellant, and JEFFERSON-PILOT LIFE INSURANCE COMPANY, Merged with the Lincoln National Life Insurance Company, Defendant. No. 10-1571 BRETON, LLC; HEMAN WARD, INCORPORATED; B&H MANAGEMENT COMPANY, Plaintiffs - Appellants, v. GRAPHIC ARTS MUTU
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 10-1530 BRETON, LLC; HEMAN WARD, INCORPORATED; B&H MANAGEMENT COMPANY, Plaintiffs - Appellees, v. GRAPHIC ARTS MUTUAL INSURANCE COMPANY, d/b/a Utica National Insurance Group, Defendant – Appellant, and JEFFERSON-PILOT LIFE INSURANCE COMPANY, Merged with the Lincoln National Life Insurance Company, Defendant. No. 10-1571 BRETON, LLC; HEMAN WARD, INCORPORATED; B&H MANAGEMENT COMPANY, Plaintiffs - Appellants, v. GRAPHIC ARTS MUTUA..
More
UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 10-1530
BRETON, LLC; HEMAN WARD, INCORPORATED; B&H MANAGEMENT
COMPANY,
Plaintiffs - Appellees,
v.
GRAPHIC ARTS MUTUAL INSURANCE COMPANY, d/b/a Utica National
Insurance Group,
Defendant – Appellant,
and
JEFFERSON-PILOT LIFE INSURANCE COMPANY, Merged with the
Lincoln National Life Insurance Company,
Defendant.
No. 10-1571
BRETON, LLC; HEMAN WARD, INCORPORATED; B&H MANAGEMENT
COMPANY,
Plaintiffs - Appellants,
v.
GRAPHIC ARTS MUTUAL INSURANCE COMPANY, d/b/a Utica National
Insurance Group,
Defendant – Appellee,
and
JEFFERSON-PILOT LIFE INSURANCE COMPANY, Merged with the
Lincoln National Life Insurance Company,
Defendant.
Appeals from the United States District Court for the Eastern
District of Virginia, at Alexandria. Anthony John Trenga,
District Judge. (1:09-cv-00060-AJT-TRJ)
Argued: May 12, 2011 Decided: September 6, 2011
Before KING, SHEDD, and WYNN, Circuit Judges.
Reversed and remanded by unpublished opinion. Judge Wynn wrote
the majority opinion, in which Judge King joined. Judge Shedd
wrote a concurring opinion.
ARGUED: Lon Arthur Berk, HUNTON & WILLIAMS, LLP, McLean,
Virginia, for Appellant/Cross-Appellees. Charles Thomas Brown,
SILVER & BROWN, Fairfax, Virginia, for Appellee/Cross-
Appellants. ON BRIEF: Brian J. Gerling, HUNTON & WILLIAMS, LLP,
McLean, Virginia, for Appellant/Cross-Appellees. Glenn H.
Silver, SILVER & BROWN, Fairfax, Virginia, for Appellee/Cross-
Appellants.
Unpublished opinions are not binding precedent in this circuit.
2
WYNN, Circuit Judge:
Summary judgment is appropriate only “if the movant
shows that there is no genuine dispute as to any material fact
and the movant is entitled to judgment as a matter of law.”
Fed. R. Civ. P. 56(a). After a fire damaged its warehouse,
Plaintiff Breton, LLC (“Breton”)1 sought a declaratory judgment
that it was entitled to coverage under an insurance policy
issued by Graphic Arts Mutual Insurance Co. (“Graphic Arts”).
Breton also asserted that Graphic Arts breached the insurance
contract by denying coverage. Graphic Arts responded that it
was not obligated to provide coverage in part due to the
operation of an exclusion from coverage in the policy’s
Protective Safeguards endorsement. Because the operation of
that exclusion hinges on an unresolved factual dispute, we
reverse the district court’s grant of summary judgment in favor
of Breton and remand for further proceedings.
I.
On April 1, 2002, Graphic Arts issued Breton a
commercial insurance policy providing coverage for, inter alia,
fire damage to Breton’s warehouse (“the warehouse”). The
1
Appellees include Breton, LLC, Heman Ward, Inc., and B&H
Management Company. For ease of reading, we will refer to these
parties collectively as “Breton.”
3
policy, which was renewed through April 1, 2008, includes a
Protective Safeguards endorsement stating that, “[a]s a
condition of this insurance, you are required to maintain the
protective devices or services listed in the Schedule above.”
J.A. 1871.2 The only protective device or service referenced in
the Schedule is an Automatic Sprinkler System.3 The endorsement
also contains an exclusion stating, “[Graphic Arts] will not pay
for loss or damage caused by or resulting from fire if, prior to
the fire, you . . . [f]ailed to maintain any protective
safeguard listed in the Schedule above, and over which you had
control, in complete working order.” J.A. 1871. Additionally,
the policy has a Transfer of Rights and Duties provision
stating, “[Breton’s] rights and duties under this policy may not
be transferred without [Graphic Arts’] written consent except in
the case of death of an individual named insured.” J.A. 1868.
2
Citations herein to “J.A. __” refer to the Joint Appendix
filed by the parties in this appeal.
3
The policy defines an Automatic Sprinkler System as:
(1) Any automatic fire protective or extinguishing system,
including connected:
(a) Sprinklers and discharge nozzles;
(b) Ducts, pipes, valves and fittings;
(c) Tanks, their component parts and supports; and
(d) Pumps and private fire protection mains.
(2) When supplied from an automatic fire protection system:
(a) Non-automatic fire protective systems; and
(b) Hydrants, standpipes and outlets.
J.A. 1871.
4
On December 1, 2004, Breton leased the warehouse to
Joe Ragan’s Coffee, Ltd. (“Ragan”).4 The lease contract stated
in part:
Tenant at its expense shall at all times maintain said
Premises in good condition and repair, including all
mechanical, plumbing, and electrical equipment and
also in a clean, sanitary and safe condition in
accordance with all directions, rules, and regulations
of the . . . fire marshal . . . .
J.A. 1002.
On December 2, 2007, a fire destroyed the warehouse.
An investigation by the local fire department revealed that the
valve controlling the supply of water to the sprinkler heads was
in the closed position, rendering the Automatic Sprinkler System
inoperable. Based on this discovery, Graphic Arts asserted that
Breton failed to maintain an Automatic Sprinkler System as
required by the policy. Alternatively, Graphic Arts contended
that insofar as Breton delegated the obligation to maintain the
sprinkler system to Ragan, this delegation violated the
insurance contract and barred coverage. On those bases, Graphic
Arts denied coverage.
On January 21, 2009, Breton filed suit in the Eastern
District of Virginia seeking a declaratory judgment that Graphic
4
Prior to this lease agreement with Ragan, Breton leased
the warehouse to Alexandria Packaging & Supply Company
(“Alexandria Packaging”). Graphic Arts had knowledge of both
rentals.
5
Arts was obligated to provide coverage under the policy. Breton
further alleged that Graphic Arts’ failure to provide coverage
constituted a breach of the insurance contract. Graphic Arts
responded that Breton’s failure to maintain an operable
sprinkler system in the warehouse constituted a failure to
satisfy a condition placed on coverage and triggered an
exclusion from coverage. Graphic Arts argued in the alternative
that Breton’s breach of the insurance contract’s Transfer of
Rights and Duties provision justified denying coverage. Graphic
Arts accordingly sought a declaratory judgment that coverage was
barred. On August 5, 2009, the parties filed cross-motions for
summary judgment.
After a hearing, the district court granted Breton’s
motion for summary judgment on November 10, 2009. First, the
district court held that Breton satisfied the condition
precedent to coverage included in the Protective Safeguards
endorsement. The district court concluded that the word
“maintain” as used in the condition was ambiguous because it has
more than one definition that could reasonably apply in the
context of the insurance policy. The district court interpreted
the ambiguous term in a manner favoring coverage, concluding
that “maintain” meant “to keep in existence.” J.A. 2766.
Because there was no dispute that Breton kept an Automatic
Sprinkler System in existence in the warehouse, the court held
6
that Breton had demonstrated satisfaction of the condition
precedent to coverage.
Next, the district court concluded that the exclusion
did not apply to bar coverage. The district court found the
word “control” as used in the exclusion to be ambiguous and
again applied a definition effectuating coverage, ultimately
interpreting “control” to mean “physical control.” The district
court reasoned that Breton did not have such “control” over the
sprinkler system because it lacked “physical dominion over it or
unfettered access to it.” J.A. 2770. Because the requirement
to keep the sprinkler system in “complete working order” was
conditioned on Breton’s having physical control over the system,
the district court held that the exclusion was inapplicable.
Finally, the district court held that Breton did not
violate the Transfer of Rights and Duties provision because
Breton did not transfer its duty to “maintain” the sprinkler
system to Ragan. The court therefore held that Breton was
entitled to coverage and that Graphic Arts breached the
insurance contract by denying coverage. The court awarded
damages, including the cost of replacing the warehouse and
Breton’s lost business income.
Graphic Arts appealed, contending that the district
court misread the policy and repeating the argument that
Breton’s failure to “maintain” a sprinkler system in “complete
7
working order,” or alternatively Breton’s delegation of
contractual duties to Ragan, barred coverage. Breton filed a
cross-appeal, arguing that the district court incorrectly
calculated the period of time for which Graphic Arts was liable
for Breton’s lost business income.
II.
“[W]e review de novo a district court’s award of
summary judgment, viewing the facts in the light most favorable
to the non-moving party.” Lee v. York Cnty. Sch. Div., 484 F.3d
687, 693 (4th Cir. 2007). Summary judgment is appropriate where
“the movant shows that there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter
of law.” Fed. R. Civ. P. 56(a). Material facts are “facts that
might affect the outcome of the suit under the governing law.”
Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248 (1986).
Virginia law governs the issues raised on appeal
because this suit was brought in the Eastern District of
Virginia on the basis of the court’s diversity jurisdiction and
Graphic Arts delivered the insurance policy to Breton in
Virginia. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S.
487, 496-97 (1941) (holding that a federal court exercising
diversity jurisdiction must apply the choice of law principles
of the State in which the federal court is located); Buchanan v.
8
Doe, 246 Va. 67, 70,
431 S.E.2d 289, 291 (1993) (“[T]he law of
the place where a insurance contract is written and delivered
controls issue as to its coverage.”).
A.
Graphic Arts first contends that the district court
erred in concluding that Breton satisfied a condition placed on
coverage. Paragraph 1a of the Protective Safeguards Endorsement
states: “[a]s a condition of this insurance, you are required to
maintain the protective devices or services listed in the
Schedule above.” J.A. 1871. Graphic Arts argues that
“maintain” is unambiguous as used in the condition and should be
interpreted as requiring Breton to “do something to determine
whether the system operates.” Opening Brief of Appellant at 22.
Under Virginia law, “[a]n insurance policy is a
contract, and, as in the case of any other contract, the words
used are given their ordinary and customary meaning when they
are susceptible of such construction.” Hill v. State Farm Mut.
Auto Ins., 237 Va. 148, 152,
375 S.E.2d 727, 729 (1989). If the
policy language is unambiguous the court simply applies the
terms as written. State Farm Fire and Cas. Co. v. Walton,
244
Va. 498, 502,
423 S.E.2d 188, 191 (1992).
However, when the language of an insurance contract is
ambiguous the terms are construed against the insurer. St. Paul
9
Fire & Marine Ins. Co. v. S.L. Nusbaum & Co., 227 Va. 407, 411,
316 S.E.2d 734, 736 (1984) (“Insurance policies are contracts
whose language is ordinarily selected by insurers rather than by
policyholders. The courts, accordingly, have been consistent in
construing the language of such policies, where there is doubt
as to their meaning, in favor of that interpretation which
grants coverage, rather than that which withholds it.”); see
also Mollenauer v. Nationwide Mut. Ins. Co.,
214 Va. 131, 132,
198 S.E.2d 591, 592 (1973) (per curiam) (“Where an insurance
policy is susceptible of two constructions, one of which would
effectuate coverage and the other not, it is the court’s duty to
adopt that construction which will effectuate coverage.”);
Central Sur. & Ins. Corp. v. Elder,
204 Va. 192, 197,
129 S.E.2d
651, 655 (1963) (“[W]here the language of a policy is
susceptible of two constructions, it is to be construed
liberally in favor of the insured and strictly against the
insurer.”). We therefore must first determine whether the
district court erred in ruling that the policy language
constituting the condition precedent was ambiguous.
“Language is ambiguous when it may be understood in
more than one way or when such language refers to two or more
things at the same time.” Salzi v. Virginia Farm Bureau Mut.
Ins. Co., 263 Va. 52, 55-56,
556 S.E.2d 758, 760 (2002); but see
TM Delmarva Power, LLC v. NCP of Va., LLC,
263 Va. 116, 119, 557
10
S.E.2d 199, 200 (2002) (“A contract is not ambiguous merely
because the parties disagree as to the meaning of the terms
used.”). “A term is unambiguous only if, within its context, it
is not susceptible to more than one meaning.” Gates, Hudson &
Assoc., Inc., v. Fed. Ins. Co.,
141 F.3d 500, 502 (4th Cir.
1997) (applying Virginia law).
In the present case, the word “maintain” “may be
understood in more than one way,” which supports a finding of
ambiguity. Salzi, 263 Va. at 55-56, 556 S.E.2d at 760. Black’s
Law Dictionary defines “maintain” in relevant part as:
1. To continue (something).
2. To continue in possession of (property, etc.).
. . . .
4. To care for (property) for purposes of operational
productivity or appearance; to engage in general
repair and upkeep.
Black’s Law Dictionary 1039 (9th ed. 2009). Similarly,
Webster’s New World Dictionary provides multiple definitions for
“maintain,” including: “1. to keep or keep up; carry on 2. to
keep in continuance or in a certain state, as of repair . . . 5.
to support by supplying what is needed.” Webster’s New World
Dictionary 363 (Warner Books ed. 1987). As the Supreme Court of
Virginia has recognized, “the word ‘maintain’ has several
meanings, each depending upon the context of the statement in
which it is used.” Savage v. Com. ex rel. State Corp. Comm’n,
186 Va. 1012, 1020,
45 S.E.2d 313, 317 (1947).
11
Nonetheless, Graphic Arts argues that the district
court strained to find ambiguity when ignoring the “plain
meaning” of “maintain” in the text of the contract. We
disagree. As used in the insurance contract, “maintain” could
be reasonably interpreted, as Graphic Arts contends, to refer to
regular repair obligations with respect to the Automatic
Sprinkler System. However, as the district court noted, the
word could also be reasonably interpreted to refer to an
obligation to continue to have an Automatic Sprinkler Sprinkler
system in the warehouse. Absent any clarification in the
policy, we conclude that “maintain” is ambiguous here.
This conclusion is supported by other provisions of
the contract. We note that “maintain” is also used in an
exclusion from coverage, which we discuss below. Rather than
read the terms of the policy in isolation, we must look to other
contract provisions that use a specific word to clarify its
intended meaning. See Gates, 141 F.3d at 502-03. The exclusion
expressly qualifies the word “maintain” with the words “in
complete working order.” As the district court recognized,
interpreting “maintain” to require ensuring operability would
render the “in complete working order” language in the exclusion
superfluous. However, “no word or clause in a contract will be
treated as meaningless if a reasonable meaning can be given to
it, and parties are presumed not to have included needless words
12
in the contract.” TM Delmarva Power, 263 Va. at 119, 557 S.E.2d
at 200.5
Moreover, Graphic Arts cannot point to any contract
language defining the nature or degree of the obligations it
contends stem from the duty to “maintain.” For instance, there
is no indication as to how frequently any purportedly required
inspections must take place, what components of the system would
need to be examined during an inspection, or how rapidly defects
revealed during an inspection must be repaired. As the district
court noted, “to impose implied duties on an insured through the
vagaries of the word ‘maintain’—such as the duty to access,
inspect and repair a leased property—would necessarily require
an insured to guess at what its duties and responsibilities are,
something that Virginia law seeks to avoid when interpreting the
language of an insurance policy.” J.A. 2767-68.
In contrast, defining “maintain” as “to keep” would be
more likely to effectuate coverage, as it would simply require
the continued retention of an Automatic Sprinkler System in
order to satisfy the condition precedent. Virginia law compels
our application of this definition. Mollenauer, 214 Va. at 132,
198 S.E.2d at 592. Because it is undisputed that Breton kept an
5
During oral argument, Graphic Arts argued that the use of
“maintain” in the exclusion should not be used to inform the
meaning of “maintain” in the condition placed on coverage.
13
Automatic Sprinkler System in place at all relevant times, we
conclude that the district court did not err in finding that
Breton satisfied the condition placed on coverage.
B.
Next, Graphic Arts argues that Breton cannot enforce
the insurance agreement because Breton breached the contract by
violating the Transfer of Rights and Duties provision. We
disagree. The provision states, “Your rights and duties under
this policy may not be transferred without our written consent
except in the case of death of an individual named insured.”
J.A. 1868. Graphic Arts contends that Breton violated this
provision by leasing the warehouse to Ragan and, in the lease
contract, obligating Ragan to “maintain [the warehouse] in good
condition and repair.” J.A. 1002. Because Graphic Arts never
gave consent, written or otherwise, to a transfer of Breton’s
duties under the contract, Breton could not transfer its duty to
maintain the warehouse to another. However that duty was not
“transferred” when Breton’s lease contract with Ragan also
imposed a maintenance duty on the tenant. This is so for two
reasons. First, even if Breton delegated its duty to maintain
the sprinkler system to Ragan, Breton would still owe a
maintenance duty to Graphic Arts. See Restatement (Second) of
Contracts § 318 (“Unless the obligee agrees otherwise, neither
14
delegation of performance nor a contract to assume the duty made
with the obligor by the person delegated discharges any duty or
liability of the delegating obligor.”). Second, the lease
contract between Breton and Ragan created an independent
maintenance duty owed by Ragan to Breton; it did not contemplate
the transfer of a duty owed by Breton to Graphic Arts. In
short, the fact that Ragan owed Breton a similar duty to that
which Breton owed Graphic Arts does not mean that Breton
transferred its duty under the insurance contract. Because
Breton did not transfer its duties, we hold that the district
court did not err in finding that Breton did not breach the
contract’s Transfer of Rights and Duties provision.
C.
Finally, Graphic Arts contends that an exclusion in
the Protective Safeguards endorsement operates to bar coverage.
The exclusion states “[Graphic Arts] will not pay for loss or
damage caused by or resulting from fire if, prior to the fire,
you . . . [f]ailed to maintain any protective safeguard listed
in the Schedule above, and over which you had control, in
complete working order.” J.A. 1871.
As explained above, if this language is unambiguous,
the court’s role is simply to apply the contract terms as
written. Walton, 244 Va. at 502, 423 S.E.2d at 191. However,
15
the exclusion is qualified by the requirement that the insured
“had control” over the protective safeguard in question. The
district court opined that “control” could be understood to mean
“legal control” or “physical control.”
Black’s Law Dictionary defines “control” as “[t]he
direct or indirect power to govern the management and policies
of a person or entity, whether through ownership of voting
securities, by contract, or otherwise; the power or authority to
manage, direct, or oversee . . . .” Black’s Law Dictionary 378
(9th ed. 2009). Webster’s New World Dictionary similarly
defines “control” as “1. power to direct or regulate 2. a means
of controlling; check 3. an apparatus to regulate a mechanism.”
Webster’s New World Dictionary 137 (Warner Books ed. 1987).
Given the similarity of these definitions, the word “control”
would at first blush seem unambiguously to reference a power to
manage, direct, or regulate an object or entity. Yet, as the
district court noted, a reasonable distinction can be drawn
between the physical power to regulate an object or entity and
the legal power to do so.
In some instances, courts construe “control” as
established through physical power over an object. For example,
Virginia cases addressing whether one has “control” over a
vehicle have equated the possession of keys to the vehicle with
control of the vehicle. See Bell v. Commonwealth, 21 Va. App.
16
693, 699,
467 S.E.2d 289, 292 (1996) (holding that, for purposes
of statute criminalizing theft of vehicle from victim who had
“possession or control” of vehicle, victim’s possession of the
car keys was sufficient to support conviction); see also
Burchette v. Commonwealth,
15 Va. App. 432, 435-36,
425 S.E.2d
81, 84 (1992) (reversing conviction based on constructive
possession and noting lack of evidence that defendant had keys
to vehicle in which contraband was found); but see Overbee v.
Commonwealth,
227 Va. 238, 243, 315 S.E.2d. 242, 244 (1984) (for
purpose of DUI statute, which requires driving or “operation” of
vehicle, mere possession of vehicle’s keys is not enough to
establish “actual physical control” of the vehicle).6 Another
example can be found in United States v. Buculei,
262 F.3d 322
(4th Cir. 2001), where we discussed whether a child was under
the “control” of the defendant and rejected any argument that
“control” required legal power over the child, instead
concluding that the statute in question contemplated the
6
This conception of keys indicating “control” of a vehicle
is not unique to Virginia. See United States v. Sotelo-Rivera,
931 F.2d 1317, 1319 (9th Cir. 1991), cert. denied,
502 U.S. 1100
(1992) (deeming possession of vehicle’s keys evidence of control
over vehicle); United States v. Damsky,
740 F.2d 134, 139 (2d
Cir.), cert. denied,
469 U.S. 918 (1984) (holding that defendant
had dominion and control of vehicle once he was given the key
thereto); United States v. Jackson,
529 F. Supp. 1047, 1050 (D.
Md. 1981) (finding exclusive control over vehicle obtained upon
possession of keys).
17
exercise of physical power over the child. Id. at 331-33
(analyzing language of 18 U.S.C. § 2251A(b)(2)).
In contrast, even without physical control, one may
have legal power over an object or entity (i.e. legal control).
See Brock v. Hamad, 867 F.2d 804, 807 (4th Cir. 1989) (holding
that, for purposes of Fair Labor Standards Act, defendant had
“control” over multiple rental properties because “[a]ll the
properties managed and controlled by the defendant were owned by
the defendant, or by the defendant and his wife, or the
defendant and his mother,” and FLSA regulations defined control
as existing “‘where total ownership is vested in a single
person, family unit, [or] partnership.’”) (quoting 29 C.F.R. §
779.223 (1987)); see also Fitzpatrick v. United States,
410 F.2d
513, 516 n.3 (5th Cir. 1969) (noting that the lack of a “key or
ownership paper” indicates lack of control) (emphasis added).
Indeed, courts have previously distinguished between
the exercise of “physical control” and “legal control.” See,
e.g., United States v. Joshua, 607 F.3d 379, 387 (4th Cir. 2010)
(noting, in the habeas corpus context, the distinction between
physical and legal control when addressing custody
determination); see also In re Video Depot, Ltd.,
127 F.3d 1195,
1198 (9th Cir. 1997) (“Arlynn no longer had legal control over
the funds, even if he retained physical control over them.”).
18
As the foregoing discussion demonstrates, there are at
least two interpretations of the word “control”. Because
interpreting “control” to mean either “physical control” or
“legal control” would be reasonable in the context of the
insurance contract at issue, we conclude that the term “control”
is ambiguous here. See Salzi, 263 Va. at 55-56, 556 S.E.2d at
760. Again, when faced with an ambiguous contractual term, we
must construe it liberally in favor of the insured.
Elder, 204
Va. at 197, 129 S.E.2d at 655. Interpreting “control” to mean
legal control would create more instances in which the exclusion
could be triggered. As the district court observed, “one would
expect fire insurance policies to be often issued, as in this
case, to persons who own the insured property.”7 J.A. 2770.
Consequently, if “control” meant “legal control,” in many
instances the exclusion would be triggered merely by the
insured’s ownership of the premises. By contrast, interpreting
“control” to mean “physical control” would give greater effect
to the qualification in the exclusion.8 Accordingly, we will
7
Indeed, to enter into a valid fire insurance contract, the
insured must have a legal or equitable interest in the covered
property. See Liverpool & London & Globe Ins. Co. v. Bolling,
176 Va. 182, 188-89,
10 S.E.2d 518, 520 (1940).
8
Moreover, by construing “control” as meaning “physical
control” we read the contract such that the insured is only
required to perform duties which he is physically able to
perform.
19
construe “control” as used in the exclusion to require the
insured’s physical control over the Automatic Sprinkler System.
To determine whether Breton had a contractual duty to
maintain the Automatic Sprinkler System “in complete working
order,” it is necessary to determine whether Breton had physical
control over the system. Whether or not Breton had physical
control over the sprinkler system therefore constitutes a
“material fact” necessary to the resolution of this case. See
Anderson, 477 U.S. at 248. Because this material fact is in
dispute, summary judgment is inappropriate. Fed. R. Civ. Pro.
56(a).
Importantly, all of the controls for the warehouse’s
Automatic Sprinkler System, including the water supply valve,
were located within the warehouse in a Sprinkler Room. Breton
argued that it did not have access to that room and therefore
lacked physical control over the sprinkler system. Breton
contended that before it leased the warehouse to Ragan, a former
tenant, Alexandria Packaging, changed all of the locks in the
warehouse and did not provide Breton with keys. According to
Breton, when Ragan purchased the assets of Alexandria Packaging
and leased the warehouse from Breton, Ragan received the keys
from Alexandria. Breton asserts that Ragan then changed the
20
locks9 and never gave Breton a copy of the keys, meaning that
only Ragan had physical access to the Sprinkler Room. All told,
Breton contends that during Alexandria Packaging’s and Ragan’s
lease of the warehouse, Breton “had no access to the Sprinkler
Room and had no control over the Sprinkler Room.”10 J.A. 711.
Graphic Arts, in contrast, asserts that Breton had
control over the sprinkler system. Paul Graf, a corporate
designee of Graphic Arts, testified that Breton “had control”
because “it’s their sprinkler system and they are in control of
their own property.” J.A. 1316. Graphic Arts also disputed
Breton’s contention that Ragan had sole control over the
sprinkler system: “[I]t was disputed whether Joe Ragan or
Breton had control of the sprinkler system.” Response Brief of
Cross Appellee at 12. Leona Ragan, a corporate designee of Joe
Ragan Coffee, Ltd., testified that her company had neither the
keys nor access to the Sprinkler Room.
We are unwilling to conclude, as did the district
court, that Breton’s lack of “unfettered access” to the
9
The record includes an invoice indicating that Baldino’s
Lock & Key charged Ragan for changing certain unidentified locks
in the warehouse.
10
It bears mention that during an insurance inspection
prior to the fire, Breton’s representative asserted that a
contractor employed to work on the sprinkler system, rather than
Ragan, had the keys to the Sprinkler Room.
21
Sprinkler Room meant that Breton lacked the requisite “physical
control” over the Automatic Sprinkler System to trigger the duty
to maintain the system “in complete working order.” However,
under our interpretation of the contract, if Breton was entirely
unable to enter the warehouse to access the sprinkler system,
then it had no such duty.
Here, the exclusion only obligated Breton to keep “in
complete working order” those protective services or devices
listed in the contract and “over which [Breton] had [physical]
control.” The only protective device or service listed was the
Automatic Sprinkler System. The qualification “and over which
you had control,” must, to be given any effect, operate to
distinguish between protective devices or services with respect
to which Breton had a duty and those devices or services with
respect to which no such duty existed. See Berry v. Klinger,
225 Va. 201, 208,
300 S.E.2d 792, 796 (1983) (“Where possible,
meaning must be given to every clause [in a contract].”). Since
only one device was listed in the contract, the distinction
contemplates Breton’s loss of control over the sprinkler system
and further permits such a loss of control to absolve Breton of
a duty to maintain the sprinkler system “in complete working
order.” If Graphic Arts wanted to protect against this
possibility, it could have easily included language obligating
the insured to retain physical control over the sprinkler
22
system. It did not do so, and we will not construe the
resulting contractual ambiguity to the detriment of Breton.
In light of the competing factual assertions regarding
Breton’s ability to access the Automatic Sprinkler System, we
cannot agree with the district court that as a matter of law the
exclusion was not triggered. Until the resolution of this
material factual dispute, summary judgment is inappropriate.
III.
In moving for summary judgment, Breton failed to
establish that there were no genuine disputes of material fact.
As such, the district court erred when granting summary judgment
in favor of Breton. Accordingly, we reverse and remand for
further proceedings.11
REVERSED AND REMANDED
11
On cross-appeal, Breton challenges the district court’s
calculation of damages awarded for the breach of contract by
Graphic Arts. Because we reverse the grant of summary judgment,
we need not address this argument.
23
SHEDD, Circuit Judge, concurring:
I agree that summary judgment should be reversed, but
for reasons different than the majority.
First, in the context of the insurance policy at
issue, the term “maintain” is not ambiguous. The fact that
“maintain” may have several meanings does not necessarily result
in ambiguity, nor is that fact dispositive here; rather, the
real question is whether, in the context of a fire insurance
policy, it is reasonable to interpret “maintain” as meaning to
merely have a sprinkler system in place. See Resource Bankshares
Corp. v. St. Paul Mercury Ins. Co., 407 F.3d 631, 640 (4th Cir.
2005) (“The real question, then, is whether, when read in
context, a reasonable purchaser of insurance would believe that
[interpretation].”). The majority concludes that it is. In my
opinion, this is not a reasonable interpretation in light of the
fundamental purpose of insurance, which is to allocate risk
between the insurer and insured. See Autumn Ridge, L.P. v.
Acordia of Virginia Ins. Agency, Inc.,
613 S.E.2d 435, 438-39
(Va. 2005).
The condition in the Protective Safeguards Endorsement
requiring Breton “to maintain” an automatic sprinkler system
creates a duty on Breton, which is a condition precedent to
coverage. As such, Breton must comply with this condition before
the insurance becomes effective. In other words, in order for
24
Graphic Arts to agree to assume the risk of loss resulting from
fire, this protective safeguard – a safeguard that would
minimize or prevent that risk – must be in place. To read
“maintain” as meaning to merely “have” a sprinkler system –
regardless of whether it actually works - eliminates the purpose
of that duty in allocating risk. Further, such an interpretation
renders the condition completely meaningless because in this
context having a non-working, non-functioning system is the
factual equivalent of having no system at all (for purposes of
risk allocation). See TM Delmarva Power, LLC v. NCP of Virginia,
LLC, 557 S.E.2d 199, 200 (Va. 2002) (“[N]o word or clause in a
contract will be treated as meaningless if a reasonable meaning
can be given to it.”).
Surely, Graphic Arts did not intend to require Breton
to have a non-working sprinkler system. See Virginia Farm Bureau
Mut. Ins. Co. v. Williams, 677 S.E.2d 299, 302 (Va. 2009)
(noting that insurance provisions must be construed to
effectuate the parties' intent). “The point is that context
matters,” Resource
Bankshares, 407 F.3d at 642, and in this
context, the requirement to “maintain” a sprinkler system is not
25
ambiguous – it necessarily means to have a sprinkler system
which is in working order.1
Second, and independent of the general duty to
maintain a sprinkler system as a condition to have coverage, the
policy exclusion provides that Graphic Arts “will not pay for
loss . . . [if Breton] [f]ailed to maintain [the sprinkler
system] . . . over which [Breton] had control, in complete
working order.” J.A. 771. Leaving aside the lease at this point,
this exclusion clearly and independently obligated Breton to
keep the sprinkler system in working order to ensure there was
coverage. The lease between Breton and Ragan does not change
this obligation. Breton controlled the premises as lessor and
cannot eliminate its obligation by merely leasing the property
to a third party.2
1
In fact, the conduct of both Breton and Graphic Arts
underscores this interpretation of “maintain.” In August 2007,
Graphic Arts indicated to Breton’s property manager that the
sprinkler system needed to be inspected. J.A. 2618. In response,
Breton’s property manager informed Graphic Arts that the
sprinkler was scheduled to be serviced later that month. Id. In
addition, just weeks before the fire, Graphic Arts sent a letter
reminding Breton to have the system inspected. J.A. 2017-21.
Under the district court’s interpretation of the duty to
maintain, these warnings by Graphic Arts – as well as Breton’s
response - would have been unnecessary because Breton had
fulfilled its duty under the policy by simply having the
sprinkler system – whether it worked or not - in place.
2
The exclusion’s requirement that the system be
“maintain[ed] . . . in complete working order” underscores,
rather than undercuts, my reading of the general duty to
(Continued)
26
Notwithstanding the lease relationship between Breton
and Ragan, Breton controlled the sprinkler system under the
policy between Breton and Graphic Arts. That Breton somehow
would use its status as lessor to construct a barrier to its
access to the sprinkler system is of no moment. The lease offers
Breton no more excuse than if Breton had thrown away its keys to
the control room for the express purpose of defeating the
exclusion – Breton’s obligation would still exist. An insured
simply cannot take steps to defeat its obligation under the
Policy and still claim coverage. See Parrish v. Wightman, 34
S.E.2d 229, 232 (Va. 1945) (noting general contract principle
that if a party “is the cause of the failure of performance of a
condition upon which his own liability depends, he cannot take
advantage of the failure”). Beyond that, Breton’s position that
Ragan had sole control of the sprinkler system is defeated by
the actual language of the lease. Under the lease, Breton had
“maintain” a system. Under the majority’s view, the general duty
(condition) is read to contrast with the exclusion because the
exclusion further elaborates on “maintain.” Such a reading leads
to the odd but inevitable result that a non-working system is
completely sufficient to satisfy the general duty. Further,
notwithstanding any disagreement with the majority about what
“maintain” means, the exclusion makes it clear that there will
be no payment for a loss unless the system is in complete
working order. Therefore, whether the focus is on the general
duty or the exclusion, for Breton to recover under the policy
the sprinkler system had to be in working order.
27
“the right to enter the Premises . . . to examine the same as
well as to make any alterations and repairs . . . .” J.A. 1003.
That fact underscores Breton had both physical control – as the
majority interprets “control” – and legal control over the
sprinkler system. Simply put, under the facts and any reading of
the policy, Breton was in control of the sprinkler system and
was therefore obligated to keep the system in working order.
However, aside from all of this, Graphic Arts conceded
during oral argument that there is a question of what
constitutes the sprinkler system being “in complete working
order.” In light of this concession, I would remand for a
resolution of that narrow issue.
28
