DEE D. DRELL, Chief District Judge.
Pending before the Court in this insurance coverage suit is a motion for summary judgment filed by plaintiff Scottsdale Insurance Company ("Scottsdale"). [Doc. 18] Pursuant to its motion, Scottsdale seeks judgment in its favor finding that Scottsdale owes no indemnity to its insureds, TL Spreader, LLC ("TLS") and Helena Chemical Company ("Helena") (collectively "defendants"), and dismissing all counterclaims brought against Scottsdale with prejudice and at defendants' cost. [Id.] For the following reasons, the motion is DENIED.
Scottsdale issued a commercial general liability insurance policy to TLS, providing coverage for the period of March 27, 2014 to March 27, 2015. [Doc. 3, ¶ B] Helena is named as an "additional insured" on the CGL policy. [Doc. 18-5, p. 24] On or prior to May 6, 2014, Helena contracted with its customer Wild Farms to sell and apply certain herbicides and pesticides to Wild Farms' 123 acre conventional rice field in Acadia Parish, Louisiana. [Doc. 24-1, pp. 1-2] Helena subcontracted with TLS to perform the application services to Wild Farms' rice field. [Id. at 2] On or about May 6, 2014, the TLS employee tasked with applying the products failed to properly "neutralize" a chemical Known as "Newpath" in the spray rigor prior to performing his work. [Id.] Newpath should not be applied to convention rice such as the rice grown by Wild Farms. [Id.] TLS completed its work at Wild Farms on May 6, 2014, at which time all performance called for in Helena's contract with Wild Farms was completed. [Id. at 7] Approximately three days after completion of the spraying, the rice crop first began to exhibit physical damage in the form of abnormal stunting, lesions, yellowing and death. [Id.; Doc. 24-2, ¶ 3-6; Doc. 24-4, ¶ 5] Approximately six days after completion of the spraying, an abnormal amount of the rice crop's tillers began to die. [Doc. 24-2, ¶ 7]
Thereafter, Wild Farms made a claim for crop damage allegedly incurred because of the misapplication of chemicals. [Doc. 3, p. 14, ¶ F.] On or before May 27, 2014, TLS provided notice of this occurrence to Scottsdale. [Id. at ¶ G] Scottsdale denied coverage for the Wild Farms' claim on June 5, 2014. [Id. at ¶ I] TLS and Helena ultimately settled the claim of Wild Farms, with TLS paying Wild Farms $23,996.17 and Helena paying Wild Farms $23,981.73. [Id. at ¶ K, L]
Demand Quality, LLC, a co-tenant of Wild Farms, used the Wild Farms' property as well as nearby property to raise crawfish. [Doc. 24-1, p.4] At some point after completion of the work on Wild Farms' rice field, Demand Quality made demand on TLS and Helena for damage in the amount of $69,172.00 for reduced yields and physical damage to its aquatic crawfish crop, allegedly caused by the misapplication of chemicals to Wild Farms' rice field. [Doc. 18-4, pp. 9-10] On or before May 27, 2014, TLS notified Scottsdale of Demand Quality's crawfish claim. [Doc. 3, ¶ 3] Thereafter, Helena and TLS agreed to a settlement with Demand Quality, with Helena paying $69,172.00 for the damage to Demand Quality's crawfish crop. [Id. at Q].
On September 14, 2015, TLS and Helena made their final, formal demand on Scottsdale, requesting Scottsdale "indemnify TLS and Helena for the amount of $117,149.90, the total of the settlement to Wild Farms and Demand Quality. . . ." [Id. at ¶ R] On November 10, 2015, Scottsdale filed this suit for declaratory judgment, whereby it seeks a judgment declaring its insurance policy affords no coverage for the rice claim or crawfish claim, and that TLS and Helena have no claim for reimbursement against Scottsdale for the cost of the settlements paid for those claims. [Doc. 7, p. 9] Thereafter, TLS and Helena answered suit and filed a counterclaim seeking a judgment ordering Scottsdale to reimburse TLS and Helena the amounts paid in settlement for the Wild Farms and Demand Quality claims, and awarding bad faith penalties pursuant to La. R.S. 22:1973 and La. R.S. 22:1892.
"A party may move for summary judgment, identifying each claim or defense — or the part of each claim or defense — on which summary judgment is sought." Fed.R.Civ.P. 56(a). "The court shall grant summary judgment 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." Id. A fact is material if proof of its existence or nonexistence might affect the outcome of the lawsuit under the applicable governing law. Sossamon v. Lone Star State of Texas, 560 F.3d 316, 326 (5
A party asserting that a fact cannot be or is genuinely disputed must support the assertion by:
Id. at § (c)(1).
As summarized by the Fifth Circuit:
Lindsey v. Sears Roebuck and Co., 16 F.3d 616, 618 (5
In evaluating evidence to determine whether a factual dispute exists, "credibility determinations are not part of the summary judgment analysis." Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5
The parties agree Louisiana law governs the interpretation of the CGL policy. "The interpretation of an insurance contract presents a question of law, rather than of fact, and therefore is an appropriate matter for determination by summary judgment." Martco Ltd. Partnership v. Wellons, Inc., 588 F.3d 864, 878 (5
As stated by the Louisiana Supreme Court:
Reynolds v. Select Props., Ltd., 634 So.2d 1180, 1183 (La. 1994)(internal citations, footnotes omitted).
The insured bears the burden of proving a policy of insurance affords coverage for an incident. Jones v. Estate of Santiago, 870 So.2d 1002, 1010 (La. 2004). The insurer bears the burden of proving the applicability of an exclusionary clause within a policy. Id. "Summary judgment declaring a lack of coverage under an insurance policy may not be rendered unless there is no reasonable interpretation of the policy, when applied to the undisputed material facts shown by the evidence supporting the motion, under which coverage could be afforded." Id.
Turning to the language of the Scottsdale policy, the Court now determines whether defendants have alleged "property damage" sufficient to trigger the primary coverage provision of the policy. The primary coverage provision of the policy states the insurer "will pay those sums that the insured becomes legally obligated to pay as damages because of `bodily injury' or `property damage' to which this insurance applies." [Doc. 18-5, p. 8] The primary coverage provision further provides, "This insurance applies to `bodily injury' or `property damage' only if: . . . [t]he `bodily injury' or `property damage' is caused by an `occurrence' that takes place in the `coverage territory'. . . during the policy period. . . ."
The parties do not dispute that TLS and Helena's liability to Wild Farms and Demand Quality arose out of an "occurrence" within the "coverage territory" during the policy period. Hence, whether the insuring agreement provides coverage in this case turns upon: (1) whether defendants' claim for damages arises out of "property damage" as that term is defined in Scottsdale's policy, and if so, (2) whether Scottsdale's policy contains an exclusion explicitly excluding coverage for the claims made by Wild Farms and Demand Quality against TLS and Helena.
The Scottsdale policy defines "property damage" in pertinent part as follows:
[Id. at 22]
Scottsdale argues the primary coverage provision of the policy affords no coverage for the incident giving rise to this suit, "because there was no `property damage' to `tangible property.'" [Doc. 18-2, p. 14] Although the policy does not define "tangible property," Scottsdale correctly notes Louisiana jurisprudence has found the term "tangible property" corresponds to the Louisiana concept of "corporeal property."
In response, defendants assert the underlying claims are for property damage to the rice crop and crawfish crop, both of which constitute tangible property. [Doc. 24, p. 7] According to defendants, "[t]he rice crop was physically injured when it first exhibited stunting, lesions, yellowing, and death on May 9, 2016 — after TLS sprayed the crop with `Newpath.'" [Id. at 7-8 (emphasis omitted)] Defendants further contend "Wild Farms and Demand Quality also lost the ability to use the rice crop for commercially viable enterprises such as selling rice and producing crawfish." [Id. at 8] Likewise, defendants contend there was physical injury to the crawfish crop, as well as loss of its use, due to the application of Newpath to the rice field. [Doc. 39, pp. 2-3; see also Doc. 18-1, p. 3, ¶ 16; Doc. 18-4, pp. 9-10 ("Demand Quality claimed its crawfish crop . . . had been negligently damaged or destroyed as a result of an incident occurring on or about May 6, 2014 involving the misapplication of herbicides and/or pesticides . . . resulting in an overall reduced yield from its crawfish crop due to damaged or destroyed crawfish or crawfish habitat")]
For the reasons that follow, the Court finds coverage under the policy is triggered when applied to the undisputed material facts asserted in this matter. At the outset, the Court notes that it finds the cases cited by Scottsdale in support of its position that claims for lost profits constitute intangible property and therefore do not fall under a CGL policy's definition of property damage are distinguishable on their facts. Those cases address what some courts refer to as the "business risk doctrine" or "economic loss doctrine." See e.g. Lamar Homes, Inc. v. Mid-Continent Cas. Co., 428 F.3d 193, 198 (5
For example, in the primary case relied upon by Scottsdale, Snug Harbor, Ltd. v. Zurich Ins., 968 F.2d 538 (5
Snug Harbor at 542 (footnotes omitted). The remaining cases cited by Scottsdale similarly address claims involving solely damages to intangible, economic interests. See Selective Ins. Co. of Southeast v. J.B. Mouton & Sons, Inc., 954 F.2d 1075, 1078-80 (5
By characterizing defendants claims as solely involving incorporeal, economic losses, Scottsdale ignores that in this matter, defendants have alleged physical injury to tangible property and loss of use of tangible property, out of which additional consequential damages flowed. Again, defendants contend application of Newpath to Wild Farms' rice field resulted in physical damage and loss of use of tangible property — i.e., the rice crop and crawfish crop.
Finally, the Court notes the type or measure of damages is not dispositive of whether or not coverage is afforded; rather, the pertinent inquiry is whether there was an occurrence which resulted in "property damage" as defined in the policy. See e.g. Ferrell v. W. Bend Mut. Ins. Co., 393 F.3d 786, 795 (8
In this matter, defendants have pointed to evidence in the record showing there is an issue of material fact warranting trial, namely, whether the occurrence (i.e. the misapplication of Newpath) caused physical injury and/or loss of use of the rice crop and the crawfish crops. Regardless of how the underlying damages were calculated, the pertinent question as to whether coverage is available is whether there was "property damage" as defined in the policy. For the reasons set forth above, the Court finds Scottsdale has failed to show it is entitled to summary judgment in its favor as a matter of law under Section I, Coverage A, on the basis that "there was no `property damage' to `tangible property.'" [Doc. 18-2, p. 14] Having concluded defendants' claims for "property damage" trigger the initial grant of coverage under Scottsdale's insuring agreement, the Court turns to whether coverage is precluded by Exclusion (j)(6).
Scottsdale contends Exclusion (j)(6) ("Damage To Property") precludes coverage "for corporeal property damage arising from the incorrect performance of TLS's work." [Doc. 18-2, p. 17]
The exclusion reads in pertinent part as follows:
[Doc. 18-5, pp. 9, 11, 12]
The policy defines "Products-completed operations hazard" in pertinent part as follows:
[Doc. 18-5, p. 22]
Exclusion (j)(6) applies "while the insured's work is in process, i.e., the work is not yet completed."
Accordingly, under the reasoning of Supreme Services, Scottsdale's policy extends coverage to defendants depending upon whether or not their work was completed at the time of the occurrence. Prior to completion, the policy unambiguously excludes coverage for all damages arising out of defendants' incorrectly performed work. However, once the work is completed, "a claim cannot fall within Exclusion (j)(6)," as the PCOH provision of the policy provides coverage for any damages caused by defendants' faulty work, except the cost to repair the faulty work itself. Martco at 880.
Scottsdale contends PCOH coverage is not available, because "the complained of damage occurred before TLS's work was completed." [Doc. 18-2, p. 19 (emphasis omitted)] According to Scottsdale, "Louisiana jurisprudence has not addressed the question presented here, i.e. when TLS's field spraying work was `complete' for purposes of PCOH Coverage." [Doc. 18-2, p. 19] Accordingly, Scottsdale cites two non-binding cases to support its position: Brake Landscaping & Lawncare, Inc. v. Hawkeye-Sec. Ins. Co., 625 F.3d 1019 (8
In Brake, an insured lawn care company brought suit against its liability insurers, seeking coverage for costs it incurred in resodding and reseeding its customers' lawns after its employee mistakenly sprayed the lawns with a non-selective herbicide. Id. at 1021. The employee applied the incorrect herbicide to its customers' lawns over an eight day period. Id. Once the incorrect herbicide was applied, it would "immediately begin[] to kill the plant, although actual plant death usually does not occur until seven to ten days later." Id. On the final day of his work, the employee discovered the mistake "and identified which properties had been affected by driving by customers' properties to see if their lawns were displaying signs of dead vegetation." Id. Affirming the trial court, the Eighth Circuit found Exclusion (j)(6) applied, because the damage to the lawns was caused by the insured's incorrect performance of its work. Id. at 1023. The court further found the PCOH exception to exclusion (j)(6) did not apply, because the property damage occurred prior to completion of the work. Id. at 1024.
I.G.H. involves a virtually identical fact pattern to Brake. In I.G.H., an Ohio court rejected the insured's argument that the PCOH exception applied to Exclusion (j)(6) "because the grass did not immediately die." Rather, the Court found that "[a]lthough the grass did not instantly die, the grass could not recover from the . . . [insured's] application of [the non-selective herbicide]." Id. at *4. The opinion of the Ohio court gives no indication of when the damage was discovered (i.e., during the work, or subsequent thereto).
Based on the foregoing jurisprudence, Scottsdale concludes:
[Id. at 21 (alterations in original; quoting Doc. 18-5, p. 22)]
Contrarily, defendants contend their work was completed at the time the damage occurred and therefore PCOH coverage is triggered. According to defendants, there is no need to look to non-binding jurisprudence to determine when TLS' spraying work was completed for PCOH coverage, as "Scottsdale's Policy defines when the work was "complete" for purposes of PCOH Coverage." [Doc. 24, p. 16] Because "[a]ll of the spraying required by contract was complete on May 6, 2014," defendants contend under the plain language of the policy its work was complete on that date. [Doc. 24, p. 16 (emphasis omitted)] Citing a leading Louisiana treatise, defendants argue coverage under the policy "is triggered when `property damage'
The Court agrees with defendants' position that coverage in this matter was not triggered until the property damage manifested. There are two prevailing theories under Louisiana law as to "whether an `occurrence' occurs during a policy period of insurance coverage," to wit: the exposure theory (upon which Scottsdale implicitly relies) and the manifestation theory (upon which defendants rely). Eagle Pipe and Supply, Inc. v. Amerada Hess Corp., 79 So.3d 246, 278, n.75 (La. 2011). As explained by the Louisiana Supreme Court in Eagle Pipe:
Id. (citations omitted). While the Louisiana Supreme Court has not specifically adopted either theory in the context of commercial general liability policies, the clear weight of authority in more recent cases adopts the manifestation theory. See Rando v. Top Notch Properties, L.L.C., 879 So.2d 821, 833 (La. App. 4 Cir. 2004); Oxner v. Montgomery, 794 So.2d 86, 92-93 (La. App. 2 Cir. 2001); Clarendon America Ins. Co. v. Southern States Plumbing, Inc., 803 F.Supp.2d 544, 548 (W.D.La. 2011); XL Specialty Ins. Co. v. Bollinger Shipyards, Inc., 57 F.Supp.3d 728, 751 (E.D.La. 2014); Liberty Mut. Ins. Co. v. Jotun Paints, Inc., 555 F.Supp.2d 686, 696-97 (E.D.La. 2008).
In this matter, defendants' work was complete on May 6, 2014, at which time Wild Farms and Demand Quality had a reasonable expectation of full use of the rice field. Defendants have pointed to evidence in the record showing the damage to the rice crop did not manifest until several days after completion of the work. [Doc. 24-2, ¶¶ 3-7] Unlike the Brake case cited by Scottsdale where the damages were discovered prior to completion of the work, in this matter there is evidence supporting defendants' position that the property damage was not discovered until several days after completion of all work called for under the contract. Again, Scottsdale "bears the burden of proving the applicability of an exclusionary clause within a policy." Estate of Santiago, 870 So.2d at 1010. By its own terms, Exclusion (j)(6) "does not apply to `property damage' included in the `products-completed operations hazard.'" [Doc. 18-5, p. 12] As defendants have pointed to evidence in the record supporting their position that the property damage did not occur until all of the work called for in TLS's contract had been completed, the Court finds Scottsdale has failed to carry its burden and show Exclusion (j)(6) negates coverage in this matter.
Scottsdale contends the policy provides no coverage to Helena as an additional insured, because the additional insured endorsement allows coverage to Helena only for liability for property damage arising out of TLS's acts or omissions, or the acts or omissions of persons acting on TLS's behalf. [Doc. 18-2, p. 22] Scottsdale reasons because the policy affords no coverage to TLS (by virtue of Exclusion (j)(6)), the additional insured endorsement is not triggered, and therefore Helena has no coverage for the underlying claims. [Id. at 23-24] As the Court has found Exclusion (j)(6) is inapplicable under the facts of this case, the Court finds Scottsdale has not shown summary judgment in its favor is warranted with regard to Helena's claim for indemnification.
Scottsdale seeks dismissal of defendants' claims for penalties under La. R.S. 22:1892 and 1973. La. R.S. 22:1892 sets forth various duties imposed upon insurers with regard to payment and adjustment of claims, including: (1) a duty to "pay the amount of any claim due an insured within thirty days after receipt of satisfactory proof of loss"; (2) a duty to "initiate loss adjustment of a property damage claim . . . within fourteen days after notification of loss by the claimant"; and (3) a duty to "make a written offer to settle any property damage claim, including a third-party claim, within thirty days after receipt of satisfactory proofs of loss of that claim." La. R.S. 22:1892(A). Failure to comply with duties (1) and/or (3) "shall subject the insurer to a penalty, in addition to the amount of the loss, of fifty percent damages on the amount found to be due from the insurer to the insured, or one thousand dollars, whichever is greater," provided such failure "is found to be arbitrary, capricious, or without probable cause." Id. at (B)(1). Failure to comply with duty (3) exposes an insurer to the penalties set forth in La. R.S. 22:1973. Id. at (A)(3).
La. R.S. 22:1973 provides that an insurer owes its insured "a duty of good faith and fair-dealing," and has "an affirmative duty to adjust claims fairly and promptly and to make a reasonable effort to settle claims with the insured." La. R.S. 22:1973(A). "Failing to pay a settlement within thirty days after an agreement is reduced to writing[,] . . . [f]ailing to pay the amount of any claim due any person insured by the contract within sixty days after receipt of satisfactory proof of loss from the claimant when such failure is arbitrary, capricious, or without probable cause[, and] [f]ailing to pay claims pursuant to R.S. 22:1893 when such failure is arbitrary, capricious, or without probable cause" each constitute a breach of the insurer's duties under this statute, "if knowingly committed or performed by an insurer." Id. at (B). An insurer who breaches the foregoing duties is exposed to "damages to which the claimant is entitled for breach of the imposed duty," as well as "penalties . . . in an amount not to exceed two times the damages sustained or five thousand dollars, whichever is greater." Id. at (C).
Scottsdale contends defendants' claims for statutory penalties pursuant to La. R.S. 22:1892 and La. R.S. 22:1973 must be dismissed, because "there is no possibility of coverage under the Policy." [Doc. 18-2, p. 28] In its reply brief Scottsdale adds, "If the Court determines that coverage fails under the Policy, by definition Scottsdale did not act arbitrarily or capriciously, thus foreclosing on an element of Defendants' prima facie case and mooting their claims" [Doc. 38, p. 10] No other argument is asserted by Scottsdale as to the inapplicability of the penalty provision statutes.
Because the Court has found Scottsdale has failed to show there is no possibility of coverage under the Policy, summary judgment in its favor on the penalty claims is not warranted on the grounds argued.
For the reasons set forth above, the motion for summary judgment filed by Scottsdale Insurance Company [Doc. 18] is DENIED in its entirety.
15 WILLIAM SHELBY McKENZIE & H. ALSTON JOHNSON, III, LA. CIVIL LAW TREATISE, INSURANCE LAW & PRACTICE § 6:9, n. 34 (4th ed. 2012); see also Supreme Servs. at 644.
