RICHARD L. VOORHEES, District Judge.
This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332(a)(1). In a diversity case, a district court will apply the conflict of laws rules of the forum state. Klaxon v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496-97, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). North Carolina statutory law specifies that any policy insuring interests in North Carolina "shall be deemed" to have been made in and subject to the laws of North Carolina. N.C. Gen. Stat. § 58-3-1; see also Fortune Ins. Co. v. Owens, 132 N.C. App. 489, 512 S.E.2d 487, 489 (1999) aff'd 351 N.C. 424, 526 S.E.2d 463 (2000). Therefore, North Carolina insurance law and contract interpretation principles will be applied to the present matter.
On January 20, 2010, all Defendants consented to ACE's removal of New NGC, Inc. v. ACE American Insurance Co., No. 09-29981 (N.C.Super. Ct., filed Dec. 16, 2009) from the Superior Court of Mecklenburg County to federal court. (Doc. 1). Following the submission of several motions to dismiss, Plaintiff NGC filed its Amended Complaint against Defendants ACE and National Union, as well as American Guaranty & Liability Insurance Co. ("AGLI"), Liberty Insurance Underwriters, Inc. ("Liberty"), and Lumbermens Mutual Casualty Co. ("Lumbermens"). (Doc. 64). AGLI, Liberty, and Lumbermens are no longer parties to this lawsuit. (Docs. 101, 120, 124).
NGC operates a fully integrated building products manufacturing business from its headquarters in Charlotte, North Carolina. (Doc. 64, at 3). In this business, NGC has become one of the leading producers of domestically manufactured drywall in this country. (Id.). ACE and National Union (collectively "Defendants") are insurance companies that issued commercial general liability insurance policies covering NGC's liabilities arising from their business. (Id.). The policy types and coverage periods provided by the Defendants are reproduced below.
Policy Number Policy Period Type G2169477Q 11/1/2003-11/1/2004 Primary G21708227 11/1/2004-11/1/2005 Primary G205S7623 11/1/2005-11/1/2006 Primary HDOG21733027 11/1/2006-11/1/2007 Primary HDOG23735131 11/1/2007-11/1/2008 Primary HDO G23746773 11/1/2008-11/1/2009 Primary HDO G23746773 11/1/2009-11/1/2010 Primary XSLG20587398 11/1/2002-11/1/2003 Excess
G237S9504 11/1/2006-11/1/2007 Excess G23887423 11/1/2007-11/1/2008 Excess G24638170 11/1/2008-11/1/2009 Excess
(Doc. 64 at 4.)
Policy Number Policy Period Type RMGL 143-67-67b 1/1/1993-1/1/1994 Primary RMGL 143-67-68 1/1/1993-1/1/1994 Primary RMGL 139-52-49 1/1994-1/1/1995 Primary RMGL 139-52-50 1/1/1994-1/1/1995 Primary RMGL 139-99-60 1/1/1995-1/1/1996 Primary RMGL 121-52-86 1/1/1996-1/1/1997 Primary RMGL 143-80-57 1/1/1997-1/1/1998 Primary RMGL 113-56-58 1/1/1998-1/1/1999 Primary BE297783 11/1/2003-11/1/2004 Umbrella BE2978279 11/1/2004-11/1/2005 Umbrella BE44S4996 11/1/2005-11/1/2006 Umbrella 4485755 11/1/2006-11/1/2007 Umbrella 9835294 11/1/2007-11/1/2008 Umbrella 2227033 11/1/2008-11/1/2009 Umbrella
(Id.)
In 2009, at the outset of this suit, NGC faced a flurry of individual and putative class action lawsuits (the "Drywall Lawsuits") alleging wrongdoing by NGC.
Defendants have maintained a position of non-coverage relieving them of any duty to defend NGC against the Drywall Lawsuits. NGC argues that the Drywall Lawsuits are covered by Defendants' insurance policies and that it timely tendered the Drywall Lawsuits and otherwise complied with all material obligations as an insured party to the policies.
In this suit, NGC alleges breach of contract by Defendants for failure to comply
Defendants move to dismiss, or alternatively, stay these proceedings pursuant to Federal Rule of Civil Procedure 12(b)(1) and 9 U.S.C. § 3, on the basis that the subject of this dispute is governed by mandatory and enforceable arbitration agreements. (Doc. 30, at 1); (Doc. 36, at 1). At issue are the National Union umbrella policies
The Federal Arbitration Act ("FAA") provides that a written agreement to arbitrate in a contract "`shall be valid, irrevocable, and enforceable ...'" Patten Grading & Paving, Inc. v. Skanska USA Bldg., Inc., 380 F.3d 200, 204 (4th Cir.2004) (quoting 9 U.S.C. § 1 et seq.). The FAA thus requires arbitration of "any issue referable to arbitration under an agreement in writing for such arbitration." 9 U.S.C. § 3. Federal courts have a strong policy of favoring arbitration clauses and enforcing them. See Patten Grading & Paving, Inc., 380 F.3d at 204 ("As a result of this federal policy favoring arbitration, `any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.'") (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983)).
The Court finds, and NGC concedes (Doc. 53, at 5), that the parties' disagreement as to the interpretation of the pollution exclusion contained within the National Union umbrella policies, thereby implicating the ACE excess policies, is subject to mandatory and enforceable arbitration. However, the Court finds that dismissal pursuant to FRCP 12(b)(1) is improper because NGC's claim for defense costs from National Union and ACE under the primary policies is not subject to arbitration and must be adjudicated by this Court.
NGC seeks partial summary judgment against the Defendants on the basis that Defendants breached their contractual duty to defend NGC against the Dry wall Lawsuits.
A court must grant a motion for summary judgment if the pleadings, depositions, and affidavits submitted show that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R.Civ.P. 56(c). While the movant bears the initial burden of demonstrating that there are no genuine issues of material fact, once that burden has been met, the non-moving party must demonstrate that a genuine issue of material fact actually exists. Bouchat v. Baltimore Ravens Football Club, Inc., 346 F.3d 514, 521 (4th Cir.2003); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). In this case, the parties have filed cross-motions for summary judgment. Therefore, this Court must review each motion separately to determine whether either of the parties deserves judgment as a matter of law. Fed.R.Civ.P. 56(c); Rossignol v. Voorhaar, 316 F.3d 516 (4th Cir.2003) (quoting Philip Morris Inc. v. Harshbarger, 122 F.3d 58,
The meaning of the language used in an insurance policy is a question of law and the rules for determining the meaning "have long been established." Wachovia Bank & Trust Co. v. Westchester Fire Ins. Co., 276 N.C. 348, 172 S.E.2d 518, 522 (1970) (citations omitted). An insurance policy is considered a contract and North Carolina adheres to the plain meaning rule. If the policy language is clear, courts are duty-bound to interpret it accordingly "`without rewriting the contract or disregarding the express language used... The duty is a solemn one, for it seeks to preserve the fundamental right of freedom of contract.'" Rouse v. Williams Realty Bldg. Co., Inc., 143 N.C. App. 67, 544 S.E.2d 609, 612 (2001) (quoting Kruger v. State Farm Mut. Auto. Ins. Co., 102 N.C. App. 788, 403 S.E.2d 571, 572 (1991)); see also Allstate Ins. Co. v. Shelby Mut. Ins. Co., 269 N.C. 341, 152 S.E.2d 436, 440 (1967). A corollary of this rule is that defined terms must be given their defined meaning "unless the context clearly requires otherwise." Westchester Fire Ins. Co., 172 S.E.2d at 522. Undefined and nontechnical terms "are to be given a meaning consistent with the sense in which they are used in ordinary speech, unless the context clearly requires otherwise." Id. When such a term "has more than one meaning in its ordinary usage ... it is to be given the meaning most favorable to the [insured]" because the insurer selected the word for use. Id. Where the meaning of a word is not clearly indicated by the context in which it is used, "resort may be had to other portions of the policy and all clauses of it are to be construed, if possible so as to bring them into harmony." Id. "Each word is deemed to have been put into the policy for a purpose" and is to be given effect, if possible, by any reasonable construction. Id.
"An ambiguity exists in a contract when either the meaning of words or the effect of provisions is uncertain or capable of several reasonable interpretations." Schenkel & Shultz, Inc. v. Hermon F. Fox & Associates, P.C., 362 N.C. 269, 658 S.E.2d 918, 921 (2008) (quoting Register v. White, 358 N.C. 691, 599 S.E.2d 549, 553 (2004)). North Carolina courts construe ambiguous terms and phrases in favor of the insured. Id. Specifically, coverage provisions are liberally construed and exclusions are strictly construed. Harleysville Mut. Ins. Co. v. Buzz Off Insect Shield, L.L.C., 364 N.C. 1, 692 S.E.2d 605, 612 (2010).
A duty to defend exists if the policy so provides. Brown v. Lumbermens Mut. Cas. Co., 326 N.C. 387, 390 S.E.2d 150, 152 (1990). North Carolina uses the "comparison test" to determine whether an insurer is required to defend its insured. Under this test, the policy and the complaint are read side-by-side to decide whether the events as alleged are covered or excluded. Buzz Off, 692 S.E.2d at 610. It is axiomatic that the duty to defend is broader than the duty to indemnify. The duty to defend is measured by the facts as alleged in the pleadings while
Four issues have emerged in the documents submitted by the parties, disposition of which will resolve the cross-motions for summary judgment before this Court. ACE disclaims any duty to defend NGC arguing that Pollution Exclusions contained in their policies exclude coverage. In addition to the Pollution Exclusion argument, ACE claims that NGC has failed to exhaust required self-insured retention amounts that are a prerequisite to coverage by ACE. National Union disclaims any duty to defend NGC arguing that the claims of the Drywall Lawsuits post-date National Union's primary policy period of coverage. Additionally, National Union argues that it is not liable for any defense costs incurred prior to June 18, 2010, the date they claim NGC tendered notice of the Drywall Lawsuits.
North Carolina law determines an insurer's duty to defend by application of the "comparison test." Buzz Off, 692 S.E.2d at 612. A side-by-side placement of the insurance policy and the allegations contained in the underlying complaint, which are presumed to be true, leads to the conclusion that ACE did have a duty to defend NGC against the Drywall Lawsuits. The ACE policy and Yee complaint are reproduced below:
ACE Coverage Grant: Corresponding Yee Allegation: "Agrees to pay those sums that the insured The Yee complaint alleges that NGC's becomes legally obligated to pay as damages drywall is defective and that it caused: because of bodily injury or property damage to which this insurance applies. We have the right and duty to defend any suit seeking those damages." "bodily injury" "dangerous health consequences, including respiratory problems, sinus problems, eye irritation and nose bleeds" Or "property damage" "Damage to home structure and mechanical systems, such as, copper piping, refrigeration coils, A-C coils, and electrical wiring, as well as personal and other property such as personal electronics, appliances, and jewelry." "suit seeking those damages." "Repairing the damage caused by NGC's defective conduct will cost homeowner's throughout the U.S. millions of dollars."
The pollution exclusion provides:
(Doc. 103-4, at 37) (emphasis added).
ACE asserts that the language of the exclusion is unambiguous and must be given its plain and ordinary meaning. ACE argues that injuries and damages alleged in the Yee complaint clearly fall within the pollution exclusion because: (1) released sulfur qualifies as pollution because it is a substance that makes the environment impure, harmful, or dangerous; (2) the air of the home qualifies as the environment because it is the air of a structure; and, (3) the injuries and damages alleged in the Drywall Lawsuits against NGC were caused by this pollution of the environment.
NGC argues that defining pollution in such a broad manner is impermissible and that the pollution exclusion only operates to exclude coverage of what are understood to be traditional environmental pollution claims. Further, NGC asserts that the terms of the exclusion are ambiguous and require a pro-insured and pro-coverage construction by the Court that result in coverage under ACE policies.
The pollution exclusion has taken several forms since its inception in the late sixties. Martha A. Kersey, Exclusions Under Coverage A of a Standard CGL Policy, in 3-18 Appleman on Insurance Law & Practice, Commercial Gen. Liability Ins. § 18.03[6] (Matthew Bender & Co., Inc., 2015). At first insurers used what can be referred to as the "sudden and accidental" exclusion. Id. Considerable amounts of litigation resulted over the interpretation of this exclusion and ultimately insurers drafted what has been known as the "absolute" pollution exclusion. Id. The instant litigation appears to involve a newer form of the pollution exclusion.
NGC relies upon West American Ins. Co. v. Tufco Flooring East, Inc., 104 N.C. App. 312, 409 S.E.2d 692 (1991), overruled in part by Gaston Cnty. Dyeing Mach. Co. v. Northfield Ins. Co., 351 N.C. 293, 524 S.E.2d 558 (2000) and Auto-Owners Ins. Co. v. Potter, 105 Fed.Appx. 484 (4th Cir.2004) (unpublished) to support its argument that coverage exists. More particularly, NGC argues that the Court should not construe the exclusion to apply to matters that fall within its "core business" and that the clause should be interpreted to cover only prototypical environmental pollution. ACE relies on two opinions written by Judge Britt of the Eastern District, Whiteville Oil Co., Inc.
In Tufco, the North Carolina Court of Appeals, in an opinion authored by Judge Wynn (now of the Fourth Circuit), held that "four independent grounds" supported its conclusion that an insurer's pollution exclusion provision did not bar coverage. 409 S.E.2d at 695. The insured, Tufco, was engaged in the floor resurfacing business. Id. at 693. At a job, fumes or vapors from its resurfacing products came into contact with chicken in a cooler. Id. NGC's arguments relate to the second, third, and fourth holdings.
Specifically, in the second holding, the Court of Appeals found that the exclusion at issue was ambiguous because of the "interrelationship between the completed operations coverage and the pollution exclusion clause." Id. at 697.
The third holding of Tufco was that, under the terms of the pertinent exclusion, the raw material brought to the jobsite did not qualify as a "pollutant." Id. at 698. The Court of Appeals analyzed the term "pollutant" which was defined as "irritant or contaminant" in the context of the surrounding subparagraphs, which referred to waste material. Id. Given the juxtaposition to waste and the fact that the dictionary indicated that it was something impure or unwanted, the Court held that the resurfacing material did not qualify as a pollutant "brought on or to the site." Id.
The fourth holding of Tufco was that "the pollution exclusion applies only to discharges into the environment." Id. at 699. The Court of Appeals found that "both the historical purpose underlying the pollution exclusion and operative policy terms indicate that a discharge into the environment is necessary for the clause to be applicable." Id. The Court of Appeals summarized the history of the pollution exclusion by noting that the "sudden and accidental" pollution exclusion applied "only to discharges of pollutants `into or upon land, the atmosphere or any water course or body of water.'" Id. (quoting Waste Management of Carolinas, Inc. v. Peerless Ins. Co., 315 N.C. 688, 340 S.E.2d 374, 379 (1986)). Prior Supreme Court precedent interpreting the "sudden and accidental" exclusion recognized that the "practical reason for the pollution exclusion is to avoid `the yawning extent of potential liability arising from the gradual or repeated discharge of hazardous substances into the
In Potter, the Fourth Circuit reversed a grant of summary judgment in favor of an insurer because the district court improperly applied the final holding of Tufco. The district court failed to interpret the terms "discharge, dispersal, seepage, migration, release or escape" as environmental terms of art. 105 Fed.Appx. at 494. Specifically, the Fourth Circuit stated "[w]e are bound to follow Tufco's determination that the clause at issue constitutes a series of terms of art." Id. at 495. Accordingly, the Fourth Circuit held that claims "which expressly sound as claims of traditional environmental discharge" were barred by the pollution exclusion and claims such as "distribution of an adulterated product and the insured's attendant negligence and breach of warranties" were not barred. Id. at 497.
In Whiteville, petroleum fumes from the insured's service station allegedly permeated a nearby restaurant. 889 F.Supp. at 243. The insurer denied that it had a duty to defend under the policy issued, citing an "absolute" pollution exclusion similar to that present in Tufco. Id. at 244-45. The pertinent holding simply stated that the claims fell within the plain meaning of the exclusion. Id. There was no discussion of ambiguity or Tufco. Id.
In Triangle Paving, the insured was a construction company. 973 F.Supp. at 561. During the course of a job, sediment dislodged and ended up in downstream water on private property. Id. at 562. At issue in the case was whether an "absolute" pollution exclusion similar to that present in Tufco barred coverage. Id. The insured argued that sediment was not the type of traditional environmental pollutant that could fall within the exclusion and the insurer argued that the plain meaning of the exclusion should control. Central to the Court's holding that sediment qualified as a pollutant was the existence of Sedimentation Pollution Control Act, N.C. Gen. Stat. §§ 113A-50 to -66, which stated in clear terms that sedimentation qualified as pollution. Id. at 563-64. The Court noted that the insured knew of this treatment because it had to comply with city sedimentation control standards. Id. at 564. The insured attempted to argue that it "d[id] not regard ordinary sediment runoff to qualify as a pollutant" and, therefore, the definition of pollutant was ambiguous. Id. at 565. The Court responded that "[t]his argument is tautological and defies common logic. If defendant's reasoning were adopted, an insured could always create an ambiguity by claiming that it did not interpret an exclusion to apply to its particular conduct. Ambiguities cannot be manufactured so easily." Id. Further, the insured argued that not allowing coverage would contravene the very essence of the policy. Id. at 566. The Court rejected this argument, stating that the policy issued was a commercial general liability policy and not crafted to spread the risk of a specific concern. Id. The Court distinguished
Consistent with Fourth Circuit's guidance in Potter, this Court will consider all relevant holdings of Tufco in conjunction with general principles of construction in order to determine whether the instant exclusion bars coverage.
Central to the second holding, and a predicate to the "central business activity" analysis, is the finding of an ambiguity. The Court does not find an ambiguity in the instant pollution clause. NGC attempts to mesh separate holdings of Tufco together by arguing that its drywall does not qualify as a "pollutant"; however, this relates to terms not present in the instant policy and is solely applicable to the third holding. Many of NGC's arguments concern the breadth of the exclusion, not its ambiguity. Accordingly, the Court finds that Tufco's second holding does not prohibit the application of the pollution exclusion.
Tufco's third holding related to whether raw material qualified as a pollutant under the terms of the pollution exclusion in that case. Here, the policies differ between the two cases such that a meaningful analysis of this holding is immaterial to the terms in the present case. Whether or not the drywall qualifies as a pollutant for purposes of the policy in Tufco is not binding on this Court. This is because the sulfur certainly qualifies as a harmful or dangerous "substance" "introduce[ed]" into "structure[s]."
The Court again notes the differences between the instant exclusion and the "absolute" pollution exclusion present in Tufco. Environmental terms of art such as discharge or dispersal are not present in the instant exclusion. Rather, the phrase "presence in or introduction into the environment of any substance, if such substance... is alleged to have the effect of making the environment impure, harmful, or dangerous." is the operative language. NGC does not argue, and the Court has not found, any authority suggesting that these terms can be construed as environmental terms of art. Further buttressing this conclusion is the fact that both "environment" and "substance" are defined terms. If these terms are given their defined meaning, then there would unquestionably be no duty to defend. The sulfur released qualifies as "pollution" because it is a substance that makes the environment impure, harmful, or dangerous. The air of the home qualifies as the environment because it is the air of a structure. Therefore, the injuries and damages alleged in the Drywall Lawsuits against NGC were caused by pollution of the environment according the terms of the exclusion.
The only way to reach a contrary result would be to determine that "the context clearly requires" a separate definition to be used. Westchester Fire Ins. Co., 172 S.E.2d at 522. The Court notes that North Carolina law is very specific in this matter:
Notwithstanding this declaration, the Court notes that North Carolina precedent has not unwaveringly followed this rule with respect to insurance contracts. See Great Am. Ins. Co. v. C.G. Tate Const. Co., 303 N.C. 387, 279 S.E.2d 769, 773 (1981) (departing from a "strict contractual approach" with respect to notice provisions); Mims v. Mims, 305 N.C. 41, 286 S.E.2d 779, 788-89 (1982) (characterizing Tate as a case where the North Carolina Supreme Court "rejected older rules which the Court itself developed in order that justice under the law might be better achieved."); Tufco, 409 S.E.2d at 698-700; Henderson v. Rochester American Insurance Co., 254 N.C. 329, 118 S.E.2d 885 (1961); Kersey, supra, § 18.03[6][c] (stating that the majority holds that the "absolute" pollution exclusion only applies to traditional environmental pollution while the minority applies a plain meaning approach). Even though Great Am. Ins. Co. abandoned a strict contractual approach, it did not modify the "risk undertaken by the insurer." 279 S.E.2d at 774. The Court is persuaded that construing this exclusion in a manner to afford coverage would effectively rewrite the contract to favor one sophisticated commercial entity over another. It would also significantly expand the scope of the risk undertaken by ACE. Under North Carolina law, this Court must not do so. This Court agrees with Judge Britt by rejecting the argument advanced by NGC: merely because NGC purportedly believed that this type of scenario would be covered does not create an ambiguity in the policy itself. NGC, like all parties, has a duty to read the contracts it enters into. State Farm Mut. Auto. Ins. Co v. Atlantic Indem. Co., 122 N.C. App. 67, 468 S.E.2d 570, 572 (1996).
NGC also argues that this Court should not consider the fact that it purchased products-related pollution liability coverage with National Union during the same time period. See (Doc. 113-2, at 14, 26, 54-55). If the Court were to find an ambiguity, this information would certainly be relevant. The fact that NGC purchased an exception to a pollution exclusion in an umbrella policy that could ostensibly provide primary coverage (after satisfaction of a self-insured retention and assuming no other exclusions apply) if the instant exclusion barred coverage significantly undermines NGC's arguments regarding the breadth of the pollution exclusion and tends to show that NGC read and understood the policy to mean exactly what ACE now contends it means.
This argument involves whether NGC must pay deductibles for each triggered policy before receiving a duty to defend. This issue has not been clearly addressed by North Carolina courts. Given that the Court has already determined that a duty to defend did not exist, it declines to issue an opinion regarding ACE's stacking argument.
NGC's Motion for Partial Summary Judgment only addresses the Yee lawsuit. However, National Union's Motion for Summary Judgment also addresses certain individual lawsuits as well as what once were putative class actions in Brincku v. National Gypsum CO., No. 10-20109 (S.D.Fla.), Visintin v. National Gypsum Co., No. 0:10-cv-60266 (S.D.Fla.), Brucker v. Lowes Home Centers, Inc. et al., No. 2:10-cv-405 (M.D.Fla.), Cotilla, et. al. v. New NGC, Inc., 0:10-cv-60172 (S.D.Fla.), Johnson v. New NGC, Inc., No. 2:10-cv-206 (M.D.Fla.),
National Union argues that there is no possibility for insurance coverage under the National Union Primary Policies because the claims contained in the complaints of the Drywall Lawsuits post-date the period of coverage, which is November 1, 1993 — November 2, 1999. National Union has three arguments to support its contention. First, the earliest damages claimed by a named plaintiff in the Drywall Lawsuits is 2004. Second, the Consumer Product Safety Commission ("CPSC") remediation guidelines provide that a threshold marker of problematic drywall is that it was installed between 2001 and 2008. Third, in communications with National Union and in filing the instant suit, NGC only provided specific reference to the umbrella policies provided by National Union and failed specifically to mention the National Union Primary Policies until this Court granted NGC leave to amend the complaint on June 18, 2010, to include the National Union Primary Policies.
As an initial matter, National Union's third observation is of no consequence to this inquiry. The fact that NGC failed to refer specifically to the National Union Primary Policies until they amended their complaint may be relevant to the issue of tendering notice of the claim, but it has no bearing on whether a duty to defend existed. Whether or not a duty to defend existed turns on a comparison of the underlying complaint and the contract for insurance to determine if just one claim in the underlying complaint created a mere possibility of coverage under the insurance contract. The Court now turns to comparison of the underlying complaints with the contract for insurance.
National Union had three options once it became aware of the Yee lawsuit faced by NGC. Specifically, it could have sought a declaratory judgment; defended NGC under reservation of rights; or refused to defend. See Imperial Cas. and Indem. Co. v. Radiator Specialty Co., 862 F.Supp. 1437, 1441 (E.D.N.C.1994). At its own peril, National Union refused to defend NGC and now must prove that there is no chance that NGC's claim "even arguably developed during [NGC's] policy period." St. Paul Fire & Marine Ins. Co., 919 F.2d at 240.
The earliest date that the named plaintiffs in Yee allege injuries or damages clearly postdates the National Union Primary Policies. However, the class definition in the Yee Complaint includes "[a]ll owners and residents of homes in the United States that contain defective Drywall manufactured or sold by Defendants that emits excessive amounts of sulfur." (Doc. 81-13, at ¶ 13). This class definition is not temporally restricted.
Based on the expansive proposed class definition, National Union had a duty to defend NGC under the National Union Primary Policies. Granted, the complaints of the Drywall Lawsuits do not explicitly allege wrongdoing by NGC from 1993-1999, but this does not change the standard that governs the duty to defend an insured. National Union is stirred by what it considers to be vexatious litigation. However, its argument regarding the duty to defend may be characterized as a critique of class action lawsuits in general, the risk of which it presumably took into account when it issued these policies.
National Union's focus on the allegations of the would-be class representative is improper. As the 11th Circuit Court of Appeals explained in Hartford Acc. & Indemnity Co. v. Beaver, "the fight over class certification is often the whole ballgame." 466 F.3d 1289, 1294 (11th Cir.2006) (holding that provider of a commercial general liability policy must defend the insured prior to certification of the putative class). To allow an insurer to deny coverage based on such a narrow reading of the underlying claims would deprive the insured of the benefit of insurance coverage bargained for in the contract. Further, to focus solely on the named plaintiff in this instance would completely ignore the general notice pleading standards of the Federal Rules of Civil Procedure as well as the underlying purposes of class action litigation. Cf. Gunnells v. Healthplan Svcs., Inc., 348 F.3d 417, 424 (4th Cir.2003) (class actions promote judicial economy and efficiency by consolidating numerous individual claims into a single action).
Similarly, National Union's reliance on the CPSC guidelines
National Union argues that its primary insurance policies require NGC to tender notice of underlying claims to National Union for review for coverage and that that they were not aware of the potential for coverage pursuant to these policies until NGC sought leave to amend their complaint on June 18, 2010. Therefore, National Union asserts that it would be improper to require them to pay for any defense costs incurred prior to this claimed date for tender of notice.
In North Carolina, the duty to defend arises when the insurer receives actual notice of the underlying action. Kubit v. MAG Mut. Ins. Co., 210 N.C. App. 273, 708 S.E.2d 138, 154 (2011). However, contracts for insurance often contain notice provisions that require the insured to communicate to the insurer the occurrence of an event potentially covered by the policy. Where the insured fails to comply with a notice provision, an insurer may be relieved of its duty to defend if the insured's late notice sufficiently frustrates the insurer. Great Am. Ins. Co. v. C.G. Tate Const. Co., 303 N.C. 387, 279 S.E.2d 769, 775 (1981) (providing three-step inquiry). The instant argument does not involve whether notice was late but whether notice was given in accordance with the provisions of the contract.
The notice provision from the National Union insurance policy is reproduced below:
(Doc. 103-3, at 15-16).
NGC originally provided notice of the Yee claim when referencing the "Lake Havusa, AZ" claim. In the original notice, NGC listed several policies in effect from 2003 to 2009 but also stated "[t]his matter is reported under any and all applicable policies whether or not cited." (Doc. 116-2). When the Yee class action was filed, NGC then forwarded the complaint to National Union on October 26, 2009 and stated that "[t]his is related to the previously reported Lake Havasu AZ matter." (Doc. 116-3). The complaint itself, along with the earlier provided notice, sufficiently apprised National Union under the notice provisions of its insurance contracts.
National Union does not argue that NGC failed to comply with the requirements of the insurance contract, but instead attempts to import an additional requirement that NGC had to provide specific citation to insurance policies and years of coverage for tender of notice to be proper as to the underlying claims. Where such a particular requirement is lacking on the face of the contract at issue, this Court lacks the authority to infer it.
NGC was only required to comply with the requirements provided in the insurance contract and it was up to National Union to review the underlying suits and determine what obligations it may owe to NGC under any and all applicable policies issued by National Union, whether cited by NGC or not. Accordingly, NGC's tender of the underlying Drywall Lawsuits was sufficient to provide notice to National Union and National Union can be held responsible for defense costs incurred from that date forward.
The earliest date that an individual Drywall Lawsuit made a claim against NGC is August 15, 2006.
Now the Court analyzes whether National Union should be granted summary judgment regarding Brincku, Visintin, Brucker, Cotilla, and Johnson.
The majority of National Union's arguments regarding the scope of the class definitions simply reiterate the arguments it made in response to NGC's Motion for Partial Summary Judgment. Accordingly, the Court will not look solely to the allegations regarding the putative class representative to determine whether the duty to defend is triggered. Further, the Court will not allow National Union to use the CPSC to determine unilaterally that it has
The Court will, however, address new arguments made by National Union. National Union argues that "the Cotilla and Johnson complaints assert that National Gypsum's drywall was used in the construction of homes `between 2004 and present,' thus limiting the time period in question to drywall installed in 2004 and later and making it irrelevant that the class definition does not repeat this temporal limitation." (Doc. 126, at 15) (citing Doc. 81, Ex. K and L, ¶ 67; Doc. 81, at ¶ 81). National Union argues that American Mfrs. Mut. Ins. Co. v. Morgan, 147 N.C. App. 438, 556 S.E.2d 25 (2001) compels this conclusion. NGC failed to respond to this argument in its response and instead merely addressed the Morgan case in response to the allegations in the Yee and Brucker complaints. See (Doc. 129, at 7, 10). In fact, NGC affirmatively states that "[a]t the heart of the matter are two putative class actions against NGC" and references Yee and Brucker. (Doc. 129, at 2 & n. 1). However, National Union still has not carried its burden with respect to these two actions. This allegation does not necessarily exclude coverage because it does not operate to limit other allegations or define what "drywall" is for the purposes of the respective complaints. See Washington Housing Authority v. North Carolina Housing Authorities Risk Retention Pool, 130 N.C. App. 279, 502 S.E.2d 626, 629 (1998) (no duty to defend where there are allegations of fact which would necessarily exclude coverage) (citation and quotation omitted). Further, it merely provides context and does not operate to limit the class action allegations, which remain temporally unrestricted. For example, a court considering whether notice was appropriate for these proposed classes would not limit notice to those homeowners who purchased drywall after 2004 based on these allegations. Fed.R.Civ.P. 23(c)(2)(B) (providing that the court "must direct notice to class members ... including individual notice to all members who can be identified through reasonable effort."); see In re Chinese-Manufactured Drywall Products Liab. Litig., No. 09-08030, 2013 WL 499474, at *9 (E.D.La. Feb. 7, 2013) (certifying drywall settlement class under 23(b)(3)). Moreover, the 2004 date of installation of the drywall does not necessarily mean that the drywall was manufactured in 2004.
National Union makes a new argument with respect to Brincku. Brincku was originally filed on January 12, 2010 as a temporally unrestricted class action lawsuit. See (Doc. 81-8, at ¶ 62). The complaint in Brincku was amended on June 24, 2010. (Doc. 81-9). The amended Brincku action limited the classes who had received drywall that originated in NGC's Apollo Beach Plant. (Id. at ¶ 59). NGC admits that the Apollo Beach plant did not begin operations until 2001. (Doc. 85, at ¶ 4). Accordingly, the allegations of the amended Brincku action necessarily exclude coverage.
National Union reiterates its tender argument by stating that NGC had an affirmative obligation to cite to the pertinent policies in order to trigger to the duty to defend. The policies merely require notice of the claim and do not impose an affirmative obligation upon NGC to cite a particular policy number. Accordingly, the Court will not construe the policies to require such an obligation on the part of NGC, especially given that such a construction would amount to the Court implying additional conditions for the insured to perform, which is contrary to North Carolina's pro-insured methods of construction.
Accordingly, the Court refuses to hold that NGC is only entitled to its defense costs after June 18, 2010.
Also before the Court is Plaintiff's Motion for Pretrial Conference (Doc. 141) to which ACE consents (Doc. 142). For the reasons therein, the motion is
