Am. Home Assurance Co. v. Kbe Bldg. Corp.
| Decision Date | 13 January 2015 |
| Docket Number | Civil No. CCB-13-1941 |
| Parties | AMERICAN HOME ASSURANCE CO. v. KBE BUILDING CORP. |
| Court | U.S. District Court — District of Maryland |
KBE Building Corporation ("KBE") incurred substantial costs in repairing its subcontractors' defective construction of two buildings. It subsequently sought reimbursement for those expenses from its insurer, American Home Assurance Company ("American Home"). American Home sued, seeking a declaratory judgment that it was not liable under the commercial general liability policies it had sold KBE. KBE counterclaimed, seeking its own declaratory judgment and alleging breach of the policies, as well as a host of alternative contractual, quasi-contractual, and tort claims. American Home now moves for summary judgment. In addition, several individuals subject to subpoenas issued by American Home have moved to quash those subpoenas. All these motions have been fully briefed and no hearing is necessary to their resolution. See Local Rule 105.5 (D. Md. 2014).1 For the reasons explained below, American Home's motion for summary judgment will be granted in part and denied in part, Marshall Taylor's motion to quash will be granted, William Watkins' motion to quash will be denied without prejudice, and KBE's motion to quash or for a protective order will be denied without prejudice.
KBE, formerly known as Konover Construction Corporation, is a general contractor. (See Countercl. 1, ECF No. 7; Answer Countercl. 1, ECF No. 20.) In 2006, KBE purchased from American Home, an insurer, a commercial general liability policy to cover the period between June 1, 2006, and June 1, 2007. (See Mot. Summ. J., Ex 3, Galardi Aff. 1, ECF No. 43-4; Opp. Mot. Summ. J., Ex. 25, 2006 Policy, ECF No. 61-26.) The following year, KBE purchased from American Home another such policy, this one to cover the period between June 1, 2007, and June 1, 2008. (See Galardi Aff. 1; Galardi Aff., Ex 3G, 2007 Policy, ECF No. 43-11.) Those policies, which were identical in all relevant respects, limited coverage to $1,000,000 per incident, $2,000,000 in the aggregate for "products-completed operations," and an additional $2,000,000 in the aggregate for all other claims. (See 2006 Policy 2; 2007 Policy 2.) In total, KBE paid over $760,000 for the two policies. (See 2006 Policy 1; 2007 Policy 1.)
During the period of coverage, Waldorf Land L.L.L.P. ("Waldorf Land") hired KBE to construct an "EZ Storage" building in Waldorf, Maryland. And Gainesville Land L.L.L.P. ("Gainesville Land") hired the firm to construct another "EZ Storage" building in Prince William County, Virginia. KBE completed the Waldorf building in early 2008 and the Gainesville building in mid-2007.
Dissatisfied with KBE's work, both Waldorf Land and Gainesville Land sued KBE, alleging that the buildings they had purchased did not match the specifications described in the construction contracts. At both sites, KBE's mason subcontractor failed to properly install grout in the interior cavities of the facilities' masonry block walls, leaving some walls with inadequatesupport and other walls with too much. (See Mot. Summ. J., Ex. 1, First Interrog. Answers 4-7, ECF No. 43-2.) Those structural deficiencies generated cracks in the exterior walls, lintels, and piers of the building, as well as the stucco, sealant, and paint applied to those walls. In addition, subcontractors failed to install adequate insulation in certain temperature-controlled floors of both buildings and failed to attach appropriately precast horizontal planks to vertical walls in both facilities. Additional defects plagued the Gainesville facility, including failure to grout plank joint connections, application of overly thin surface paving, and improper wiring of interior lighting fixtures.
In May and June 2009, KBE notified American Home that it was claiming coverage under the policies related to losses associated with both projects. (See Galardi Aff., Ex. 3A, Waldorf notes 41-42, ECF No. 43-5; Galardi Aff., Ex. 3B, Gainesville notes 30-31, ECF No. 43-6.) In the ensuing months, KBE representatives repeatedly expressed dissatisfaction with the perceived slowness of American Home's handling of its claims.
By at least early October, American Home's claims administrator, Chartis Claims, Inc., had assigned claims specialist Lane Goos to handle KBE's Waldorf claim and, by the following month, the Gainesville claim. (See Mot. Summ. J., Ex 3A, Waldorf Notes 39, ECF No. 43-5; Mot. Summ. J., Ex 3B, Gainesville Notes, 27, ECF No. 43-6.) Although Goos had many years of experience in the insurance industry, he had only begun handling construction defect claims in spring 2009. (See Opp. Mot. Summ. J., Ex. 7, Goos Dep. 10-13, ECF No. 61-8.) Whenprompted during a deposition, Goos agreed that this period of his career was "pretty overwhelming." (Goos Dep. 133.) Before his assignment to KBE's Waldorf and Gainesville claims, Goos had participated in handling on American Home's behalf a separate set of KBE claims arising out of the firm's construction of two retail stores in Port Covington, Maryland. Much like the Waldorf and Gainesville claims, those Port Covington claims involved structural defects caused by improper masonry work. Although American Home issued a reservation of rights letter as to the Port Covington claim, it ultimately reimbursed KBE not only for the costs of KBE's defense but also for KBE's expenditures in repairing the defectively constructed buildings. (See Dunn Aff. ¶ 7; Goos Dep. 128; Galardi Aff. 3.) American Home reimbursed KBE's repair expenses under the terms of the policies, decreasing the remaining aggregate coverage available to KBE. (See Galardi Aff. 3.)
On November 16, 2009, Goos participated in a conference call with Robert Dunn, KBE's General Counsel, and William Watkins, the attorney American Home had retained on KBE's behalf in the litigation pursuant to its duty to defend under the policies. In an interrogatory answer, KBE stated that Goos confirmed during that phone call that American Home had "agreed to undertake KBE's immediate defense in the Waldorf Litigation and Gainesville Litigation, and agreed to the manner in which the Claims would be handled and the construction deficiencies would be remediated and reimbursed to KBE."
In a separate affidavit, Watkins recalled that, during that call, he had emphasized the perceived weaknesses of KBE's defenses in both lawsuits and "the high potential for loss of usedamages if the repairs—particularly the structural grouting repairs—were not immediately made to the operating facilities." (Watkins Aff. ¶ 3.) Accordingly, Watkins recommended staying the lawsuits and immediately beginning repairs to the two buildings. (See Watkins Aff. ¶ 3.) He believed that participants on the call "agreed that, a) the litigation would be stayed; b) KBE would coordinate the repairs at the facilities because it was most familiar with the projects and could likely do so at substantially less cost than another contractor, including efforts to involve the original subcontractors in the repair efforts." (Watkins Aff. ¶ 3.) He also remembered that, during the call, Dunn and Goos referred to the Port Covington claims and discussed "how that project was handled and that this case should be handled in a similar fashion." (Watkins Aff. ¶ 3.) Goos, for his part, stated in a deposition that he could not remember that conference call. (See Reply Supp. Mot. Summ. J., Ex. B., Goos Dep. 50, ECF No. 62-2.) But he specifically denied having reached an agreement with KBE separate from the underlying insurance policies and could not recall ever having asked KBE to repair the two facilities. (See Goos Dep. 72-73, 115-16.)
On the basis of that phone call, KBE began to repair the two facilities. (See Dunn Aff. ¶ 6.) "Had Mr. Goos not made the commitment to KBE," Dunn stated in an affidavit, "KBE would have considered other alternatives in response to, and defense of, the Claims." (Dunn Aff. ¶ 6.) Over the next several weeks, Goos communicated with KBE about investigative and repair work performed by subcontractors and engineers. (See Opp. Mot. Summ. J., Exs. 9, 10, ECF Nos. 61-10, 61-11; Dunn Aff. ¶ 8; Waldorf notes 36-37; Gainesville notes 25.)
On January 29, 2010, American Home sent KBE two letters stating that it would be defending KBE in both matters, subject to a reservation of rights. (See Opp. Mot. Summ. J., Ex.11, ECF 61-12.) In an affidavit, Dunn stated that issuance of those letters did not indicate that KBE might not pay for repairs to the Waldorf and Gainesville facilities; after all, American Home had issued a similar letter with respect to the Port Covington claims, but still reimbursed KBE for the costs of the repairs it performed in that matter. (See Dunn Aff. ¶ 7.) American Home's non-responsiveness to KBE's references to reimbursement may have increased the firm's sense of security. In late February, for example, KBE reported to Goos on the progress of repairs at the Waldorf facility, noting that it planned to submit soon its "first reimbursement request." (See Opp. Mot. Summ. J., Ex. 13, Dunn Email, Feb. 25, 2010, ECF No. 61-14.) In late March, KBE requested reimbursement for $424,399, which included the costs of legal defense,...
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