Bldg. Specialties Inc v. Liberty Mut. Fire Ins. Co.
| Decision Date | 17 May 2010 |
| Docket Number | Civil Action No. H-09-0823. |
| Citation | 712 F.Supp.2d 628 |
| Parties | BUILDING SPECIALTIES, INC., Plaintiff,v.LIBERTY MUTUAL FIRE INSURANCE COMPANY, Defendant. |
| Court | U.S. District Court — Southern District of Texas |
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William T. Green, III, Attorney at Law, Houston, TX, for Plaintiff.
Christopher W. Martin, Patrick Michael Kemp, Martin Disiere et al., Houston, TX, for Defendant.
This insurance coverage dispute arises out of heating and air conditioning duct work installed in a residence in Houston, Texas. Building Specialties, Inc. was hired by Lone Star Refrigeration, Inc. to install the insulation for the heating and air conditioning system in the residence. Lone Star sued Building Specialties in Texas state court, seeking the cost of repairing and replacing the insulation duct work in one room. The underlying case was settled. Building Specialties then sued its commercial general liability insurer, Liberty Mutual Insurance Company, for the defense costs and indemnity. Liberty Mutual timely removed to this court. The parties have filed cross-motions on the coverage issues. Liberty Mutual has moved for summary judgment that Building Specialties was not entitled to defense or indemnification in the underlying suit. (Docket Entry No. 9). Building Specialties cross-moved for partial summary judgment that the commercial general liability policy covered the underlying suit and that the exclusions Liberty Mutual relies on to deny coverage do not apply. (Docket Entry No. 10).
Based on the pleadings, the motions and responses, the record, and the applicable law, this court grants Liberty Mutual's motion for summary judgment and denies the cross-motion filed by Building Specialties. Final judgment is entered by separate order. The reasons for these rulings are set out in detail below.
I. BackgroundA. The Underlying Lawsuit
Lone Star contracted with Building Specialties to install heating and air conditioning insulation for a residential construction project in Houston, Texas. Building Specialties purchased the insulation material from Knauf Insulation GMBH (“Knauf”). According to an affidavit filed in this coverage suit by John Juzswik, the president of Building Specialties, the homeowner and Lone Star later asserted that in one room of the house-a ballroom-water or condensate was leaking from the air conditioning grills and damaging an expensive hardwood floor. Juzswik's affidavit states that an unidentified person at Lone Star said that because there was no attic or crawl space above the ballroom, the entire ceiling had to be demolished in order to identify the source of the leak or condensation and remedy it. The cost of tearing down the ceiling, identifying and fixing the problem, and rebuilding and repainting the ceiling was estimated at $215,000. There is no reference in the affidavit to any need to repair the hardwood floor. (Docket Entry No. 14, Ex. 1, Affidavit of John Juzswik).
Lone Star made repeated requests for payment from Building Specialties and Knauf, which refused to pay. (Docket Entry No. 10, Ex. B at 2). In September 2007, Lone Star sued Building Specialties and Knauf in Texas state court. (Docket Entry No. 10, Ex. B). In the original petition, Lone Star alleged that Building Specialties “designed and installed the heating and air conditioning duct work for the project” and that “[s]hortly after the system began operating, defects in the installation of the duct work were discovered.” ( Id. at 2). Lone Star alleged that it “undertook efforts to minimize the damage to repair and replace the defective product and/or installation.” ( Id.). Lone Star alleged it made “repeated demands for payments for the additional work to remedy the problem and fix the damage” but that Building Specialties and Knauf refused to pay. ( Id.). Lone Star asserted claims for breach of contract, breach of warranty, and negligent misrepresentation. ( Id. at 3-4).
Building Specialties forwarded the suit to Liberty Mutual. In April 2008, Liberty Mutual replied by letter. (Docket Entry No. 10, Ex. C). The letter stated:
[Lone Star] does not allege that the duct work, or any other portion of the home, was damaged; only that the duct work required repair or remedy in order to work in the manner that [Lone Star] alleges it had hired BSI to design, manufacture and install to meet the homeowner's expectations. [Lone Star] makes no allegation that there was any loss of use of the home. Instead, [Lone Star] only seeks to recover the monies it has expended to remedy or repair the allegedly defective product and/or installation so that the HVAC system operated in a manner expected by the homeowner and which [Lone Star] alleges BSI had been contracted to provide.
( Id. at 2). Liberty Mutual stated that there was no “occurrence” under the policy because the only allegations in the suit arose out of faulty products or faulty work and were “thus not considered ‘unexpected’ and therefore not an accident.” ( Id. at 3). Liberty Mutual also stated that there was no “property damage” under the policy because there was “no allegation of damage to tangible property or loss of use of tangible property.” ( Id.). Liberty Mutual identified exclusions to coverage. Because the “claim centers on the alleged defective installation (‘your work’) and/or alleged defective materials (‘your product’),” it was “precluded from coverage under exclusions k (Damage to Your Product) and l (Damage to Your Work).” The letter noted that “the policy's definitions of the terms ‘your work’ and ‘your product’ include [ ] warranties or representations made at any time with respect to fitness, quality, durability, performance or use of the ‘insured's product.’ ” As a result, according to the letter, Lone Star's “claims for breach of warranty (express or implied) and negligent misrepresentation fall within these exclusionary provisions.” ( Id.). Liberty Mutual also stated that the “duct work may be considered ‘impaired property’ in that it is tangible property that was deemed less useful because it incorporated BSI's product and/or BSI's work that was thought to be defective, deficient, or inadequate” and that therefore Exclusion M, applicable to “Damage To Impaired Property or Property Not Physically Injured” barred coverage. ( Id. at 4). Finally, Liberty Mutual asserted that Endorsement No. 18, the “Contractors Professional Liability Exclusion,” which provided that “the policy does not apply to ‘property damage’ arising out of the rendering or failure to render any professional services by the named insured or on the named insured's behalf with respect to providing engineering, architectural or surveying services in connection with construction work the named insured performs,” barred coverage to the extent the claim arose from the Building Specialties design of the HVAC system. ( Id.).
Knauf and Lone Star settled the claims between them in the state court suit. Lone Star filed an amended petition that removed references to a defective product but left allegations that Building Specialties defectively installed the duct work. (Docket Entry No. 9 at 4; id., Ex. C). The remaining allegations stated that Building Specialties “designed and installed the heating and air conditioning duct work”; “defects in the installation of the duct work were discovered”; Building Specialties “was made aware of the defective installation and apprised of the situation”; and despite “repeated demands,” Building Specialties refused to tender payment for “the additional work to remedy the problem and fix the damage.” ( Id., Ex. C at 2). Lone Star continued to assert a claim that Building Specialties had breached its contract to “design and install proper and effective heating and air conditioning duct work”; a claim that Building Specialties had breached the one-year “warranty for all materials, equipment and labor furnished by BSI to be free from faulty, defective, or improper workmanship” by failing “to remedy and fix the problem and to reimburse Plaintiff Lone Star for expenses incurred in repairing the defective work”; and a claim for negligent misrepresentation about the “proper design and installation of air conditioning duct work.” ( Id. at 3-4). Building Specialties eventually settled Lone Star's claims in the underlying litigation for $60,000. (Docket Entry No. 10, Ex. D). This coverage suit followed.
B. The Coverage Suit
On January 29, 2009, Building Specialties sued Liberty Mutual in Texas state court, alleging breach of the insurance contract. . Liberty Mutual removed to this court on the basis of diversity jurisdiction on March 19, 2009. (Docket Entry No. 1). Liberty Mutual moved for summary judgment, (Docket Entry No. 9), Building Specialties responded, (Docket Entry No. 14), and Liberty Mutual replied, (Docket Entry No. 16). Building Specialties also moved for partial summary judgment, (Docket Entry No. 10), Liberty Mutual responded, (Docket Entry No. 15), and Building Specialties replied, (Docket Entry No. 17).
C. The Policy Terms
Liberty Mutual issued Building Specialties Policy Number TB2-191-437965-035, with effective dates from June 4, 2005 to June 4, 2006. (Docket Entry No. 9-1). The Policy provides, in pertinent part, as follows:
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