Capitol Envtl. Serv. Inc. v. North River Ins. Co.

• Citation: 778 F.Supp.2d 623
• Decision Date: 15 March 2011
• Docket Number: Case No. 1:10cv792.
• Court: U.S. District Court — Eastern District of Virginia
• Parties: CAPITOL ENVIRONMENTAL SERVICES, INC., Plaintiff,v.NORTH RIVER INSURANCE COMPANY, Defendant.

778 F.Supp.2d 623

CAPITOL ENVIRONMENTAL SERVICES, INC., Plaintiff,

v.NORTH RIVER INSURANCE COMPANY, Defendant.

Case No. 1:10cv792.

United States District Court, E.D. Virginia,Alexandria Division.

March 15, 2011.

Stephen Anthony Horvath, Bancroft McGavin Horvath & Judkins PC, Fairfax, VA, for Plaintiff.Craig James Franco, Stephen Andrew Cobb, Odin Feldman & Pittleman PC, Fairfax, VA, for Defendant.

MEMORANDUM OPINION

T.S. ELLIS, III, District Judge.

This diversity dispute between a policyholder and an insurer presents the question on cross motions for summary judgment whether an insurer must indemnify a policyholder for a covered claim made against the policyholder in an underlying case where, as here, the covered claim was dismissed as moot in the underlying case and there is no apparent likelihood that the claimant can or will attempt to pursue the dismissed claim against the policyholder. Put more succinctly, the question is whether the insurer must indemnify a policyholder for a covered claim where, as here, the policyholder suffered no injury or damage attributable to the covered claim.

I.

Plaintiff Capitol Environmental Services, Inc. (“Capitol”) is a Virginia corporation engaged in waste management. Defendant North River Insurance Company (“North River”), a company engaged in the insurance business, issued Capitol a general liability insurance policy (the “Policy”). Capitol's complaint alleges that North River breached its duty to indemnify Capitol under the insurance policy with respect to a third party complaint filed in Florida state court. This is the second suit between these parties.

The first suit concluded with the issuance of a declaratory judgment that North River had a duty to defend Capitol in connection with the third party complaint filed in a Florida state court. See Capitol Envtl. Servs, Inc. v. N. River Ins. Co., 536 F.Supp.2d 633 (E.D.Va.2008) (Memorandum Opinion) (“ Capitol I ”) (resolving cross motions on summary judgment in the 2007 action). Capitol now brings this second suit against North River following the conclusion of the Florida case. A more complete and chronological recitation of the facts aids in the resolution of the pending cross motions on summary judgment.

In 2002, Annette Carey, a Florida resident, was injured when her automobile collided with a tractor trailer operated by Capitol's subcontractor for waste disposal. The waste disposal project for which Capitol has been hired involved several layers of contractors: (i) St. Marks Refinery (“St. Marks”), the owner, contracted with Earth Tech, Inc. as its general contractor to dispose of waste from its refinery; (ii) Earth Tech subcontracted with Capitol to provide hazardous materials transportation and disposal; and (iii) Capitol, in turn, subcontracted with Freehold Cartage, Inc. (“FCI”) to transport the waste.

Just before dawn on September 25, 2002, FCI employee Peter Blash, operating a tractor trailer, arrived at the entrance to St. Marks, located on Florida Highway 363, to collect and transport waste from the site. Blash, acting within the scope of his FCI employment, attempted to back his empty tractor-trailer from the highway into the refinery with the aid of two Earth Tech “flag men,” who directed traffic on the highway while Blash's tractor-trailer blocked both highway lanes. Notwithstanding these precautions, Carey, driving her automobile, collided with Blash's trailer and was injured.

Carey and her husband filed suit against Blash, FCI, and Earth Tech for Carey's injuries and her husband's loss of consortium (the “Florida action”). ¹ The Careys alleged that Earth Tech “negligently undertook to direct traffic on State Road 363” and failed to provide “adequate visual warning devices” to prevent the accident. Carey Compl. ¶¶ 13, 17. The Carey complaint also stated that Blash was “an employee of Freehold Cartage, Inc. and/or Earth Tech, Inc.” who was “acting within the scope of his employment with Freehold and/or Earth Tech at all times.” Id. at ¶¶ 5, 21. Hence, the Careys sued Earth Tech both for its own negligence and for the negligent acts of Blash, believing, mistakenly as it turned out, that Blash may have been an Earth Tech employee. Although Capitol was not named as a defendant in the Florida action, Earth Tech brought a third-party complaint against Capitol in August 2005 (“Third Party Complaint”), alleging, inter alia, that Capitol breached its subcontract with Earth Tech (“the Subcontract”): (i) by failing to purchase adequate insurance to protect both Capitol and Earth Tech from liability with respect to the waste disposal project; and (ii) by failing to indemnify Earth Tech for liability in the Florida action as the Subcontract required.² The second claim—the breach of contractual indemnity claim—stemmed from a clause in § 8.2 of the Subcontract, which obligated Capitol to indemnify Earth Tech with respect to the “acts, error, or omissions” of Capitol or Capitol's subcontractors, which would include FCI and FCI employee Blash. ³ Accordingly, Earth Tech alleged that Capitol had a duty to indemnify Earth Tech for any losses incurred in the Florida action because, in Earth Tech's view, the losses at issue stemmed from the acts, errors, or omissions of Capitol and its subcontractors.

In 2007, while the Florida action was pending, Capitol brought a declaratory judgment action against North River in this forum alleging that North River had a duty under the Policy to defend and indemnify Capitol with respect to the third party complaint filed by Earth Tech. Capitol I, 536 F.Supp.2d at 635. Specifically, Capitol sought (i) a declaratory judgment that North River had a duty to defend and to indemnify, (ii) monetary relief, and (iii) attorney's fees based on bad faith denial of coverage. Capitol I, 536 F.Supp.2d at 635.

Capitol I resolved Capitol's and North River's cross motions for summary judgment. As to the duty to defend claim, Capitol I resolved the issue based on Virginia's well established Eight Corners Rule, which requires a court to compare the four corners of the insurance policy against the four corners of the underlying complaint; if any allegations may potentially be covered by the policy, the insurer has a duty to defend. See America Online, Inc. v. St. Paul Mercury Ins. Co., 207 F.Supp.2d 459, 465 (E.D.Va.2002). Importantly, the Policy issued to Capitol obligated North River to “pay those sums that [Capitol] becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ ” that were “caused by an ‘occurrence’ that takes place in the ‘coverage territory.’ ” Id. at 637 (emphasis added). Also pertinent here, the Policy included coverage for liability incurred by Capitol under an “insured contract,” which was defined as a “part of any other contract or agreement pertaining to your business ... under which you [Capitol] assume the tort liability of another party to pay for ‘bodily injury’ or ‘property damage’ to a third person or organization.” Id. at 641.⁴ Because Capitol, in its Subcontract with Earth Tech, assumed the tort liability of another party ( i.e., Capitol's subcontractor, FCI) to pay for bodily injury to a third person ( i.e., the Careys), the four corners of the Third Party Complaint fit well within the four corners of the Policy. Id. Thus, North River had a duty to defend Capitol in connection with Earth Tech's Third Party Complaint against Capitol. Although Earth Tech's breach of contract claim against Capitol for failing to obtain insurance coverage for Earth Tech was not covered by the Policy, the duty of North River to defend one claim created a duty to defend all claims in the third party complaint. See Am. Online, Inc. v. St. Paul Mercury Ins. Co., 207 F.Supp.2d 459, 465–66 (E.D.Va.2002).

Unlike the duty to defend, which required comparing the allegations to the insurance policy, resolution of the duty to indemnify claim required examining whether the established or litigated facts fit within policy coverage. See Perdue Farms, Inc. v. Travelers Cas. & Sur. Co. of Am., 448 F.3d 252, 258 (4th Cir.2006) (applying Maryland law). Accordingly, Capitol I held that “the current factual record is insufficiently developed to warrant summary judgment for either party” on the duty to indemnify claim. Although the duty to indemnify claim was deferred, Capitol I specifically noted that North River would have a duty to indemnify Capitol “only if Capitol” were liable to Earth Tech based on the breach of contractual indemnity claim against Capitol in the Third Party Complaint. Capitol I, 536 F.Supp.2d at 645.

Following the issuance of Capitol I, Capitol and North River entered into a series stipulations concerning how best to proceed on Capitol's duty to indemnify claim. In particular, the parties stipulated that they would “request that the Circuit Court of Wakulla County consider and decide the contractual indemnification claim.” They further stipulated that “the Florida Courts would be in a better position to decide the [contractual indemnification] issue and [resolution by the Florida courts] would be a more efficient use of judicial resources.” The parties agreed to abide by the decision of the Florida courts, but the parties reserved the right to “request” further rulings by this Court if the decisions of the Florida courts did not resolve the matter. See Parties' Joint Submission, Capitol Envtl. Servs., Inc. v. N. River Ins. Co., No. 1:07cv788 (E.D.Va. Mar. 12, 2008), ECF No. 52. ⁵ Following these stipulations, an Order issued in Capitol I on April 9, 2008, dismissing without prejudice Capitol's duty to indemnify claim, noting that “a ruling on this issue depends on the outcome of the contractual indemnification claim pending against Capitol in the Florida litigation.” Capitol Envtl. Servs, Inc. v. N. River Ins. Co., No. 1:07cv788 (E.D.Va. Apr. 9, 2008) (Order). The Order further stated that “in the event the Florida court does not...