City of Fayetteville v. Sec. Nat'l Ins. Co.

• Decision Date: 23 July 2019
• Docket Number: No. 5:18-CV-331-D,5:18-CV-331-D
• Court: U.S. District Court — Eastern District of North Carolina
• Parties: CITY OF FAYETTEVILLE, Plaintiff, v. SECURITY NATIONAL INSURANCE COMPANY, Defendant.

CITY OF FAYETTEVILLE, Plaintiff, v. SECURITY NATIONAL INSURANCE COMPANY, Defendant.

No. 5:18-CV-331-D

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NORTH CAROLINA WESTERN DIVISION

July 23, 2019

ORDER

On June 1, 2018, the City of Fayetteville ("Fayetteville" or "plaintiff") filed a complaint in Cumberland County Superior Court against the Security National Insurance Company ("SNIC" or "defendant") for breach of contract [D.E. 1-1]. On July 5, 2018, SNIC removed the action to this court [D.E. 1]. On March 28, 2019, SNIC moved for summary judgment [D.E. 15] and filed a memorandum in support [D.E. 16], a statement of material facts [D.E. 17], and an appendix [D.E. 18]. On April 17, 2019, Fayetteville responded in opposition [D.E. 19-21]. On May 1, 2019, SNIC replied [D.E. 22-24]. As explained below, the court grants SNIC's motion for summary judgment.

I.

In August 2015, Fayetteville requested proposals for a construction project to remove accumulated sediment in and along a creek located in Fayetteville. See [D.E. 17] ¶ 2; [D.E. 20] ¶ 2. The project area was "a low-lying area with high moisture content within an active waterway." [D.E. 17] ¶ 3; see [D.E. 20] ¶ 3. On September 30, 2015, Fayetteville accepted a bid for the project from Michael Walker, d/b/a Impera Contracting ("Impera"), and entered into a contract with Impera. See [D.E. 17] ¶ 4; [D.E. 20] ¶ 4. The contract stated that Impera was responsible for any damages to Fayetteville's property or for losses arising out of any injury to any person or damage resulting from Impera's negligence. See [D.E. 17] ¶ 5; [D.E. 20] ¶ 5. The contract also required Impera to maintain commercial general liability ("CGL") insurance with policy limits of $1,000,000 per occurrence and $2,000,000 in aggregate. See [D.E. 17] ¶ 6; [D.E. 20] ¶ 6.

SNIC issued Impera a CGL policy, effective from September 3, 2015, to September 3, 2016. See [D.E. 17] ¶ 1; [D.E. 20] ¶ 1. First, the policy defined various terms. The policy defined "property damage" as "[p]hysical injury to tangible property, including all resulting loss of use of that property" or "[l]oss of use of tangible property that is not physically injured." [D.E. 17] ¶ 22; [D.E. 1-1] 54. The policy defined an "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." [D.E. 17] ¶ 22; [D.E. 1-1] 53. Second, the policy excluded coverage for "property damage" to

(5) That particular part of real property on which [the insured] or any contractors or subcontractors working directly or indirectly on [the insured's] behalf are performing operations, if the property damage arises out of those operations; or

(6) That particular part of any property that must be restored, repaired or replaced because [the insured's work] was incorrectly performed on it.

[D.E. 17] ¶ 23 (quotation omitted); [D.E. 1-1] 43-44. Finally, the policy required Impera to notify SNIC "as soon as practicable of an 'occurrence' or any offense which may result in a claim." [D.E. 17] ¶ 24; [D.E. 1-1] 49. Should a plaintiff bring a claim against Impera, the policy required Impera to notify SNIC as soon as practicable and to send "immediately" to SNIC "copies of any demand, notices, summonses or legal papers received" and cooperate with SNIC in settling or investigating the lawsuit or claim. [D.E. 17] ¶ 24; [D.E. 1-1] 49-50.

In October 2015, Impera began to perform under the contract The parties agree that, with a properly-sized trackhoe, Impera's employees could have operated the trackhoe from the creek bankto remove sediment from the creek bed. See [D.E. 17] ¶ 7; [D.E. 20] ¶ 7. However, Impera used at least one undersized trackhoe. See [D.E. 17] ¶ 8; [D.E. 20] ¶ 8. On October 24, 2015, an Impera employee drove a trackhoe off the creek bank and into the creek bed, and the trackhoe got stuck. See [D.E. 17] ¶ 9; [D.E. 20] ¶ 9.¹ Rather than using a tow vehicle or similar equipment to extract the trackhoe, Impera's employees attempted "several self-help measures that only made matters significantly worse." [D.E. 17] ¶¶ 10-11; [D.E. 20] ¶¶ 10-11, 13b; [D.E. 23] ¶ 13b. For example, Impera's employees tried to use a smaller excavator to dig the trackhoe out of the creek bed, which caused the trackhoe to sink further into the creek bed, destabilized the creek bank, and endangered a buried sewer line. See [D.E. 17] ¶ 12; [D.E. 20] ¶ 12.²

When Fayetteville staff learned of the situation, they "issued an immediate stop work order." [D.E. 17] ¶ 13; [D.E. 20] ¶ 13. Fayetteville then undertook steps to extract the trackhoe and prevent damage to and failure of the sewer line. See [D.E. 20] ¶¶ 13e-13f; [D.E. 23] ¶¶ 13e-13f. Fayetteville temporarily rerouted the sewer line, something that Fayetteville argues was necessary. See [D.E. 17] ¶ 14; [D.E. 20] ¶ 14. Fayetteville then hired another company to extract the trackhoe from the creek bed, who did so successfully without damaging the sewer line. See [D.E. 17] ¶ 14; [D.E. 20] ¶ 14; [D.E. 23] ¶ 14a. Fayetteville incurred $110,094.58 in costs for temporarily bypassing the sewer line and extracting the trackhoe from the creek bed. See [D.E. 20] ¶ 15; [D.E. 21-7]29-33.³ Fayetteville demanded that Impera repay it for these costs. See [D.E. 17] ¶ 16; [D.E. 20] ¶ 16.

To recover its costs, Fayetteville engaged personnel at the North Carolina League of Municipalities ("NCLM"). See [D.E. 20] ¶ 16a; [D.E. 23] ¶ 16a. NCLM assigned Charlotte Martin ("Martin"), a property and liability claims adjuster, to represent Fayetteville. See [D.E. 20] ¶ 16a; [D.E. 21-7] ¶¶ 1-2. On November 4, 2015, Martin notified Impera that she represented Fayetteville in its recovery claim, that she was investigating the claim, and that Impera may be liable for costs exceeding $100,000.00. See [D.E. 20] ¶ 16b; [D.E. 21-7] 6. Martin also told Impera to notify its insurance carrier. See [D.E. 20] ¶ 16c. At the time, Martin believed that AmTrust North America ("AmTrust") was Impera's liability carrier and sent copies of her letter to AmTrust adjusters. See id.; [D.E. 21-7] 6.⁴ In February 2016, Martin concluded her investigation, determined that Impera was responsible for Fayetteville's damages, and asked Impera to pay Fayetteville's costs. See [D.E. 20] ¶ 16e. On August 23, 2016, AmTrust closed its file on the case. See id. ¶ 16f. On August 24, 2016, SNIC denied Fayetteville's claim on the grounds that Impera's insurance policy did not indemnify Impera for the costs that Fayetteville claimed. See id. ¶ 16g; [D.E. 21-7] 24.

Fayetteville retained counsel to pursue recovery from either Impera or SNIC, and counsel sent two demand letters to Impera. See [D.E. 20] ¶ 16h; [D.E. 23] ¶ 16h. After Fayetteville's counsel received no response, Fayetteville's counsel e-mailed Impera on February 8, 2017, and threatened litigation. See [D.E. 20] ¶ 16i; [D.E. 23] ¶ 16i. On February 27, 2017, SNIC againdenied the claim. See [D.E. 20] ¶ 16j; [D.E. 23] ¶ 16j. On May 12, 2017, Fayetteville filed a civil action against Impera in Cumberland County Superior Court. See [D.E. 17] ¶ 17. On October 2, 2017, the Cumberland County Superior Court entered a default judgment of $125,773.24 against Impera. See id. ¶ 20. Impera did not notify SNIC of this lawsuit, and SNIC only learned of the lawsuit after the default judgment. See id. ¶ 21; [D.E. 20] ¶ 21. Fayetteville seeks an order declaring that SNIC is obligated to satisfy this judgment under the insurance policy.

II.

Summary judgment is appropriate when, after reviewing the record as a whole, the court determines that no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(a); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). The party seeking summary judgment must initially demonstrate the absence of a genuine issue of material fact or the absence of evidence to support the nonmoving party's case. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the moving party has met its burden, the nonmoving party may not rest on the allegations or denials in its pleading, see Anderson, 477 U.S. at 248-49, but "must come forward with specific facts showing that there is a genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (emphasis and quotation omitted). A trial court reviewing a motion for summary judgment should determine whether a genuine issue of material fact exists for trial. See Anderson, 477 U.S. at 249. In making this determination, the court must view the evidence and the inferences drawn therefrom in the light most favorable to the nonmoving party. See Scott v. Harris, 550 U.S. 372, 378 (2007).

A genuine issue of material fact exists if there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. See Anderson, 477 U.S. at 249. "The mere existence of a scintilla of evidence in support of plaintiff's position [is] insufficient . . . ." Id. at 252.;see Beale v. Hardy, 769 F.2d 213, 214 (4th Cir. 1985). Only factual disputes that affect the outcome under substantive law properly preclude summary judgment. See Anderson, 477 U.S. at 248.

Subject-matter jurisdiction is based on diversity of citizenship, and the court applies state substantive law and federal procedural rules. See Erie R.R. v. Tompkins, 304 U.S. 64, 78-80 (1938); Dixon v. Edwards, 290 F.3d 699, 710 (4th Cir. 2002). North Carolina law applies. Accordingly, this court must predict how the Supreme Court of North Carolina would rule on any disputed state-law issue. See Twin City Fire Ins. Co. v. Ben Arnold-Sunbelt Beverage Co. of S.C., 433 F.3d 365, 369 (4th Cir. 2005). In doing so, the court must look first to opinions of the Supreme Court of North Carolina. See id. at 369. If there are no governing opinions from that court, this court may consider the opinions of the North Carolina Court of Appeals, treatises, and "the practices of...