Clarinet, LLC v. Essex Ins. Co.

Decision Date23 January 2012
Docket NumberNo. 4:10 CV 1686 DDN,4:10 CV 1686 DDN
PartiesCLARINET, LLC, Plaintiff, v. ESSEX INSURANCE COMPANY, Defendant.
CourtU.S. District Court — Eastern District of Missouri
MEMORANDUM

This action is before the court on the motions of plaintiff Clarinet, LLC for partial summary judgment as to coverage (Doc. 37) and of defendant Essex Insurance Company for summary judgment (Doc. 40). The parties have consented to the exercise of plenary authority by the undersigned United States Magistrate Judge pursuant to 28 U.S.C. § 636(c). (Doc. 13.) Oral arguments were heard on October 17, 2011.

I. BACKGROUND

On July 20, 2010, plaintiff Clarinet, LLC commenced this action against defendant Essex Insurance Company in the Circuit Court of the City of St. Louis, Missouri. (Doc. 1-1.) On September 10, 2010, Essex removed the action to this court pursuant to 28 U.S.C. § 1441, based on diversity of citizenship subject matter jurisdiction, 28 U.S.C. § 1332. (Doc. 1 at ¶ 1.)

According to the complaint, Essex denied coverage under an insurance contract with Clarinet (Policy) for stabilization and demolition costs incurred by Clarinet when the Switzer Building was damaged by a windstorm (Storm). Clarinet raises three claims for relief in its complaint. (Doc. 1-1 at ¶ 36.) In Count I, it alleges that it is entitled to a declaratory judgment that the costs associated with shoring, stabilizing, and demolishing the Switzer Building are covered under the Policy. (Id. at ¶¶ 37-40.) In Count II, it alleges that Essex breached the Policy by denying coverage for the shoring, stabilization, and demolition costs. (Id. at ¶¶ 41-45.) In Count III, it alleges that Essex's refusal toprovide coverage was vexatious, made in bad faith, and without reasonable cause. (Id. at ¶¶ 46-51.) Clarinet seeks monetary damages for the costs it incurred in shoring, stabilizing, and demolishing the Switzer Building, plus interest, costs, penalties, and attorney's fees. (Id. at ¶¶ 40, 45, 51.)

II. MOTIONS FOR SUMMARY JUDGMENT

Clarinet argues that it is entitled to partial summary judgment on the issue of coverage because the Storm and damage to the Switzer Building were "occurrences" under the Policy. Clarinet argues that no Policy exclusions apply because the City of St. Louis (City) ordered demolition, because the Switzer Building threatened immediate damage to City property, and because partial collapse of the Switzer Building was caused by the Storm. Clarinet further argues that its failure to seek Essex's consent before incurring the costs was immaterial and that the vacancy of the Switzer Building should not preclude coverage. (Docs. 38, 42, 45.)

Essex argues that it is entitled to summary judgment because there was no "occurrence" under the Policy and because Clarinet was not "legally obligated" to incur the costs. Essex also argues that certain Policy exclusions apply because the costs were related to Clarinet's property and were incurred to prevent future damage to third parties. Essex further argues that demolition and construction costs and damage to rented and leased equipment are excluded, and that Clarinet's failure to give notice before agreeing to incur the costs precludes coverage. (Docs. 41, 44, 47.) Essex seeks a determination by the court that there is no coverage under the Policy, and that it has no duty to indemnify Clarinet, for the stabilization and demolition costs incurred by Clarinet. (Doc. 40, at 3.)

III. STATEMENT OF UNDISPUTED FACTS

In 2005, Clarinet purchased real property located at 612 N. 1st Street in the City of St. Louis, Missouri, which was formerly known as the Switzer Building. (Doc. 41-1 at ¶ 1.) The Switzer Building was a turn-of-the-century masonry structure, consisting of six stories abovegrade, one story below grade, and an annex building. (Doc. 39 at ¶ 3.) It was listed as an historical building with the National Register of Historic Places as part of the Laclede's Landing Historic District. (Id. at ¶ 4.) Clarinet purchased the Switzer Building with the intent to develop it into luxury condominiums, street level retail stores, and commercial space. (Id. at ¶ 2; Doc. 41-1 at ¶ 2.)

The Policy

On July 7, 2006, Essex issued a Commercial General Liability Policy (Policy No. 3CM5800) to Clarinet, effective July 7, 2006 through October 7, 2006. (Doc. 41-1 at ¶ 3; Doc. 41-3; Doc. 41-4). Essex issued renewal policies to Clarinet, the last of which was effective April 24, 2007 through July 24, 2007 (Policy No. 3CV2139). (Doc. 39 at ¶ 6.) Clarinet paid all premiums that were due. (Id. at ¶ 7.) The Policy provided the following coverage:

Section I - COVERAGES
COVERAGE A BODILY INJURY AND PROPERTY DAMAGE LIABILITY
1. Insuring Agreement
a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply. We may, at our discretion, investigate any "occurrence" and settle any claim or "suit" that might result.
(1) The amount we will pay for damages is limited as described in Section III - Limits of Insurance; and
(2) Our right and duty to defend ends when we have used up the applicable limit of insurance in the payment of judgments or settlements under Coverages A or B or medical expenses under Coverage C.
No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for under Supplementary Payments - Coverages A and B.
b. This insurance applies to "bodily injury" and "property damage" only if:
(1) The "bodily injury" or "property damage" is caused by an "occurrence" that takes place in the "coverage territory";
(2) The "bodily injury" or "property damage" occurs during the policy period; . . .

* * *

(Doc. 41-3 at 18.)

The Policy defines "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." (Id. at 30.) The Policy defines "property damage" as:

a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or
b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the "occurrence" that caused it.

(Id. at 30, 31.)

Coverage under the Policy is limited by exclusions, including:

2. Exclusions

This insurance does not apply to:

a. Expected Or Intended Injury
"Bodily injury" or "property damage" expected or intended from the standpoint of the insured. This exclusion does not apply to "bodily injury" resulting from the use of reasonable force to protect persons or property.
j. Damage To Property
"Property damage" to:
(1) Property you own, rent, or occupy, including any costs or expenses incurred by you, or any other person, organization or entity, for repair, replacement, enhancement, restoration or maintenance of such property for any reason, including prevention of injury to a person or damage to another's property;

* * *

(3) Property loaned to you;
(4) Personal property in the care, custody or control of the insured;

* * *

(Id. at 18-21) (emphasis added).

Coverage under the Policy is also limited by other provisions:

VACANT BUILDING ENDORSEMENT

THIS ENDORSEMENT CHANGES THE POLICY.

This policy does not provide insurance coverage or defense for claims, loss, costs, and/or expenses for claims arising from any renovation, demolition, or construction operations or any owner or tenant occupancy at any building, or part of a building, classified on this policy as vacant.

* * *

SECTION IV - COMMERCIAL GENERAL LIABILITY CONDITIONS

* * *

2. Duties In The Event Of Occurrence, Offense, Claim Or Suit

* * *

d. No insured will, except at that insured's own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without our consent.

(Id. at 17, 26, 27) (emphasis added).

In a Commercial General Liability Coverage Part Supplemental Declarations form, the Switzer Building was listed as "VACANT BUILDING - NOT FACTORIES." (Id. at 5; Doc. 41-4.)

The Windstorm

On July 19, 2006, a severe windstorm struck the City of St. Louis. (Doc. 41-1 at ¶ 15.) The Storm caused a portion of the Switzer Building to collapse. (Id.) Specifically, the Storm destroyed portions of the south and east walls; destroyed substantial portions of the roof and the floor; and shifted or destroyed interior structural members. (Doc. 39 at ¶ 18; Doc. 39-3, Forsyth Aff. at ¶ 4.) The Storm left large portions of the east and north walls unsupported and exposed the interior of the Switzer Building to the weather, thereby causing continued deterioration. (Doc. 39 at ¶¶ 19, 20.) The partially-destroyed south wall was immediately adjacent to the Eads Bridge and an electrical substation, which were owned by the City. (Id. at ¶ 21; Doc. 41-1 at ¶ 30.) The Storm blew bricks and debris from the Switzer Building onto and near the Eads Bridge, thereby damaging the Bridge and the substation. (Doc. 39 at ¶ 16.)

After the Storm, Clarinet began efforts to stabilize the Switzer Building. (Doc. 41-1 at ¶ 16.) These efforts included installing 20 aluminum bracing towers, bracing between the Switzer Building and the Eads Bridge, and netting on the outside of the Switzer Building to prevent bricks and other debris from falling onto the Bridge or other adjacent property. (Id. at ¶ 16; Doc. 39 at ¶ 23.) Clarinet's stabilization and shoring efforts continued over several months. (Doc. 41-1 at ¶ 17.) Clarinet, through its agent, Richard Darragh, leased additional stabilization equipment from Patent Construction under the account of "VM Contracting." (Id. at ¶ 18, Doc. 41-6 at ¶ 6.)

Demolition

Some time prior to June 6, 2007,...

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