Cunard Line Ltd. Co. v. Datrex, Inc.

• Decision Date: 09 December 2009
• Docket Number: No. 09-656.,09-656.
• Citation: 26 So.3d 886
• Parties: CUNARD LINE LIMITED CO. v. DATREX, INC., et al.
• Court: Court of Appeal of Louisiana — District of US

26 So.3d 886

CUNARD LINE LIMITED CO. v. DATREX, INC., et al.

No. 09-656.

Court of Appeal of Louisiana, Third Circuit.

December 9, 2009.

James E. Moore, Jr., Baton Rouge, LA, for Third Party Defendants-Appellants, Twin City Fire Insurance Company and The Hartford.

Davis B. Allgood, Christopher D. Martin, Baton Rouge, LA, for Defendant-Third

Party Plaintiff-Appellee, Datrex, Inc.

Court composed of ELIZABETH A. PICKETT, J. DAVID PAINTER, and JAMES T. GENOVESE, Judges.

PAINTER, Judge.

Third-Party Defendants, Twin City Fire Insurance Company and The Hartford (the insurers), appeal the judgment of the trial court which found that they had a duty to defend their insured, Datrex, Inc. (Datrex), against a claim by Cunard Line Limited Co. (Cunard) and assessing defense costs, attorney's fees and penalties.

FACTS

The underlying facts of the case are not in dispute.

Cunard bought a Low Level Lighting System from Datrex which was received and installed in 1997. In March 2002, Cunard sued Datrex alleging that the system did not perform up to Coast Guard standards. Datrex presented the insurers with the petition and a demand for coverage in April 2002. The insurers denied coverage. Datrex filed a third party demand against the insurers. In October 2003, the trial court entered a partial summary judgment finding that the insurers had a duty to defend Datrex against Cunard's suit. Cunard's claims against Datrex were dismissed in December 2004 on an exception of prescription. A motion for summary judgment filed by the insurers concerning the defense costs was heard and denied on the same date. In October 2006, the insurers issued a check to Datrex for $76,019.36, for defense costs.

In March 2009, the trial court issued a final judgment finding the insurers liable for the cost of defending the suit, penalties, and attorney's fees. The insurers appeal.

DISCUSSION

Duty to Defend

The insurers assert several assignments of error with regard to the trial court's finding that they owed a duty to defend.

The law regarding an insurer's duty to defend is well settled.

The insurer's duty to defend suits brought against its insured is determined by the allegations of the plaintiff's petition, with the insurer being obligated to furnish a defense unless the petition unambiguously excludes coverage. Meloy v. Conoco, Inc., 504 So.2d 833, 838 (La.1987); American Home Assurance Co. v. Czarniecki, 255 La. 251, 230 So.2d 253 (1969); Leon Lowe & Sons, Inc. v. Great American Surplus Lines Ins. Co., 572 So.2d 206 (La.App. 1st Cir.1990); Benoit v. Fuselier, 195 So.2d 679 (La. App. 3d Cir.1967). Accordingly, the insurer's obligation to defend suits against its insured is generally broader than its obligation to provide coverage for damage claims. Czarniecki, supra 230 So.2d at 259. Thus, if, assuming all of the allegations of the petition to be true, there would be both coverage under the policy and liability of the insured to the plaintiff, the insurer must defend the insured regardless of the outcome of the suit. Id. An [insurer's] duty to defend arises whenever the pleadings against the insured disclose even a possibility of liability under the policy. Meloy, supra.

Steptore v. Masco Constr. Co., 93-2064, pp. 8-9 (La.8/18/94), 643 So.2d 1213, 1218.

The insurers assert that their policy clearly excludes coverage of the claims made by Cunard. They point to the following policy provisions:

2. Exclusions

This policy does not apply to:

. . . .

j. (6) That particular part of any property that must be restored, repaired, or replaced because "your work" was incorrectly performed on it.

. . . .

Paragraph (6) of this exclusion does not apply to "property damage" included in the "products-completed operations hazard."

k. Damage to Your Product

"Property damage" to "Your product" arising out of it or any part of it.

l. Damage to Your Work

"Property damage" to "your work" arising out of it or any part of it and included in the "products-completed operations hazard."

This exclusion does not apply if the damaged work of the work out of which the damage arises was performed on your behalf by a sub-contractor.

m. Loss of Use of Property Not Physically Injured

Loss of use of tangible property which has not been physically injured or destroyed, resulting from:

(1) A delay in or lack of performance by you or on your behalf of any contract or agreement;

(2) The failure of "your product" or "your work" to meet the level of performance, quality, fitness or durability warranted or represented by you or on your behalf.

This exclusion does not apply to loss of use of other tangible property resulting from the sudden and accidental physical injury to or destruction of:

(1) "Your product," or

(2) "Your work;"

after such product or work has been put to its intended use.

The trial court, in oral reasons for judgment given in connection with its October 1, 2003 ruling that the insurers had a duty to defend Datrex, correctly summarized the provisions of the insurance policy and the allegations of Cunard's petition:

Louisiana Courts have recognized that general liability insurance policies containing work product exclusion clauses do not insure any obligation of the policy holder to repair or replace his own defective work or product. In other words, liability policies are not performance bonds. In this case, we're dealing with the Commercial Liability Policy, Section One which entitled Coverages states that we will pay on behalf of the insured all sums that the insured shall become legally obligated to pay as damages because of property damage to which this policy applies. We'll have the right needed to defend any claim or suit seeking those damages. I carefully looked at Section Two which contains the exclusions. The Court carefully read Exclusion J, damage to properties specifically Five and Six; Section K which is damage to your product; Section L which is damage to your work; Section M specifically Two and where the exclusion does not apply; Section N, withdrawal or recall of the product, work or property. I also looked at definitions of occurrence, product completed operations hazard, specifically C and sub-Section C-Three under C Twenty-three which is property damage and Twenty-eight which defines your work. It's undisputed that the insurance provided commercial liability coverage to Datrex during the period in which Cunard is claiming injury. The insurance policies cover property damage. The Court must first decide if there was property damage to Cunard. Property damage is defined in the policy as 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 loss of use of tangible property that it is not physically injured. All such loss of use shall be deemed to occur at the time of the occurrence that caused it. Based upon the definition and the allegations in the petition, the Court finds that if Cunard meets its evidentiary burden there would be property damage. The next inquiry by the Court is whether or not any of the exclusions apply to the property damage allowed — alleged to have been suffered by Cunard. The Court agrees with Datrex in that exclusion J Five does not apply. The Court agrees that real property referred to in the exclusion is land and its improvements[,] and Cunard is not claiming to claim any damage for land or buildings as a result of the work or product of Datrex or it's subcontractors. Likewise, J Six doesn't apply because it specifically excepts liability from products completed operations hazard. Cunard does allege ongoing damages[,] and even without that exclusion Cunard is alleging other consequential and incidental damages caused not only by defective work by also by defective product. And even though you have interrogatories there they still have not been answered to specify what those might be. Exclusion M Two, which I think is the meat of the matter[,] as argued orally today doesn't apply to the consequential or incidental damages claimed by Cunard, some of which they say are ongoing. The product was installed and in use according to Cunard's petition when Cunard began experiencing problems in the system. Accordingly the product or work had been put to it's intended use. Had it not they couldn't have said, oh we've got problems with it. After put to its intended use the failure of the product must also be sudden and accidental physical injury to or destruction of your product or your work to avoid the M Two exclusion. In Webster's II New College Dictionary the general meaning of the word accident is an unexpected and undesirable event or something that occurs unexpectedly or unintentionally. The Court accepts this definition as the prevailing meaning of the word. So based upon the petition, the Court believes that the problems on the ships were unexpected and undesirable and did cause a loss of use of the ships after the product was put to its intended use. The word accident is also found in the definition of occurrence. The Court finds that the property damage caused by the defective work and/or defective products is an occurrence or accident which triggers coverage under the terms of the insurance policies. Additionally, Cunard alleges consequential and incidental damages. If these damages include physical injury to the ships and the repair and/or replacement of the LLL systems then the exclusion found in paragraph M Two would not be applicable to them. The policies also contain the works products exclusion, that's in K and L. The policy does not cover defective work or defective products. However, the policy does include separate coverage for products, completed operations hazard with aggregate limits of two million dollars. Aside from this definition in Section 5 of the policy, there's little reference to the coverage in the exclusion section except under paragraphs J Six and L, damage...