Emp'rs Mut. Cas. Co. v. Kenny Hayes Custom Homes, LLC.

• Decision Date: 09 February 2016
• Docket Number: Civil Action No. 15-0054-CG-B
• Parties: EMPLOYERS MUTUAL CASUALTY COMPANY, Plaintiff, v. KENNY HAYES CUSTOM HOMES, LLC., KENNY HAYES, individually, DAVID CHANCELLOR, individually, JOE NELSON, individually, TAMMY NELSON, individually. Defendants.
• Court: U.S. District Court — Southern District of Alabama

EMPLOYERS MUTUAL CASUALTY COMPANY, Plaintiff, v. KENNY HAYES CUSTOM HOMES, LLC.,KENNY HAYES, individually, DAVID CHANCELLOR, individually,JOE NELSON, individually, TAMMY NELSON, individually. Defendants.

Civil Action No. 15-0054-CG-B

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF ALABAMA NORTHERN DIVISION

February 9, 2016

MEMORANDUM OPINION AND ORDER

This matter is before the Court on Plaintiff's motion for summary judgment (Doc. 47), Defendants' responses in opposition (Docs. 49, 50), and Plaintiff's replies (Docs. 51, 52). For the reasons explained below, the Court finds that Plaintiff has not shown as a matter of law that it is entitled to a declaration that it does not owe a duty to defend or indemnify Kenny Hayes Custom Homes, LLC, Kenny Hayes and/or David Chancellor in the underlying state court action. Accordingly, Plaintiff's motion for summary judgment will be denied.

FACTS

The underpinnings of this insurance coverage declaratory judgment action liein a breach of contract and tort claim lawsuit filed on May 19, 2014, in the Circuit Court of Wilcox County, Alabama, Docket No. 14-900046 (the "underlying action"). (Doc.47-2). In the underlying action, Joe and Tammy Nelson sued Kenny Hayes Custom Homes, LLC, Kenny Hayes and/or David Chancellor (referred collectively herein as "Kenny Hayes Homes" or "builder") for breach of contract, negligence, wantonness or willfulness, negligent hiring or supervision, fraud, breach of warranty and deceptive trade practices arising from the construction of the Nelsons' home. (Doc. 47-2). According to the complaint in the underlying action, the Nelsons entered into a contract on March 6, 2012 for the construction of their home by Kenny Hayes Homes. (Doc.47-2, ¶ 18). Throughout the construction process and subsequent to completion, the Nelsons allege numerous failures of Kenny Hayes Homes to adequately supervise the construction causing the Nelsons to suffer "extreme mental anguish and emotional distress" and resulting in increased costs of construction and serious latent defects with the home, including water intrusion. (Doc. 47-2). Regarding the alleged water intrusion, the Nelsons testified that when water would come in they would mop it up with towels and sometimes leave buckets to catch the water. (Doc. 47-7, p. 7; Doc. 47-8, p. 5). Some of the walls hare stained from water, "where the water poured down and just stripped all the stain and everything off." (Doc. 47-7, p. 7; Doc. 47-8, p. 5). The Nelsons also contend that the exterior walls are damaged because of the water pouring in, but no one has told them it is damaged. (Doc. 47-8, p. 6). The Nelsons did not assert any claims for damage to any furniture, rugs or other personal property. (Doc. 47-8, p. 6). Mr.Nelson reports experiencing mental anguish because of having leaks every time it rains, but Mr. Nelson has not gone to a doctor for the mental anguish. (Doc. 47-7, p. 7). Mrs. Nelson also reports suffering mental anguish and testified that she went to a doctor and was prescribed medicine to help her nerves. (Doc. 47-8, p. 7). Their mental anguish also results from their breach of contract claim and began for Mrs. Nelson when they had to go borrow money and they could not get money to finish the house. (Doc. 47-7, p. 8, Doc. 47-8, p. 7). In November 2012, the Nelsons and Kenny Hayes Homes mutually agreed to end the construction contract and release each other from the obligations under the contract. (Doc. 50-6, pp. 6, 7-8).

Employers Mutual Casualty Company ("EMCC") issued a commercial general liability insurance policy (Doc. 47-3) to Kenny Hayes Homes and has been providing a defense to Kenny Hayes Homes in the underlying action pursuant to a strict reservation of rights. EMCC filed the current action in this Court on February 2, 2015 seeking a declaration that it has no duty to defend or indemnify Kenny Hayes Homes in the underlying action. (Doc. 1).

The insurance policy provides coverage for "sums that the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage.' " (Doc. 47-3, p. 25). The policy specifies that it 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. 47-3, p. 25). The policy defines "bodily injury" as "bodily injury, sickness or disease sustained by a person, including death resulting form any of these at any time." (Doc. 47-3, p. 37). "Property damage" is defined 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.

(Doc. 47-3, p. 39). "Occurrence" is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." (Doc. 47-3, p. 38).

The policy contains several exclusions that EMCC contends apply: contractual liability exclusion, damage to property exclusion, damage to impaired property or property not physically injured exclusion, professional liability exclusion and the absolute exclusion for fraud, misrepresentation, deceit or suppression or concealment of fact.

Exclusion 2(b), "Contractual Liability" excludes the following:

"Bodily injury" or "property damage" for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement. This exclusion does not apply to liability for damages:

(1) That the insured would have in the absence of the contract or agreement; or

(2) Assumed in a contract or agreement that is an "insured contract", provided the "bodily injury" or "property damage" occurs subsequent to the execution of the contract or agreement. Solely for the purposes of liability assumed in an "insured contract", reasonable attorney fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of "bodily injury or property damage", provided:

(a) Liability to such party for, or for the cost of, that party's defense has also been assumed in the same "insured contract"; and

(b) Such attorney fees and litigation expenses are for defense of that party against a civil or alternative dispute resolution proceeding in which damages to which this insurance applies are alleged.

(Doc. 47-3, p. 26).

Exclusion 2(j), "Damage to Property" excludes the following:

"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;

(2) Premises you sell, given away or abandon, if the "property damage" arises out of any part of those premises;

(3) Property loaned to you;

(4) Personal property in the care, custody or control of the insured;

(5) That particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your 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 "your work" was incorrectly performed on it.

Paragraphs (1), (3) and (4) of this exclusion do not apply to "property damage" (other than damage by fire) to premises, including the contents of such premises, rented to you for a period of 7 or fewer consecutive days. A separate limit of insurance applies to Damage To Premises Rented To You as described in Section III - Limits Of Insurance.

Paragraph (2) of this exclusion does not apply if the premises are "your work" and were never occupied, rented or held for rental by you. Paragraphs (3), (4), (5) and (6) of this exclusion do not apply to liability assumed under a sidetrack agreement.

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

(Doc. 47-3, pp. 28-29). Under the policy, "products-completed operations hazard" "[i]ncludes all 'bodily injury' and 'property damage' occurring away from premises you own or rent and arising out of 'your product' or 'your work' except:"

(1) Products that are still in your physical possession; or

(2) Work that has not yet been completed or abandoned. However, "your work" will be deemed completed at the earliest of the following times:

(a) When all of the work called for in your contract has been completed.

(b) When all of the work to be done at the job site has been completed if your contract calls for work at more than one job site.

(c) When that part of the work done at a job site has been put to its intended use by any person or organization other than another contractor or subcontractor working on the same project.

(d) Work that may need service, maintenance, correction, repair or replacement, but which is otherwise complete, will be treated as completed.

(Doc. 47-3, p. 39). "Products-completed operations hazard" does not include "bodily injury" or "property damage" arising out of:

(1) The transportation of property, unless the injury or damage arises out of a condition in or on a vehicle not owned or operated by you, and that condition was created by the "loading or unloading" of that vehicle by any insured;

(2) The existence of tools, uninstalled equipment or abandoned or unused materials; or

(3) Products or operations for which the classification, listed in the Declarations or in a policy schedule, states that products-completed operations are subject to the General Aggregate Limit.

(Doc. 47-3, p. 39).

Exclusion 2(m), "Damage To Impaired Property Or...