Emp'rs Mut. Cas. Co. v. Smith Constr. & Dev., LLC

• Decision Date: 12 June 2013
• Docket Number: Case No. 1:11–CV–3528–VEH.
• Citation: 949 F.Supp.2d 1159
• Court: U.S. District Court — Northern District of Alabama
• Parties: EMPLOYERS MUTUAL CASUALTY COMPANY, an insurance company incorporated in the State of Iowa, Plaintiff, v. SMITH CONSTRUCTION & DEVELOPMENT, LLC; Charles L. Smith; William Waldrip; and Laura Waldrip, Defendants.

949 F.Supp.2d 1159

EMPLOYERS MUTUAL CASUALTY COMPANY, an insurance company incorporated in the State of Iowa, Plaintiff,

v.SMITH CONSTRUCTION & DEVELOPMENT, LLC; Charles L. Smith; William Waldrip; and Laura Waldrip, Defendants.

Case No. 1:11–CV–3528–VEH.

United States District Court,

N.D. Alabama,

Eastern Division.

June 12, 2013.

James A. Kee, Jr., Angela C. Shields, Cynthia A. Martin, Kee Law Firm LLC, Birmingham, AL, for Plaintiff.

A. Vincent Brown, Jr., A. Vincent Brown Jr. PC, Bessemer, AL, H. Arthur Edge, III, H. Arthur Edge III PC, Birmingham, AL, for Defendants.

MEMORANDUM OPINION

VIRGINIA EMERSON HOPKINS, District Judge.

Before the court is the Motion for Summary Judgment (Doc. 25) filed by Plaintiff Employers Mutual Casualty Company (“EMC”). The court has considered the arguments made in the following documents:

• EMC's “Memorandum Brief in Support of Its Motion for Final Summary Judgment” (Doc. 26);

• A Response (Doc. 30) filed by Defendants Charles Larry Smith and Smith Construction & Development, LLC (“the Smith Defendants”);

• A Response (Doc. 31) filed by Defendants William and Laura Waldrip (“the Waldrips”);

• A Reply (Doc. 32) by EMC to the Smith Defendants; and

• A Reply (Doc. 35) by EMC to the Waldrips.

For the following reasons, EMC's motion is GRANTED in part and DENIED in part.

I. Procedural Posture

EMC filed the present action on September 30, 2011. (Doc. 1). It seeks declaratory judgment that it owes no insurance coverage to the Smith Defendants under the Commercial General Liability (“CGL”) Policy it issued them. The Waldrips and the Smith Defendants filed their respective Answers on November 16, 2011. (Docs. 9, 10).

On September 28, 2012, EMC filed the instant motion for Summary Judgment. (Doc. 25). It filed a supporting brief and evidentiary material on the same date. (Docs. 26, 27). The Smith Defendants and the Waldrips each filed Response briefs on November 19, 2012. (Docs. 30, 31). On December 10, 2012, EMC replied separately to each brief. (Docs. 32, 35).

II. Jurisdiction

This court is authorized to issue declaratory judgments under the Declaratory Judgment Act, 28 U.S.C. §§ 2201–2202 (2012), which provides in relevant part:

In a case of actual controversy within its jurisdiction ... any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree ...

28 U.S.C. § 2201(a)(2012). The Declaratory Judgment Act does not itself confer subject matter jurisdiction upon the federal courts. Stuart Weitzman, LLC v. Microcomputer Res., Inc., 542 F.3d 859, 861–62 (11th Cir.2008) (citations omitted). Rather, the plaintiff must allege facts showing that the controversy is within the court's original jurisdiction. Household Bank v. JFS Group, 320 F.3d 1249, 1253 (11th Cir.2003) (citing 28 U.S.C. § 2201(a)). Neither party contests subject matter jurisdiction here, which arises under the court's “diversity of citizenship” jurisdiction. See28 U.S.C. § 1332(a)(1)(2012). Further, the court finds that diversity jurisdiction is sufficiently alleged. Whether or not to exercise its authority to proceed in a declaratory judgment action is a matter committed to the sound discretion of the district court. See Wilton v. Seven Falls Co., 515 U.S. 277, 289–90, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995) (“[D]istrict courts' decisions about the propriety of hearing declaratory judgment actions, which are necessarily bound up with their decisions about the propriety of granting declaratory relief, should be reviewed for abuse of discretion.”).

III. Factual Background¹

The following relevant facts are not in dispute:

• On or about September 15, 2010, the Waldrips filed the underlying state court action against the Smith Defendants (the “underlying suit” or “underlying action”).²

• The underlying suit centers on the construction of the Waldrips' single-family residence in Talladega County, Alabama.

• That construction was to be performed according to the terms of a contract formed between the Waldrips and the Smith Defendants on December 17, 2007.

• The Waldrips assert the following claims against the Smith Defendants in the underlying action:

1. Negligence of construction;

2. Fraudulent misrepresentation;

3. Innocent misrepresentation;

4. Deceptive trade practices; and

5. Breach of contract.

• The Waldrips specifically allege in the underlying suit that the “abandonment of the construction of the home left the structure exposed to the elements. As a result, [the homeowners] assert that moisture caused deterioration of certain building components and mold growth is present throughout the home ...”

• On February 1, 2007, EMC issued CGL Policy Number 3D5–11–83 (“the Policy”) to the Smith Defendants.

• The Policy was originally effective through February 1, 2008, but was renewed through February 2, 2011.

• The Policy was thus in force at the time the Waldrips' claims arose.

• On or about October 29, 2010, the Smith Defendants were served in the underlying action.

• On or about November 4, 2010, the Smith Defendants filed an Answer and Counterclaim against the Waldrips in the underlying action.

• On or about January 6, 2011, the Smith Defendants notified EMC of the underlying suit.

• EMC is defending the Smith Defendants in state court under a full reservation of rights.

• The Insuring Agreement of the Policy provides as follows:

a. We [EMC] will pay those sums that the insured [Smith Defendants] 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 ...

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; ...

• The Policy defines these terms as follows:

a. “Bodily injury” means bodily injury, sickness, or disease sustained by a person, including death, resulting from any of these at any time.

b. “Property damage” means:

(1) 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

(2) 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.

* * *

c. “Occurrence” means an accident, including continuous or repeated exposure to substantially the same general harmful conditions.

• The Policy contains the following exclusions:

Exclusion 2(j). Damage to Property

The Policy excludes “property damage” to:

* * *

(5) That particular part of real property on which you [Smith Defendants] 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.

* * *

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

Fungi or Bacteria Exclusion

The insurance does not apply to:

a. “Bodily injury” or “property damage” which would not have occurred in whole or in part, but for the actual, alleged, or threatened inhalation of, ingestion of, contact with, exposure to, existence of, or presence of, any “fungi” or bacteria on or within a building or structure, including its contents, regardless of whether any other cause, event, material, or product contributed concurrently or in any sequence to such injury or damage.

b. Any loss, cost, or expenses arising out of the abating, testing for, monitoring, cleaning up, removing, containing, treating, detoxifying, neutralizing, remediating or disposing of, or in any responding to, or assessing the effects of, “fungi” or bacteria, by any insured or by any other person or entity.

* * *

“Fungi” means any type or form of fungus, including mold or mildew and any mycotoxins, spores, scents or byproducts produced or released by fungi.

Absolute Exclusion for Fraud, Misrepresentation, Deceit, or Suppression or Concealment of Fraud

This insurance does not apply to any claim or lawsuit for damages arising out of fraud, misrepresentation, deceit, suppression or concealment of fact, whether intentional, unintentional, innocent, negligent, willful, malicious, reckless or wanton, including, but not limited to an action or lawsuit demanding or seeking damages or recovery based on direct liability, vicarious liability, or agency principles. We will not make any payment if those payments arise out of any claim or lawsuit excluded by this endorsement. We have no duty to defend any insured against any claim or lawsuit for damages to which this insurance does not apply.

This exclusion applies regardless of:

(1) Whether such operations are or were conducted by you or on your behalf; or

(2) Whether the operations are or were conducted for you or for others.

• The Policy further requires the following conditions:

a. You must see to it that we are notified as soon as practicable of an “occurrence” or an offense which may result in a claim. To the extent possible, notice should include:

(1) How, when, and where the “occurrence” or offense took place;

(2) The names and addresses of any injured persons and witnesses; and

(3) The nature and location of any injury or damage arising out of the “oc...