Fed. Ins. Co. v. Indeck Power Equip. Co.

• Decision Date: 11 September 2018
• Docket Number: Case No. CIV-15-491-D
• Parties: FEDERAL INSURANCE COMPANY, Plaintiff, v. INDECK POWER EQUIPMENT COMPANY, Defendant.
• Court: U.S. District Court — Western District of Oklahoma

FEDERAL INSURANCE COMPANY, Plaintiff, v. INDECK POWER EQUIPMENT COMPANY, Defendant.

Case No. CIV-15-491-D

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF OKLAHOMA

September 11, 2018

ORDER

Before the Court is Plaintiff Federal Insurance Company's ("Federal") Amended Motion for Summary Judgment [Doc. No. 165]. Defendant Indeck Power Equipment Company ("Indeck") has filed its response in opposition [Doc. No. 172] and Federal has replied [Doc. No. 179]. The matter is fully briefed and at issue.

STATEMENT OF UNDISPUTED FACTS

This action arises out of insurance coverage disputes related to a water treatment plant and improvements thereto designed and constructed for the City of Altus, Oklahoma and the Altus Municipal Authority (collectively "the Altus Plaintiffs"). Federal contends it has no duty to defend or indemnify Indeck for a lawsuit brought by the Altus Plaintiffs against Indeck concerning construction regarding the plant ("the Altus Litigation").¹ At the onset of this litigation, the parties agreed to a bifurcated schedule in which they would first litigate the issue of whether Federal owed a duty to defend Indeck before conducting any discovery on the issue of whether Federal engaged in bad faith in denying coverage [Doc. Nos. 53, 64]. Accordingly, the parties submitted a Joint Stipulation of Undisputed Facts [Doc. No. 75] regarding the duty to defend issue. The following statement of facts is taken from that stipulation and other evidence in the record.

I. THE INSURANCE POLICIES AT ISSUE

From December 2002 to December 2015, Federal issued commercial general liability (CGL) insurance policies to Indeck, which provided insurance coverage subject to the terms, conditions, exclusions, and limitations set forth therein. Each of the Federal Policies were subject to a $1,000,000 per occurrence limit and a $2,000,000 general aggregate limit. Subject to certain exclusions discussed herein, the policies consistently stated Federal would provide coverage for "property damage" caused by an "occurrence." Under thepolicy, "property damage" was defined as (1) physical injury to tangible property, including resulting loss of use of that property or (2) loss of use of tangible property that is not physically injured. An "occurrence" was defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."

The 2002-2003 Federal Policy included the following exclusions:

Exclusions

This insurance does not apply to:

* * *

11. Property damage to your product arising out of it or any part of it.

12. 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 or the work out of which the damage arises was performed on your behalf by a subcontractor.

13. Property damage to impaired property or property that has not been physically injured arising out of:

a. A defect, deficiency, inadequacy or dangerous condition in your product or your work; or

b. A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms.

This exclusion does not apply to the loss of use of other property arising out of a sudden or accidental physical injuryto your product or your work after it has been put to its intended use.

14. Damages claimed for any loss, cost or expense incurred by you or others for the loss of use, withdrawal, recall, inspection, repair, replacement, adjustment, removal or disposal of:

a. Your product;

b. Your work; or

c. Impaired property;

(Emphasis in original).

In the policy, "your work" was defined as (1) work or operations performed by Indeck or on its behalf; and (2) materials, parts or equipment furnished in connection with such work or operations, including any warranties or representations made at any time with respect to the fitness, quality, durability, performance, or use of its work and the providing of or failure to provide instructions or warnings. "Your property" was defined as "[a]ny goods or products, other than real property, manufactured, sold, handled, distributed or disposed of by ... [Indeck] ... others trading under [Indeck's] name; or [a] person or organization whose assets or business [Indeck] acquired." The term also included such items as "[c]ontainers (other than vehicles), materials, parts or equipment furnished in connection with such goods or products."

"Impaired property" was defined as tangible property, other than Indeck's product or work, that could not be used or was less useful because (1)it incorporated Indeck's product or work that is known or thought to be defective, deficient, inadequate or dangerous or (2) Indeck failed to fulfill the terms and conditions of a contract or agreement, if such property can be restored to use by either the repair, replacement, adjustment or removal of Indeck's product or work or by it fulfilling the terms and conditions of the contract.

II. THE WATER TREATMENT SYSTEM AND THE ALTUS LITIGATION

On January 19, 1999, the Altus Plaintiffs entered into an "Agreement for Engineering Services" with Glen Briggs & Associates ("the Briggs Contract"). In 2003, Indeck agreed to construct the Water Treatment System for the Altus Plaintiffs. Altus, Indeck, and Briggs agreed to a "Date of Substantial Completion" of January 10, 2006, for Indeck's construction of the Water Treatment System.²

On November 5, 2013, the Altus Plaintiffs filed a lawsuit against Briggs arising out of the Water Treatment System styled City of Altus, et al. v. Glenn Briggs & Associates, Inc., et al., Case No. CJ-2013-144, Jackson County District Court, State of Oklahoma ("the Altus action"). On January 6, 2014, the Altus Plaintiffs filed an Amended Petition that added Indeck as a defendant. Federal agreed to defend Indeck, through independent counsel of Indeck's choosing, subject to a reservation of rights set forth in correspondence dated April 2, 2014.

On February 11, 2016, Altus filed a Third Amended Complaint in the Altus action, alleging, inter alia, as follows:

1) Indeck entered into a contract with the Altus Plaintiffs for the construction of the Water Treatment Plant and improvements thereto, and breached the contract by failing to fulfill its obligations under the contract;

2) Indeck negligently designed, supervised, constructed, maintained, planned and/or evaluated the Water Treatment Plant and improvements thereto;

3) Indeck warranted, both expressly and impliedly, goods sold to the Altus Plaintiffs for use in the Altus Water Treatment Plant and breached said warranties;

4) Indeck made fraudulent assertions that its proposed repair of the the Altus Plaintiffs' membranes would result in a properly working OF and RO water treatment plant;5) The Altus Plaintiffs were entitled to punitive damages for the fraudulent assertions by Indeck with regards to the proposed repair of the plaintiffs' membranes in an amount in excess of $75,000, as Indeck's fraudulent assertions were intentional and with malice;

6) Indeck and another company, Hydranautics, conspired to withhold information and test results from the Altus Plaintiffs which would have notified them of mistakes and damages to the plant caused by the acts and/or omissions of Indeck and/or Hydranautics during the initial operations;

7) Had the Altus Plaintiffs been given this information and the test results, Indeck and/or Hydranautics would have been required to fulfill their warranty requirements and may have voided the contract, but the information was intentionally hidden from the plaintiffs to their detriment by Indeck and Hydranautics;

8) The Altus Plaintiffs were entitled to punitive damages for the fraudulent acts and omissions of Indeck and Hydranautics with regards to their hiding and withholding information concerning damages to the plant as their fraudulent acts and omissions were intentional and with malice;

9) As a result of the actions of Indeck and others, the Altus Plaintiffs incurred damages in excess of $75,000; and

10) Indeck's actions constituted a reckless, willful and wanton disregard for the rights of the Altus Plaintiffs, as well as gross negligence, which entitled them to punitive damages in addition to any actual damages awarded.

See Third Amended Petition [Doc. No. 75-7].

During the course of discovery, the Altus Plaintiffs stated that due to the interconnected nature of the plant, failure of one area led to damage throughout the entire system; therefore, the plant had yet to achieve the full extent of its contracted use and levels. The plaintiffs further stated that the plant and wastewater system did not work as required under the parties' contract, and the membrane facility did not function correctly. See Pls. Responses to Def. Indeck Power Equip. Co.'s Interrogatories and Requests for Production [Doc. No. 75-3].

STANDARD OF DECISION

"Summary judgment is proper if, viewing the evidence in the light most favorable to the non-moving party, there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Bonidy v. U.S. Postal Service, 790 F.3d 1121, 1124 (10th Cir. 2015) (citing Peterson v. Martinez, 707 F.3d 1197, 1207 (10th Cir. 2013)). An issue is "genuine" if there is sufficient evidence on each side so that a rational trier of fact could resolve the issue either way. Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998). An issue of fact is "material" if under the substantive law it is essential to the proper disposition of the claim. Id. Unsupported conclusory allegations do not create an issue of fact. Finstuen v. Crutcher, 496 F.3d 1139,1144 (10th Cir. 2007). "If a party that would bear the burden of persuasion at trial does not come forward with sufficient evidence on an essential element of its prima facie case, all issues concerning all other elements of the claim and any defenses become immaterial." Adler, 144 F.3d at 670 (citing Celotex Corp. v. ...