Fidelity & Deposit of Maryland v. Hartford Cas.

• Decision Date: 27 February 2002
• Docket Number: No. 01-2015-JWL.,01-2015-JWL.
• Citation: 189 F.Supp.2d 1212
• Parties: FIDELITY & DEPOSIT COMPANY OF MARYLAND, Plaintiff, v. HARTFORD CASUALTY INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of Kansas

Page 1212

189 F.Supp.2d 1212

FIDELITY & DEPOSIT COMPANY OF MARYLAND, Plaintiff, v. HARTFORD CASUALTY INSURANCE COMPANY, Defendant.

No. 01-2015-JWL.

United States District Court, D. Kansas.

February 27, 2002.

J. Nick Badgerow, Spencer, Fane, Britt & Browne, Overland Park, KS, for Plaintiff.

Lee M. Baty, Theresa A. Otto, Randall W. Brown, Baty, Holm & Numrich, PC, Kansas City, MO, for Defendant.

MEMORANDUM AND ORDER

LUNGSTRUM, Chief Judge.

This action flows from defendant Hartford Casualty Insurance Company's ("Hartford") refusal to defend National Contractors, Inc. ("National") and Midwest Drywall, Inc. ("Midwest Drywall") in two underlying lawsuits against them. The matter comes before the court on plaintiff's motion for partial summary judgment (Doc. 36) and defendant's motion for summary judgment (Doc. 38). Plaintiff seeks partial summary judgment with regard to defendant's liability in this matter. Defendant seeks to have the case dismissed. For the reasons, set forth below, plaintiff's motion is granted, and defendant's motion is denied.

I. Uncontroverted Facts

The following facts are uncontroverted. Plaintiff Fidelity & Deposit Company of Maryland ("F & D") is a Maryland corporation with its principal place of business in Maryland. Hartford is a Connecticut corporation with its principal place of business in Connecticut. National and Midwest Drywall are Kansas corporations with their principal place of business in Kansas. On or around August 28, 1997, National, as the general contractor, entered into an owner/contractor agreement with Prairie View Unified School District # 362 ("School District") to build a school and performing arts center ("the project") for a contract price of $8,144,300. The project contained three sections: areas A, B, and C. The project was scheduled to be completed by May 4, 1999.

F & D, as the surety, bonded the construction of the project, issuing a performance bond with National as the principal and the School District as the obligee. National handled part of the project with its own crew and contracted with various suppliers and subcontractors for other parts of the project. One of the subcontractors was Midwest Drywall. Midwest Drywall obtained a commercial general liability policy, number 37 UUM MY 3553 ("CGL policy"), from Hartford, with a policy period from June 1, 1997 to May 31, 1998 and another policy, number 37 UEM MY 3554, with a policy period from June 1 1998 to June 1, 1999. The terms of the two policies were identical. Hartford also issued an umbrella liability coverage policy, number 37 XHU MY 3552 ("umbrella policy"), to Midwest Drywall, with a policy period from June 1, 1997 to June 1, 1999. National, by way of endorsement, was an additional named insured under each of the policies.

On September 16, 1997, the School District notified National to proceed with work, and later that month National began working on the project. On July 20, 1998, the School District notified National that it had become concerned about the quality of National's work. The School District purported to issue a stop-work order on portions of the project the next day; however, it failed to enforce the terms of the order and it continued to pay National for the work performed thereafter. On September 18, 1998, after National and its subcontractors continued to work on the project, the School District again demanded that National stop working, but again continued to pay National for work. At that time, National agreed to cease working in parts of areas B and C but continued to work on other parts of the project until October 21, 1998.

On August 17, 1998, F & D was given notice of a potential bond claim by letter. Then, on October 22, 1998, the School District gave notice to National of its intent to terminate the contract and it made a demand upon F & D pursuant to the terms of the performance bond. The School District's consulting engineers and architects discovered that much of the work performed on the project was defective. Specifically, many of the masonry walls constructed on the project suffered from significant deterioration. Several masonry walls were cracked while blocks within the walls were crushed, cracked and broken. Additional defects identified by the School District included cracked control joints, cracked mortar joints, hacked-in mechanical openings, wet insulation, cracked concrete floor slabs, cracked lintels, a cut and defective roof deck, bent and burnt flashing, incorrectly located lintels and control joints and improperly backfilled storm drain lines.

Pursuant to ¶ 4.2 of the performance bond, F & D proceeded to perform and complete the project through persons other than National. While F & D completed the project, it discovered that much of areas B and C needed to be demolished and rebuilt, and part of area A needed to be repaired. F & D completed the project and the School District now occupies it.

On June 16, 1999, the School District filed suit against National and F & D, among others, in the District Court of Linn County, Kansas. The amended petition alleged breach of contract, breach of an implied warranty, breach of an express warranty, damages for failure to complete the project on time and negligence. In the same lawsuit, F & D cross-claimed against National and Midwest Drywall seeking reimbursement of money expended by F & D, in accordance with the performance bond, to satisfy claims of the School District. F & D also filed suit in federal court against National and Midwest Drywall seeking reimbursement of similar expenses.

At the time it was sued, National requested that Hartford defend the lawsuit and indemnify it for any damages it owed. Hartford declined to do so. On March 15, 2000, National made a similar request to Hartford and again was denied. National and Midwest Drywall have now reached a settlement with F & D regarding both the state and federal court actions in an amount of not less than $4.6 million. As part of the settlement, National and Midwest Drywall assigned any claims they may have against Hartford under the CGL and umbrella policies to F & D. National is still a defendant in the state court lawsuit involving the School District.

F & D filed the instant cause of action against Hartford seeking damages for Hartford's breach of its duties under the CGL and umbrella policies to defend and indemnify National and Midwest Drywall in the underlying actions against them. Hartford denies that the CGL and umbrella policies cover the claims against National and Midwest Drywall in the underlying actions.

II. Summary Judgment Standard

Summary judgment is appropriate if the moving party demonstrates that there is "no genuine issue as to any material fact" and that it is "entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). In applying this standard, the court views the evidence and all reasonable inferences therefrom in the light most favorable to the nonmoving party. Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986)). A fact is "material" if, under the applicable substantive law, it is "essential to the proper disposition of the claim." Id. (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). An issue of fact is "genuine" if "there is sufficient evidence on each side so that a rational trier of fact could resolve the issue either way." Id. (citing Anderson, 477 U.S. at 248, 106 S.Ct. 2505).

"Where, as here, the parties file cross motions for summary judgment, we are entitled to assume that no evidence needs to be considered other than that filed by the parties, but summary judgment is nevertheless inappropriate if disputes remain as to material facts." James Barlow Family Ltd. Partnership v. David M. Munson, Inc. 132 F.3d 1316, 1319 (10th Cir.1997), cert. denied, 523 U.S. 1048, 118 S.Ct. 1364, 140 L.Ed.2d 513 (1998).

III. Discussion

F & D argues that Hartford had a duty to defend and indemnify National and Midwest Drywall in the underlying lawsuits because the alleged damages fell within the CGL and umbrella policies' liability coverage.

A. Interpreting Insurance Contracts- Generally

In assessing whether the underlying claims against National and Midwest Drywall fall within the scope of coverage, the court must interpret the language contained in the insurance policies. Under Kansas law¹, the construction and interpretation of an insurance policy is a question of law to be determined by the court. First Fin. Ins. Co. v. Bugg, 265 Kan. 690, 962 P.2d 515, 519 (1998). If the relevant facts are undisputed, the court may determine whether they are within the terms of the policy. Id. An insurance contract must be construed in a way that gives effect to the parties' intent. Brumley v. Lee, 265 Kan. 810, 963 P.2d 1224, 1226 (1998); Catholic Diocese of Dodge City v. Raymer, 251 Kan. 689, 840 P.2d 456, 459 (1992). If the language in the insurance policy is unambiguous, the court cannot remake the contract, it must be enforced as made. Brumley, 265 Kan. 810, 963 P.2d at 1226 (1998). Unambiguous language is to be "taken in its plain, ordinary, and popular sense." Bugg, 962 P.2d at 519. If the language in the policy is ambiguous, the policy terms are construed in favor of the insured. Brumley, 963 P.2d at 1226. In Brumley, the Kansas Supreme Court set out its test for ambiguity explaining:

To be ambiguous, a contract must contain provisions of language of doubtful or conflicting meaning, as gleaned from a natural and reasonable interpretation of its language. Ambiguity in a written contract does not appear until the application of pertinent rules of interpretation to the face of the instrument leaves it genuinely uncertain which one of two or more meanings is the proper meaning.

Id. (quoting Catholic Diocese of Dodge City v. Raymer, 251 Kan. 689, ...