Harleysville Worcester Ins. Co. v. Paramount Concrete

Decision Date07 August 2015
Docket NumberNo. 3:11–cv–578 (SRU).,3:11–cv–578 (SRU).
Citation123 F.Supp.3d 282
Parties HARLEYSVILLE WORCESTER INS. CO., No. Plaintiff, v. PARAMOUNT CONCRETE, et al., Defendants.
CourtU.S. District Court — District of Connecticut

James A. Budinetz, McElroy, Deutsch, Mulvaney & Carpenter/PH, LLP, Hartford, CT, Laurence M. McHeffey, Todd E. Jaworsky, McElroy, Deutsch, Mulvaney & Carpenter, LLP, Greenwood Village, CO, for Plaintiff.

Alison L. Squiccimarro, Paul A. Lange, Law Offices of Paul A. Lange, Stratford, CT, for Defendants.


STEFAN R. UNDERHILL, District Judge.

This is an insurance coverage action relating to claims for damage to swimming pools constructed with defectively produced concrete, known as "shotcrete." Plaintiff Harleysville Worcester Insurance Company ("Harleysville") brought this declaratory judgment action pursuant to 28 U.S.C. §§ 2201 and 1332(a)(1), against Paramount Concrete ("Paramount"), R.I. Pools, and Paramount's excess liability insurer, Scottsdale Insurance Company, seeking a declaration that it has no duty to indemnify Paramount in underlying litigation brought by R.I. Pools.See Compl. (doc. # 1). On March 31, 2014, I issued a ruling granting summary judgment in favor of Paramount and R.I. Pools in substantial part, except with respect to the issue whether Paramount was excluded from coverage because it "expected or intended" its shotcrete to fail. A bench trial was held from December 1 to December 2, 2014, during which Harleysville, Paramount and R.I. Pools presented evidence on that issue.

For the reasons set forth below, I conclude that Harleysville has not proven by a preponderance of the evidence that Paramount "expected or intended" its shotcrete to fail. My findings of fact and conclusions of law are set forth below.

I. Background and Procedural History

In May 2009, R.I. Pools commenced a products liability lawsuit in Connecticut Superior Court against Paramount, a manufacturer and supplier of shotcrete, after approximately nineteen pools built by R.I. Pools and incorporating Paramount's shotcrete developed significant, detrimental cracks. The case went to trial and on February 17, 2011, the jury returned a verdict in favor of R.I. Pools, awarding compensatory damages of $2,760,207.90. The jury also found that R.I. Pools was entitled to punitive damages, because Paramount acted "with a reckless disregard for the safety of product users, consumers and others who were injured by the product." Subsequently, the court awarded punitive damages in the form of attorneys' fees.1

Paramount was insured under a Commercial General Liability ("CGL") insurance policy issued by Harleysville. The CGL policy obligates Harleysville to defend any claim and indemnify any judgment against Paramount if the cause of action is covered by the policy. Included in the scope of coverage is "property damage" caused by an "occurrence," which the policy defines as "an accident, including continuous or repeated exposure to substantially the same harmful conditions." The policy compensates Paramount for up to one million dollars in damages per occurrence, and two million dollars total. Harleysville defended Paramount in its litigation with R.I. Pools, but reserved the right to contest coverage in the event of an unfavorable judgment.

Shortly after the verdict in the underlying litigation, Harleysville filed this declaratory judgment action, primarily asking the court to rule: (1) Paramount's insurance policy did not provide coverage for the damages awarded in the underlying litigation; and (2) even if it did, several exclusions nevertheless barred coverage. Compl. ¶¶ 31–34. Paramount filed a counterclaim also seeking a declaratory judgment, as well as damages for Harleysville's alleged bad faith defense in the underlying action and violations of the Connecticut Unfair Trade Practices Act. Am. Countercl. (doc. # 59).

Paramount and R.I. Pools moved for summary judgment on the declaratory judgment claims. On March 31, 2014, I granted those motions in substantial part, ruling that there were no genuine issues of material fact and Paramount and R.I. Pools had established coverage as a matter of law. To summarize, Paramount's policy requires Harleysville to pay "those sums that [Paramount] becomes legally obligated to pay as damages" because of "property damage" caused by an "occurrence" that takes place in the "coverage territory" during the policy period. CGL Policy, section I.1(a)-(b) (doc. # 82–3); see also Pl.'s Ex. 60. The policy defines an "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."Id., section V.13. "Accident" is not defined, but the Connecticut Supreme Court has interpreted this term to mean "an unforeseen unplanned event" "occurring without intent or volition" and "producing an unfortunate result." Vermont Mut. Ins. Co. v. Walukiewicz, 290 Conn. 582, 594, 966 A.2d 672 (2009) (citing Safeco Ins. Co. of America v. Tunkle, 997 F.Supp. 1356, 1357 (D.Mont.1998) ); see also Hammer v. Lumberman's Mut. Cas. Co., 214 Conn. 573, 590, 573 A.2d 699 (1990) (an accident is "an unintended occurrence"); Commercial Contractors Corp. v. Am. Ins. Co., 152 Conn. 31, 42, 202 A.2d 498 (1964) (an accident is "an unexpected happening").2

The policy defines "property damage" as "[p]hysical injury to tangible property, including all resulting loss of use of that property." CGL Policy, section V.17. Where an insured "unintentionally sells a defective product that is incorporated into a third-party's finished product, the resulting impairment to the third-party's product" constitutes an "occurrence" that causes "property damage." Chubb Ins. Co. of N.J. v. Hartford Fire Ins. Co., No. 97 CIV. 6935 LAP, 1999 WL 760206, at *4 (S.D.N.Y. Sept. 27, 1999), aff'd, 229 F.3d 1135 (2d Cir.2000) (incorporation of impure juice concentrate into juice drink was "occurrence" causing "property damage" because tainted concentrate made finished drink impure); see also, e.g., Maryland Cas. Co. v. W.R. Grace & Co., 23 F.3d 617, 624–27 (2d Cir.1993) (installation of asbestos in buildings was an "occurrence"); Aetna Cas. & Sur. Co. v. Gen. Time Corp., 704 F.2d 80 (2d Cir.1983) (incorporation of defective motor into radiator valve that caused valve to malfunction was an "occurrence"); Nat. Union Fire Ins. Co. of Pittsburgh v. Terra Ind., Inc., 216 F.Supp.2d 899, 918–19 (N.D.Iowa 2002) ; Shade Foods, Inc. v. Innovative Products Sales & Mktg., Inc., 78 Cal.App.4th 847, 865, 93 Cal.Rptr.2d 364 (2000). Paramount's defective shotcrete was incorporated into R.I. Pools' finished products, the pools, and caused those products to fail. As a result, I ruled on summary judgment that Paramount met its burden of proving "property damage" caused by an "occurrence," and thus established coverage. See Harleysville Worcester Ins. Co. v. Paramount Concrete, Inc., 10 F.Supp.3d 252, 263 (D.Conn.2014).

The burden then shifted to Harleysville to prove that one of the policy's enumerated exclusions barred coverage. Harleysville urged the applicability of Exclusion a, which precludes coverage for injuries "expected or intended" by the insured. Harleysville also argued that several "business risk" exclusions designed to prevent an insurer from becoming a surety for the insured's defective work or product applied in this case. See, e.g., Bonded Concrete, Inc. v. Transcon. Ins. Co., 12 A.D.3d 761, 784 N.Y.S.2d 212, 213 (3d Dep't 2004).

The business risk exclusions ensure that a CGL policy covers "tort liability resulting from the product and/or work of the insured company" without serving as a warranty on the quality of the work or product itself. Am. Ins. Co. v. Crown Packaging Int'l, 813 F.Supp.2d 1027, 1046 (N.D.Ind.2011) ; Fireman's Fund Ins. Co. v. Amstek Metal, LLC, No. 07 C 647, 2008 WL 4066096 (N.D.Ill. Aug. 27, 2008). I concluded that none of those exclusions applied, because the underlying state-court trial established that Paramount sought coverage for damage caused by its product, not for the cost of remedying the defective product itself. With respect to the "expected or intended" injury exclusion, however, I held that Harleysville should not be bound by the record at the underlying trial. The jury did not need to consider Paramount's subjective state of mind in order to hold Paramount liable to R.I. Pools; therefore, the jury's determination that Paramount acted recklessly neither established nor precluded a finding of "expected" or "intended" injury as a matter of law. Thus, I concluded that it was necessary to have a bench trial on the issue. See Paramount Concrete, 10 F.Supp.3d at 265.

II. Findings of Fact
A. Properties of Concrete

In its most basic form, concrete is the combination of water, cement (typically Portland cement), and aggregate—i.e., sand and rock. Chemical additives, or "admixtures," can also be added to reduce water, accelerate or slow down the hardening process, control shrinkage, and entrain air. Pl.'s Ex. 40A at 1; Pl.'s Ex. 49A at 4; Bench Trial (Dec. 1, 2014) Tr. at 30:7–21. Shotcrete is a special type of concrete that is not cast, but is put into a hopper and then shot into placed at high velocity through a hose.3 Bench Trial (Dec. 1, 2014) Tr. at 31:4–25. Shotcrete is more difficult to work with than regular concrete; it starts hardening faster due to its high cement content and needs to have a more uniform consistency than ordinary concrete. Pl.'s Ex. 64 (Underlying Trial [Feb. 7, 2011] Tr. at 23:3–10). Properly placing shotcrete into the pump for shooting is also difficult, and requires a degree of precision. Id.

Concrete is formed when the water and cement undergo a chemical reaction called "hydration," forming a paste that binds the aggregates together and fills the space between the aggregate particles. In properly made concrete, each particle of aggregate is completely coated with paste and all spaces between the particles are completely filled with paste. Pl.'s Ex. 40A at 1–2; ...

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