Hartford Fire Ins. Co. v. Gandy Dancer, LLC

• Decision Date: 28 March 2012
• Docket Number: No. CIV 10–0137 JB/RHS.,CIV 10–0137 JB/RHS.
• Citation: 864 F.Supp.2d 1157
• Parties: The HARTFORD FIRE INSURANCE COMPANY, Plaintiff/Counter–Defendant, v. GANDY DANCER, LLC; BNSF Railway Company; and Roy D. Mercer, LLC., Defendants, and BNSF Railway Company, Counter–Plaintiff, v. The Hartford Fire Insurance Company, Counter–Defendant.
• Court: U.S. District Court — District of New Mexico

864 F.Supp.2d 1157

The HARTFORD FIRE INSURANCE COMPANY, Plaintiff/Counter–Defendant,

v.GANDY DANCER, LLC; BNSF Railway Company; and Roy D. Mercer, LLC., Defendants,andBNSF Railway Company, Counter–Plaintiff,

v.The Hartford Fire Insurance Company, Counter–Defendant.

No. CIV 10–0137 JB/RHS.

United States District Court, D. New Mexico.

March 28, 2012.

Thomas J. Bunting, Todd Schwarz, Miller Stratvert, P.A., Albuquerque, NM, for Plaintiff.

Robert P. Warburton, Stelzner, Winter, Warburton, Flores, Sanchez & Dawes, P.A., Albuquerque, NM, for Defendant Gandy Dancer, LLC.

Tim L. Fields, Earl E. DeBrine, Jr., Paul T. Halajian, Nathan T. Nieman, Modrall, Sperling, Roehl, Harris & Sisk, P.A., Albuquerque, NM, for Defendant BNSF Railway Company.

Charles T. DuMars, Tanya L. Scott, Law & Resource Planning Associates, Albuquerque, NM, for Defendant Roy D. Mercer, LLC.

MEMORANDUM OPINION AND ORDER

JAMES O. BROWNING, District Judge.

THIS MATTER comes before the Court on: (i) The Hartford Fire Insurance Company's Motion for Summary Judgment Declaring that the Terms of the Policy Issued to Gandy Dancer Do Not Provide Coverage for Roy D. Mercer, LLC's Claims Against BNSF and Gandy Dancer, filed June 10, 2011 (Doc. 37)(“MSJ”); and (ii) BNSF Railway Company's Rule 56(f) Motion and Memorandum Brief in Support to Conduct Discovery, filed July 21, 2011 (Doc. 47)(“Discovery Motion”). The Court held a hearing on January 31, 2012. The primary issues are: (i) whether Defendant Roy D. Mercer, LLC's allegations against Defendant Gandy Dancer, LLC and Defendant/Counter–Plaintiff BNSF Railway Company in the underlying state litigation give rise to coverage under the insurance policies which Plaintiff/Counter–Defendant The Hartford Fire Insurance Company (“The Hartford”); (ii) whether any exclusion applies to preclude coverage; (iii) whether The Hartford is estopped from denying coverage; and (iv) whether the Court should delay deciding the MSJ so that discovery may be conducted. The Court will grant in part and deny in part the MSJ. The Court finds that Mercer LLC's allegations of property damages and negligent misrepresentation do not give rise to coverage under the insurance policies. The Court will deny the MSJ in part, however, because Mercer LLC's allegations of trespass and nuisance trigger coverage, and because a determination of the ultimate duties under the policies is premature. The Court will deny the Discovery Motion, because additional discovery is unnecessary.

FACTUAL BACKGROUND

This case involves the construction of a water diversion system in 2006, over which litigation is taking place in state court. The Hartford seeks a declaratory judgment that the facts alleged in the underlying state litigation do not give rise to insurance coverage under the policies it issued. Many of the material facts are undisputed.

1. The Insurance Policies.

The Hartford issued a business liability insurance policy to Gandy Dancer, Policy Number 21 UUN QZ5048, with policy dates of August 8, 2005 to August 8, 2006, and issued a second policy, 21 UUN QZ5048, with policy dates of August 8, 2006 to August 8, 2007. See 21 UUN QZ5048, Commercial General Liability Coverage Form, filed June 10, 2011 (Doc. 37–7)(“05–06 Gandy Dancer Policy”); 21 UUN QZ5048, Commercial General Liability Coverage Form, filed June 10, 2011 (Doc. 37–8)(“06–07 Gandy Dancer Policy”); ¹ MSJ ¶¶ 10–11, at 5 (setting forth these facts); BNSF Railway Company's Response Brief in Opposition to the Hartford Fire Insurance Company's Motion for Summary Judgment Against BNSF and Gandy Dancer ¶ 1, at 4, filed July 21, 2011 (Doc. 48)(“BNSF Response”)(not disputing this fact).² The Gandy Dancer Policies provide cover for, in relevant part, “property damage” caused by an “occurrence” as those terms are defined in the Gandy Dancer Policies. 05–06 Gandy Dancer Policy; 06–07 Gandy Dancer Policy; MSJ ¶ 14, at 5 (setting forth this fact); BNSF Response ¶ 1, at 4 (not disputing this fact); Defendant Gandy Dancer's Response to Plaintiff Hartford Fire Insurance Company's Motion for Summary Judgment Declaring That the Terms of the Policy Issued to Gandy Dancer Do Not Provide Coverage for Roy D. Mercer, LLC's Claims Against BNSF and Gandy Dancer at 5–6, filed July 21, 2011 (Doc. 45)(“Gandy Dancer Response”)(not disputing this portion of the fact). The Gandy Dancer Policies provide in relevant part:

COVERAGE A BODILY INJURY AND PROPERTY DAMAGE LIABILITY

1. Insuring Agreement

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies ...

b. This insurance applies to “bodily injury” and “property damage” only if:

(1) The “bodily injury” or “property damage” is caused by an “occurrence” ...

05–06 Gandy Dancer Policy; 06–07 Gandy Dancer Policy; MSJ ¶ 14, at 5–6 (setting forth this fact); BNSF Response ¶ 1, at 4 (not disputing this fact). ³ The Gandy Dancer Policies provide that “property damage” means:

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.

21 UUN QZ5048, Commercial General Liability Coverage Form at 1, filed July 21, 2011 (Doc. 45–2)(“05–06 Gandy Dancer Policy”). “Occurrence” is defined in the Gandy Dancer Policies as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” 05–06 Gandy Dancer Policy at 15; 06–07 Gandy Dancer Policy at 17; MSJ ¶ 15, at 5–6 (setting forth this fact); Gandy Dancer Response at 5 (not disputing this fact); BNSF Response ¶ 1, at 4 (not disputing this fact). The Gandy Dancer Policies also include the following exclusions:

a. Expected Or Intended Injury:

“Bodily injury” or “property damage” expected or intended from standpoint of the insured. This exclusion does not apply to “bodily injury” or “property damage” resulting from the use of reasonable force to protect persons or property.

...

j. Damage To Property:

“Property damage” to:

...

(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

....

05–06 Gandy Dancer Policy at 2; 06–07 Gandy Dancer Policy at 4; MSJ ¶ 16, at 5–6 (setting forth this fact); Gandy Dancer Response at 5 (not disputing this fact); BNSF Response ¶ 1, at 4 (not disputing this fact). The Gandy Dancer Policies distinguish between the Named Insured and additional insureds as follows: “Throughout this policy the words ‘you’ and ‘your’ refer to the named insured shown in the Declarations and any other person or organization qualifying as a Named Insured under this policy.... The word ‘insured’ means any person or organization qualifying as such under Section II—Who Is An Insured.” 05–06 Gandy Dancer Policy at 1; 06–07 Gandy Dancer Policy at 1; MSJ ¶ 17, at 5–6 (setting forth this fact); Gandy Dancer Response at 5 (not disputing this fact); BNSF Response ¶ 1, at 4 (not disputing this fact). Gandy Dancer is the only Named Insured under the Gandy Dancer Policies, and The Hartford assumes for the purposes of the MSJ only that BNSF Railway qualifies as an additional insured. See MSJ ¶ 18 and n. 2, at 7 (setting forth this fact); Gandy Dancer Response at 5 (not disputing this fact); BNSF Response ¶ 1, at 4 (not disputing this fact).

2. Facts Giving Rise to the Underlying Action.

BNSF Railway owns and operates a railroad track and facilities in Socorro County, New Mexico. See MSJ ¶ 1, at 2 (setting fort this fact); Defendant Gandy Dancer's Response to Plaintiff Hartford Fire Insurance Company's Motion for Summary Judgment Declaring That the Terms of the Policy Issued to Gandy Dancer Do Not Provide Coverage for Roy D. Mercer, LLC's Claims Against BNSF and Gandy Dancer at 5, filed July 21, 2011 (Doc. 45)(“Gandy Dancer Response”)(not disputing this fact); BNSF Railway Company's Response Brief in Opposition to the Hartford Fire Insurance Company's Motion for Summary Judgment Against BNSF and Gandy Dancer ¶ 1, at 4, filed July 21, 2011 (Doc. 48)(“BNSF Response”)(not disputing this fact). A portion of these facilities is located adjacent to a tract of land that Mercer LLC owns. See BNSF Railway Co. v. Roy D. Mercer, LLC, D–725–CV–20080092, Verified Complaint for Injunctive Relief, Declaratory Judgment, Negligence and Nuisance ¶ 8, at 2 (dated June 3, 2008), filed June 10, 2011 (Doc. 37–1)(“BNSF State Complaint”); BNSF Railway Co. v. Roy D. Mercer, LLC, D–725–CV–20080092, Amended Complaint for Declaratory Judgment and Injunctive Relief (dated August 22, 2008), filed June 10, 2011 (Doc. 37–2)(“BNSF State Am. Complaint”); Roy D. Mercer, LLC v. Gandy Dancer, LLC, D–725–CV–201100044, Complaint for Damages (dated May 21, 2011), filed June 10, 2011 (Doc. 37–3)(“Mercer State Complaint”); MSJ ¶ 1, at 2 (setting forth this fact); Gandy Dancer Response at 5 (not disputing this fact); BNSF Response ¶ 1, at 4 (not disputing this fact). Mercer LLC's land lies within a silty basin for the Brown Arroyo, also known as the Matanza Arroyo. See generally BNSF State Complaint ¶ 8, at 2; BNSF State Am. Complaint; Mercer State Complaint; MSJ ¶ 1, at 2 (setting forth this fact); Gandy Dancer Response at 5 (not disputing this fact); BNSF Response ¶ 1, at 4 (not disputing this fact). On September 23, 1936, the Middle Rio Grande Conservancy District (“MRGCD”) granted to BNSF Railway's predecessor, the Atchison, Topeka, and Santa Fe Railway Company, a right to

enter upon lands described in the easement and use so much of the natural material as such earth, rock, wood, etc. as it may elect or desire to remove for the purposes of constructing a surface ditch,...