Limbach Co. LLC v. Zurich American Ins. Co.

• Decision Date: 24 January 2005
• Docket Number: No. 04-1261.,04-1261.
• Parties: LIMBACH COMPANY LLC, Plaintiff-Appellant, v. ZURICH AMERICAN INSURANCE COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

396 F.3d 358

LIMBACH COMPANY LLC, Plaintiff-Appellant, v. ZURICH AMERICAN INSURANCE COMPANY, Defendant-Appellee.

No. 04-1261.

United States Court of Appeals, Fourth Circuit.

Argued: October 29, 2004.

Decided: January 24, 2005.

ARGUED:

Douglas Leo Patin, Spriggs & Hollingsworth, Washington, D.C., for Appellant. David Drake Hudgins, Alexandria, Virginia, for Appellee.

ON BRIEF:

Christyne K. Brennan, Spriggs & Hollingsworth, Washington, D.C., for Appellant.

Before WIDENER and MOTZ, Circuit Judges, and CONRAD, United States District Judge for the Western District of Virginia, sitting by designation.

OPINION

PER CURIAM:

This appeal arises from an insurance coverage dispute. On May 27, 2003, Limbach Company LLC (Limbach) filed an action against Zurich American Insurance Company (Zurich), claiming that a commercial liability policy issued by Zurich provided coverage for property damage caused by Limbach's faulty workmanship. On cross-motions for summary judgment, the district court ruled that the property damage was excluded from coverage by the policy. Accordingly, the court awarded summary judgment to Zurich. Limbach has appealed and, for the reasons explained below, we reverse and remand.

I.

A.

In 1999, Limbach entered into a subcontract with Morse Diesel/Essex to perform mechanical work at the Howard University Health Sciences Building in Washington, D.C. Under the subcontract, Limbach was responsible for installing a prefabricated, insulated, underground steam line. Limbach contracted with Thermacor Process, Inc. (Thermacor) for the production of the steam pipe. Legacy Builders, one of Limbach's subcontractors, excavated the trench for the steam pipe and backfilled the trench after the pipe was installed. Limbach completed its work in November 2000.

On June 19, 2001, after Howard University began using the steam line, a leak in the steam line was discovered. It is undisputed that Limbach's employees caused the leak when they improperly unpackaged the steam pipe prior to installation. The employees used an acetylene torch to remove the pipe's shipping bar. The torch weakened the pipe, which caused the pipe to leak. The leak damaged the insulation covering the pipe, the backfill placed around the steam line, and the landscaping in the area surrounding the leak. Morse Diesel/Essex directed Limbach to replace the damaged pipe and to repair the property damage caused by the leak. In order to excavate the damaged steam pipe, Limbach had to remove concrete that was installed by a third party. As a result, Limbach had to hire a company to perform concrete replacement work.

B.

During the relevant period, Limbach was insured under a commercial liability policy issued by Zurich. The policy provides that Zurich "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." The policy applies to completed operations, as defined in the policy under "products-completed operations hazard." This term is defined, in pertinent part, as follows:

"Products completed operations hazard":

a. Includes all "bodily injury" and "property damage" occurring away from premises you own or rent and arising out of "your product" or "your work" except:

(1) Products that are still in your physical possession; or

(2) Work that has not yet been completed or abandoned. However, "your work" will be deemed completed at the earliest of the following times:

(a) When all of the work called for in your contract has been completed.

(b) When all of the work to be done at the job site has been completed if your contract calls for work at more than one job site.

(c) When that part of the work done at a job site has been put to its intended use by any person or organization other than another contractor or subcontractor working on the same project.

Work that may need service, maintenance, correction, repair or replacement, but which is otherwise complete, will be treated as completed.

The insurance policy contains several exclusions that limit Zurich's duty to provide coverage to Limbach. One of those exclusions is relevant to the present controversy. Pursuant to exclusion (l) (the "your work" exclusion), the insurance policy does not apply to "Damage To Your Work." This exclusion reads as follows:

Damage to Your Work

"Property damage" to "your work" arising out of it or any part of it and included in the "products-completed operations hazard."

The exclusion includes the following exception:

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.

The insurance policy defines "your work" as"[w]ork or operations performed by you or on your behalf," and "[m]aterials, parts or equipment furnished in connection with such work or operations."

C.

Limbach filed a timely notice and claim with Zurich for the costs of replacing the damaged steam pipe and repairing the work damaged by the leak. Limbach's claim included (1) the cost of repairing the damaged backfill; (2) the cost of replacing the damaged steam pipe; (3) the cost of repairing the damaged landscaping; (4) the cost of replacing concrete; and (5) the cost of a temporary steam boiler. By letter dated May 3, 2002, Zurich agreed to cover the cost of the temporary steam boiler, as well as a portion of the cost of repairing the damaged landscaping. However, Zurich denied coverage for the balance of Limbach's claim. The company did not respond to Limbach's request for reconsideration.

On May 27, 2003, Limbach filed an action against Zurich in the Eastern District of Virginia, claiming that the costs of repairing and replacing the work damaged by the leak were covered under the insurance policy, and that the company was entitled to the unpaid portion of its insurance claim. Jurisdiction in this dispute is based upon diversity of citizenship pursuant to 28 U.S.C. § 1332. Limbach and Zurich filed cross-motions for summary judgment. The district court ruled in favor of Zurich, concluding that all of the damaged work was excluded from coverage by the "your work" exclusion. Accordingly, the court awarded summary judgment to Zurich. Limbach has appealed.

II.

We review a grant of summary judgment de novo, viewing all facts and inferences in the light most favorable to the nonmoving party. Love-Lane v. Martin, 355 F.3d 766, 775 (4th Cir.2004). We may uphold an award of summary judgment only "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c).

III.

Limbach contends that its insurance claim covers the cost of repairing or replacing damaged work performed by subcontractors and third parties, and that the damaged work is not excluded from coverage by the insurance policy. Zurich contends that the damaged work is excluded from coverage by the "your work" exclusion.

A.

In an action based upon diversity of citizenship, the relevant state law controls. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). The district court must apply the law of the forum state, including its choice of law rules. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496-497, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Applying Virginia choice of law rules, the district court properly chose to apply Pennsylvania law, since the parties agree that the insurance contract was delivered in Pennsylvania. See Keco Indus., Inc. v. ACF Indus., Inc., 316 F.2d 513, 514 (4th Cir.1963).

Under Pennsylvania law, the interpretation of an insurance policy is a matter of law for the court. Reliance Ins. Co. v. Moessner, 121 F.3d 895, 900 (3rd Cir.1997) (citing Standard Venetian Blind Co. v. American Empire Ins. Co., 503 Pa. 300, 469 A.2d 563, 566 (Pa.1983)). "When the policy language is clear and unambiguous, the court must give effect to the language of the contract." Travelers Cas. & Sur. Co. v. Castegnaro, 565 Pa. 246, 772 A.2d 456, 458 (Pa.2001). Conversely, where the policy is ambiguous, the ambiguous term must be construed in favor of the insured. Medical Protective Co. v. Watkins, 198 F.3d 100, 104 (3rd Cir.1999).

B.

As noted above, the commercial liability policy issued by Zurich provides coverage for damage to the property of others that arises after the insured's work has been completed. However, the policy contains an exclusion for "Damage To Your Work." In assessing whether the property damage at issue in this case is covered by the policy, we must determine whether the "your work" exclusion eliminates coverage.

1.

A portion of Limbach's insurance claim covers the cost of repairing the damaged backfill. The parties stipulated that the leak damaged the backfill placed around the steam line. It is undisputed that the backfill work was performed on Limbach's behalf by a subcontractor, Legacy Builders. Since "your work," as defined in the insurance policy, includes work performed on an insured's behalf, Zurich maintains that the "your work" exclusion precludes coverage for the cost of repairing the damaged backfill. We disagree.

The "your work" exclusion contains an exception for work performed by a subcontractor. The exclusion specifically states that it "does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor." (emphasis added).

The history of this exception was reviewed by the Pennsylvania Superior Court in Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commer. Union Ins. Co., 2003 Pa.Super. 149, 825 A.2d 641, 655-656 (Pa.Super.2003), appeal granted, 577 Pa. 667, 848 A.2d 925 (Pa. Apr. 5, 2004) (quoting the Comprehensive General Liability Policy Handbook, p. 106 (Nelson, P., Ed.)) (emphasis added):

In 1986, the Insurance Services...