Martco Ltd. Partnership v. Wellons, Inc.

• Decision Date: 19 November 2009
• Docket Number: No. 08-31248.,No. 08-31247.,08-31247.,08-31248.
• Citation: 588 F.3d 864
• Parties: MARTCO LIMITED PARTNERSHIP, Plaintiff, v. WELLONS, INC., doing business as Wellons USA, Defendant-Cross Claimant-Appellant, v. Admiral Insurance Company, Defendant-Cross Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

588 F.3d 864

MARTCO LIMITED PARTNERSHIP, Plaintiff, v. WELLONS, INC., doing business as Wellons USA, Defendant-Cross Claimant-Appellant, v. Admiral Insurance Company, Defendant-Cross Defendant-Appellee.

No. 08-31247.

No. 08-31248.

United States Court of Appeals, Fifth Circuit.

November 19, 2009.

David Ross Frohn (argued), Frohn & Thibodeaux, Lake Charles, LA, for Wellons, Inc.

Michael J. Vondenstein, David Charles Bach, Joseph Leroy Spilman, III (argued), Hailey, McNamara, Hall, Larmann & Papale, Metairie, LA, for Admiral Ins. Co.

Appeals from the United States District Court for the Western District of Louisiana.

Before BARKSDALE, SOUTHWICK and HAYNES, Circuit Judges.

HAYNES, Circuit Judge:

This matter comes before us as a single case consolidated from appeals No. 08-31247 and No. 08-31248. Both appeals arise from the same underlying case and center on essentially the same concerns. Accordingly, we address them together. In No.08-31247, Wellons Inc. ("Wellons") appeals the district court's determination that Wellons failed to carry its burden of establishing Admiral Insurance Company's ("Admiral") duty to defend Wellons under its commercial general liability policy ("Policy"). The district court declined to find a duty to defend, citing Exclusion (m) of the Policy.

In No. 08-31248, Admiral appeals the district court's subsequent determination that Admiral owed Wellons a duty to indemnify under the Policy. Admiral contends that the district court erred in both finding coverage existed under the Policy's insuring clause and failing to apply any of a number of possible exclusions.

With respect to the duty to defend as appealed in No. 08-31247, we find that the district court erred when it concluded that Exclusion (m) eliminated Admiral's duty to defend. We conclude that Admiral had a duty to defend in light of the language of the Policy and the allegations of the underlying complaint. With respect to the duty to indemnify as set forth in No. 08-31248, we agree with the district court's analysis. Accordingly, we REVERSE the judgment and REMAND in No. 08-31247 and AFFIRM the judgment in No. 08-31248.

I. FACTUAL AND PROCEDURAL BACKGROUND

Martco Ltd. ("Martco"), a building product manufacturer, hired Wellons, a manufacturer of wood-fired boiler and energy systems, to design, fabricate and install certain improvements to its existing Wellons-brand wood-fired thermal oil heating system (the "Wellons unit") located in Martco's oriented strand board ("OSB") plant in Le Moyen, Louisiana. The extent of this relationship was documented by a series of five contracts executed between Martco and Wellons. Martco's stated goal in hiring Wellons was to increase the thermal oil output of its Wellons unit. Construction of the improvements commenced in late December 2002 with a planned thirty-day shutdown of the OSB plant. The work schedule developed by the parties called for the Wellons unit to enter service and the OSB plant to resume production on January 28, 2003.

Numerous problems arose with the Wellons unit following the January 28 resumption of production. A new expansion tank installed by Wellons imploded; a circulation pump isolation valve failed; fires developed in the dry bins; a valve stem leaked; more ash than anticipated was generated by the new Wellons unit; the computerized control system did not function properly; and wires burnt off the thermocouples. Martco later demonstrated at trial that it was unable to operate the Wellons unit for certain periods of time after the January 28 restart because of these failures. These shutdowns and periods of defective performance caused unplanned downtime for the entire OSB plant. Ultimately, Martco's inability to use the Wellons unit resulted in lost production profits, and business opportunities valued at $4,395,858.00.

Martco subsequently filed suit against Wellons. Martco's complaint stated six separate contractual claims against Wellons. The merits of Martco's claims were tried and a jury returned a verdict for Martco. We affirmed that judgment on March 9, 2009. See Martco Ltd. P'ship v. Wellons, Inc., 312 Fed.Appx. 716, 717 (5th Cir.2009).

Before trial, Wellons sought both defense and indemnity from Admiral. In a letter, Admiral refused defense and indemnity on the basis that the claims stated in Martco's complaint did not allege "property damage" caused by an "occurrence" within the applicable policy period. Additionally, Admiral cited numerous exclusions as foreclosing its duty to defend or indemnify Wellons for any claims that may have been stated. The liability issues as between Martco and Wellons and the insurance issues as between Wellons and Admiral were bifurcated by court order before trial.

After trial on the underlying liability issues was completed, Admiral filed a motion for summary judgment wherein it asserted that the Policy did not provide indemnification for Martco's claims in the underlying suit. Wellons, joined by Martco, filed a cross-motion arguing that the Policy did provide indemnification for Martco's claims. The district court found that the Policy required Admiral to indemnify Wellons for Martco's claims for lost productivity, earnings, and profits. Admiral took the instant appeal on the question of indemnity under matter No. 08-31248.

Shortly thereafter, Wellons and Martco filed a joint motion for summary judgment on the issue of Admiral's duty to defend. Admiral responded by claiming that there was no duty to defend under the policy because there was no "property damage" caused by an "occurrence" evident in the original Martco complaint and because numerous exclusions applied. The district court found that there was "property damage." Without examining whether there was an occurrence, the court turned to Exclusion (m) to determine whether the "property damage" alleged was excluded. It concluded that this exclusion applied such that Admiral did not have a duty to defend Wellons in the underlying suit. The duty to defend issue was timely appealed as matter No. 08-31247.

II. STANDARD OF REVIEW

We apply Louisiana substantive law when reviewing a district court's ruling in a diversity action. Foradori v. Harris, 523 F.3d 477, 486 (5th Cir.2008) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78-79, 58 S.Ct. 817, 82 L.Ed. 1188 (1938)). We review a grant of summary judgment de novo, applying the same standard as the district court. Bolton v. City of Dallas, 472 F.3d 261, 263 (5th Cir.2006). Our inquiry "is limited to the summary judgment record before the trial court." Topalian v. Ehrman, 954 F.2d 1125, 1131-32 n. 10 (5th Cir.1992). We must view the evidence in the light most favorable to the non-moving party, Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986), and the movant has the burden of showing this court that summary judgment is appropriate, Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Summary judgment is appropriate where the competent summary judgment evidence demonstrates that there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Bolton, 472 F.3d at 263; see FED.R.CIV.P. 56(c). A genuine issue of material fact exists if a reasonable jury could enter a verdict for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

III. DISCUSSION

An insurer's duty to defend suits on behalf on an insured presents a separate and distinct inquiry from that of the insurer's duty to indemnify a covered claim after judgment against the insured in the underlying liability case. Elliott v. Cont'l Cas. Co., 949 So.2d 1247, 1250 (La.2007) (citing Am. Home Assurance Co. v. Czarniecki, 255 La. 251, 230 So.2d 253, 259 (1969)).¹ While factual inquiries beyond the complaint are prohibited with respect to the duty to defend, they are indispensable in assessing the duty to indemnify. Assessing each duty requires analysis of different facts in the light of applicable controlling presumptions. Accordingly, we will address each duty separately.

A. The Duty to Defend

Wellons's appeal from the district court's grant of summary judgment on the duty to defend raises two issues for review: (1) whether Martco's complaint alleged a potentially covered event triggering Admiral's duty to defend under the Policy, and (2) whether that alleged triggering event fell within an exclusion of the Policy. The duty to defend analysis begins with an examination of whether any of the facts pleaded in the complaint possibly fall within matters covered under the insuring clause. The insured bears the burden on this point. See Doerr v. Mobil Oil Corp., 774 So.2d 119, 124 (La.2000), modified on other grounds, 782 So.2d 573 (La. 2001). If claims potentially covered under the insuring clause are pled, the insurer then has the burden of proving that the complaint states only facts that fall within an exclusion from coverage. Doerr, 774 So.2d at 124; La. Maint. Servs., Inc. v. Certain Underwriters at Lloyd's, 616 So.2d 1250, 1252 (La.1993). To prevail, the insurer must show that the allegations in the complaint unambiguously fall within one of the exclusionary clauses. Alert Centre, Inc. v. Alarm Protection Servs., Inc., 967 F.2d 161, 163 (5th Cir.1992). We conclude that Wellons was entitled to a defense under the Policy. Read broadly, as Louisiana law requires, the complaint alleged facts that fall within the Policy's insuring clause. Exclusion (m) did not defeat the duty to defend because Martco's complaint did not allege damage to "impaired property" as defined by the Policy.

1. Louisiana's Duty to Defend Interpretive Rules

Under Louisiana's "Eight Corners Rule," we must assess whether there is a duty to defend by applying the allegations of the complaint to the underlying policy without resort to extrinsic evidence. Adams v. Frost, 990 So.2d 751, 756 (La.Ct. App.20...