Martin K. Eby Constr. Co. v. One Beacon Ins. Co.

• Citation: 926 F.Supp.2d 1237
• Decision Date: 25 February 2013
• Docket Number: Civil Action No. 08–1250–MLB, 08–2392–MLB.
• Parties: MARTIN K. EBY CONSTRUCTION COMPANY, INC., Plaintiff, v. ONE BEACON INSURANCE COMPANY, et al., Defendant. Continental Casualty Company, et al., Plaintiff, v. Onebeacon Insurance Company, successor in interest to Commercial Union Insurance Company, et al., Defendants.
• Court: U.S. District Court — District of Kansas

926 F.Supp.2d 1237

MARTIN K. EBY CONSTRUCTION COMPANY, INC., Plaintiff,

v.ONE BEACON INSURANCE COMPANY, et al., Defendant.

Continental Casualty Company, et al., Plaintiff,

v.Onebeacon Insurance Company, successor in interest to Commercial Union Insurance Company, et al., Defendants.

Civil Action No. 08–1250–MLB, 08–2392–MLB.

United States District Court, D. Kansas.

Feb. 25, 2013.

Dennis L. Gillen, Randall K. Rathbun, Tony L. Atterbury, Depew Gillen Rathbun & McInteer, LC, Jeffery A. Jordan, Mikel L. Stout, Stephen M. Kerwick, Foulston Siefkin LLP, Wichita, KS, for Plaintiff.

Eric J. Aufdengarten, Bradley J. Baumgart, Larry D. Fields, Kutak Rock LLP, Kansas City, MO, for Defendant One Beacon Insurance Company.

MEMORANDUM AND ORDER

MONTI L. BELOT, District Judge.

Before the court are the following:

1. Travelers' Motion for Summary Judgment against KBR (Docs. 241, 243);

2. KBR's Response (Doc. 255);

3. Travelers' Reply (Doc. 266);

4. KBR's Supplemental Response (Doc. 276); and

5. Travelers' Supplemental Reply (Doc. 277).

The parties are thoroughly familiar with the history of this litigation and it will be repeated here only as necessary. In light of the court's prior rulings and the parties' joint statement of remaining issues (Doc. 272), the court finds that KBR's counterclaim against Travelers ¹ is the only remaining ripe claim.

KBR's counterclaim alleges that Travelers is obligated to provide insurance coverage for KBR's defense costs from the underlying Texas litigation. (Doc. 28). KBR's counterclaim is now based on a single insurance policy and a single area of coverage: a 2002 policy Travelers issued to Eby that included coverage for Eby's “contractual indemnitees.” ² Travelers moves for summary judgment on KBR's counterclaim, arguing KBR has waived it or, alternatively, that the policy requirements for indemnitee coverage are not met. KBR denies that it waived its counterclaim and argues all of the conditions for indemnitee coverage are satisfied. ( See Doc. 272 at 2–3). The court finds that the policy conditions for coverage of KBR's defense costs have not been met and that KBR's counterclaim fails as a matter of law. Travelers' motion for summary judgment will therefore be granted.

I. Facts

The underlying Texas suit involved property near the Bayport Industrial Complex in Harris County, Texas. The area was occupied by industrial plants and underground pipelines.

CWA Project. In 1971, Celanese Corporation installed a methanol pipeline at the site. In 1979, KBR ³ contracted with the City of Houston to design a 30–inch water pipeline at the site. The design work was done under specifications of the Coastal Industrial Water Authority (“CWA”), a state agency. KBR's contract required it to provide the CWA with engineering services, help CWA prepare a bid package for contractors, and inspect the work of the successful contractor.

The CWA accepted Eby's ⁴ bid for the project. A contract for construction of the water pipeline was entered between Eby (as “Contractor”) and the CWA and the City of Houston. It identified KBR as the project “Engineer.” KBR was not a party or signatory to this contract, although its powers and duties were set forth in the contract specifications.

The CWA contract specifications included an indemnity provision which stated:

“The contractor [Eby] agrees that he has sole responsibility for the protection of facilities, structures, and properties inside and outside the limits of construction and agrees to indemnify and hold harmless the Owner, the Engineer [KBR], and owners of adjoining properties from and against any and all damages, claims, demands, suits, and judgment costs including attorney's fees and expenses for or on account of damage to property of any person, firm, corporation, company, or government agency, or death of or injury to any person or persons (including property and employees of the Coastal Industrial Water Authority, Brown & Root, Inc., the Contractor, and employees of the Contractor), directly or indirectly arising from or caused by or in connection with the performance or failure to perform any work provided for hereunder by the Contractor, his subcontractors, or their or the Contractor's agents, servants, or employees. It is agreed and understood that in the prosecution of work under the provisions hereof, the Contractor is and shall continue to be an independent contractor.

(Doc. 72 at 22).

This court has determined that the above provision did not meet the “express negligence test” of Texas law. (Doc. 270 at 13–14). As such, it did not contractually obligate Eby to indemnify KBR for its defense costs from the underlying Texas litigation. KBR now looks to Travelers.

Relevant Policy Provisions. Travelers issued a liability insurance policy (No. KK08000952) to Eby that was in effect from January 1, 2002, to January 1, 2003. (Doc. 243, Ex. 4). This is the policy under which KBR contends it is owed its defense costs. Eby is the named insured on the policy. KBR now concedes it does not qualify as an additional insured or “protected person” under this policy, but argues it is entitled to coverage for defense costs under the policy's “contract liability” indemnitee provisions. See Doc. 255 at 2–3.

The relevant 2002 Travelers policy provided in part:

Bodily injury and property damage liability. We'll pay amounts any protected person is legally required to pay as damages for covered bodily injury, property damage, or premises damage that:

• happens while this agreement is in effect; and

• is caused by an event.

* * *

Property damage means:

• physical damage to tangible property of others, including all resulting loss of use of that property; or

• loss of use of tangible property of others that isn't physically damaged.

* * *

Event means an accident, including continuous or repeated exposure to substantially the same general harmful conditions.

* * *

Contract liability. We won't cover injury or damage for which the protected person has assumed liability under any contract or agreement.

But we won't apply this exclusion to injury or damage for which the protected person would have liability without the contract or agreement.

Nor will we apply this exclusion to ... property damage ... for which the protected person has assumed liability under a covered contract made before the ... property damage ... happens.

Also, if the protected person has agreed under the same covered contract to defend or pay for the defense of, an indemnitee against a claim or suit for such ... property damage ..., we'll have the duty to defend the indemnitee against the claim or suit only if:

• the indemnitee isn't a protected person for the ... property damage ...;

• the claim or suit is for ... property damage ... for which that protected person assumed the liability of the indemnitee under the covered contract;

• the ... property damage ... is covered by this agreement;

• all of our indemnitee defense control and authority requirements are fulfilled; and

• all of our indemnitee defense cooperation and notice requirements are fulfilled.

* * *

If we have the duty to defend the indemnitee under the contract liability indemnitee defense coverage, we'll do the following:

• We'll defend the indemnitee against the claim or suit even if all of the allegations of such claim or suit are groundless, false, or fraudulent....

However, if we don't have a duty to defend the indemnitee under [ ] the contract liability indemnitee defense coverage; ... we'll pay covered indemnitee defense expenses assumed under contract as if they're damages covered by this agreement.

* * *

Covered contract means that part of any of the following contracts or agreements under which you assume the liability of another to pay damages for covered ... property damage that is sustained by others: [listing various agreements not applicable here, such as easements or leases]

Covered contract also means ...:

• that part of any other contract or agreement under which you assume the liability of another to pay damages for ... property damage ... that's sustained by others.

* * *

• But we won't consider the following parts of any other contract or agreement under which you assume the liability of another to pay damages to be a covered contract:

• Architect, engineer, or surveyor indemnity.

* * *

Architect, engineer, or surveyor indemnity means that part which indemnifies any architect, engineer, or surveyor for injury or damage that results from:

* * *

• the giving of or failure to give any direction or instruction if that giving or instruction is the primary cause of the injury or damage.

Indemnitee means any person or organization who a protected person has agreed under a covered contract to indemnify or hold harmless.

Indemnitee defense control and authority requirements means the following requirements which must be fulfilled for us to conduct and control the defense of an indemnitee against a claim or suit under this agreement:

• The protected person and the indemnitee must ask us to conduct and control the defense of the indemnitee against the claim or suit under this agreement.

• We must determine that there's no conflict between the interests of the protected person and those of the indemnitee, based on the allegations in the claim or suit and on what we know about the factual and legal basis for the damages being sought.

• [listing additional requirements]

Indemnitee defense expenses assumed under contract means the reasonable attorney fees and necessary litigation expenses which:

• are incurred by or for an indemnitee to defend itself against a claim or suit for damages covered by this agreement; and

• are subject to a covered contract under which a protected person has agreed to defend, or pay for the defense of, the indemnitee against the claim or suit.

(Doc. 243, Ex. 4. See policy excerpts at Doc. 255, Ex. 1).

On January 30, 2009, KBR formally provided notice of the underlying suit to Travelers and Continental....