Mid-Continent Cas. Co. v. McCollum Custom Homes, Inc.

• Decision Date: 20 May 2020
• Docket Number: Civil Action No. 4:18-CV-4132
• Citation: 461 F.Supp.3d 516
• Parties: MID-CONTINENT CASUALTY COMPANY, Plaintiff, v. MCCOLLUM CUSTOM HOMES, INC., Defendant.
• Court: U.S. District Court — Southern District of Texas

461 F.Supp.3d 516

MID-CONTINENT CASUALTY COMPANY, Plaintiff,

v.MCCOLLUM CUSTOM HOMES, INC., Defendant.

Civil Action No. 4:18-CV-4132

United States District Court, S.D. Texas, Houston Division.

Signed May 20, 2020

Julie Ann Shehane, Summer L. Frederick, R. Brent Cooper, Cooper and Scully PC, Dallas, TX, for Plaintiff.

Daniel F. Crowder, Crowder Law Firm, Houston, TX, for Defendant.

ORDER

Andrew S. Hanen, United States District Judge

Pending before the Court is Plaintiff Mid-Continent Casualty Company's motion for summary judgment. (Doc. No. 18). Defendant McCollum Custom Homes, Inc. filed a response. (Doc. No. 24). Plaintiff filed a reply, accompanied by a motion to strike certain exhibits from Defendant's response. (Doc. No. 25). Defendant responded to the motion to strike, (Doc. No. 26), and Plaintiff replied. (Doc. No. 27).

I. Factual Background

This case arises out of an insurance dispute related to Plaintiff Mid-Continent Casualty Company's ("Mid-Continent") alleged duty to defend and indemnify Defendant McCollum Custom Homes, Inc. ("McCollum") in a lawsuit (the "Underlying Lawsuit") filed in the 215th Judicial District Court of Harris County, Texas by Thomas and Jodie Mark (the "Mark Family").

A. The Underlying Lawsuit

The Underlying Lawsuit is a construction defect suit. In pertinent part, in 2014 the Mark Family alleges that they purchased a "spec" home in Houston being constructed by McCollum that cost well over $2,000,000. McCollum was the general contractor for the project as well as the seller. Just over a year after moving into the home, the Mark Family began discovering a number of issues with the home, including "leaking windows; hundreds of dry-wall, mortar, and brick cracks; and extensive foundation movement." (Doc. No. 24-3 at 2). The root cause of these issues, as alleged in the state court petition, is a defective foundation caused by McCollum's failure to take proper account for the effects of the drought Houston experienced from 2011 to 2013. Id. at 5. The Mark Family claims that McCollum and its sub-contractors inadequately assessed risks relating to the moisture levels in the soil when removing trees from the area and building the home's foundation, and that McCollum failed to follow a drainage plan designed by a third party who was not sued. Id. at 5–7. These failures allegedly caused the physical movement of the home's foundation, which was manifested by the aforementioned cracks and defects. According to the First Amended Original Petition, "[t]he foundation movement contributed to and/or caused other significant problems." (Doc. No. 24-3 at 10). As alleged:

The home now contains hundreds of cracks in the sheetrock, over 30 brick, mortar, and stucco cracks (several of which are large enough to fit a person's finger), water leaks into the Home from roof and windows, the tile and concrete floors have begun cracking, multiple doors will not open or close any longer and are completely inoperable, and the pool is visibly displaced.

Id.

The defects and/or sub-standard conduct mentioned in the Mark Family's First Amended Original Petition can be summarized as follows:

1. Page 1: Latent construction defects including, but not limited to leaking windows, hundreds of drywall, mortar and brick cracks and extensive foundation movement;

2. Pages 4–5: Materially deficient soil foundation report conducted on the home by Star GeoTechnical and Testing Services LLP;

3. Page 5: McCollum failed to implement the drainage plan designed by Probstfeld and Associates;

4. Pages 5–6: Deficient foundation work performed by Gay & Loudermilk Engineers Inc.;

5. Page 8: Sheetrock cracks that increased over time;

6. Pages 8–9: Foundation movement which qualified as a major structural defect;

7. Page 9: Hundreds of cracks in sheetrock, over thirty brick, mortar, and stucco cracks, water leaks from the roof and windows, cracking tile and concrete floors, doors that could not open or close, a displaced pool and defective wood floors.

After making these general factual allegations, the Mark Family then listed their actual causes of action. McCollum was named in three: Breach of Contract (Page 10), Breach of Express Warranties (Page 15) and Deceptive Trade Practices (Page 15). Id. The other state court defendants were included under the categories of Professional Negligence (Pages 11–12), Gross Negligence (Page 13), and Negligent Misrepresentation (Page 18), but McCollum was not included in these allegations. Id.

B. The Insurance Agreement

The house's construction began in 2012 and was completed by March of 2015 when the Mark Family began occupying it. In September of 2015, McCollum bought a commercial general liability ("CGL") insurance policy from Mid-Continent (the "Insurance Agreement").¹ Under the Insurance Agreement, Mid-Continent agreed to cover damages incurred by McCollum "because of ‘bodily injury’ or ‘property damage’ to which [the Insurance Agreement] applies." (Doc. No. 19-2 at 12). Further, the policy placed Mid-Continent under a "duty to defend the insured against any ‘suit’ seeking those damages." Id. The policy continues by stating that Mid-Continent "will have no duty to defend the insured against any ‘suit’ seeking damages for ‘bodily injury’ or ‘property damage’ to which this insurance does not apply." Id. The agreement defines "property damage" as "[p]hysical injury to tangible property, including all resulting loss of use of that property" or "[l]oss of use of tangible property that is not physically injured." Id. at 26.

The Insurance Agreement also contains two exclusions relevant to this Court's analysis.² The first of these exclusions is the "Earth Movement" exclusion. Under this exclusion:

This insurance does not apply to any "bodily injury" or any "property damage", that is directly or indirectly caused by, involves, or is in any way connected or related to any movement of earth, whether naturally occurring or due to manmade or other artificial causes.

Movement includes, but is not limited to, settlement, cracking, contraction, compaction, compression, consolidation, subsidence, shrinking, expansion, heaving, swelling, caving-in, erosion, vibration, shock, earthquake, landslide, mudflow, wind-driven, freezing, thawing or any other movement of earth, regardless of the cause.

Earth includes, but is not limited to any dirt, soil, terrain, mud, silt, sediment, clay, rock, sand, fill material or any other substances or materials contained therein.

(Doc. No. 19-2 at 56).

The second relevant exclusion is the "Defective Work" exclusion. Under this exclusion:

This insurance does not apply to:

1. Defective Work

"Defective Work" includes any and all costs associated with the removal or replacement of the defective, deficient or faulty work.

Id. at 54.

The following definitions are applicable to this latter exclusion:

22. "Your work":

a. Means:

(1) Work or operations performed by you or on your behalf; and

(2) Materials, parts or equipment furnished in connection with such work or operations.

b. Includes:

(1) Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of "your work"; and

(2) The providing of or failure to provide warnings or instructions.

23. "Defective Work" means "Your Work" that is defective, deficient, non-conforming, not in accordance with plans and specifications, fails to satisfy applicable building code(s), fails to meet industry practice standards, is not fit for its intended use, not performed in a workman like manner or is faulty, and is included in the products-completed operations hazard.

Id. at 27, 54.

C. The Present Lawsuit

After the Mark Family filed suit against McCollum, Mid-Continent began providing a defense to McCollum in the Underlying Lawsuit under a reservation of rights. See (Doc. No. 17 at 9). Concurrently, Mid-Continent filed this declaratory judgment suit, seeking a declaration that the Insurance Agreement imposes no duty to defend or indemnify McCollum for the damages alleged in the Underlying Lawsuit. See (Doc. Nos. 1 & 17).

II. Standard of Review

Summary judgment is warranted "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). "The movant bears the burden of identifying those portions of the record it believes demonstrate the absence of a genuine issue of material fact." Triple Tee Golf, Inc. v. Nike, Inc. , 485 F.3d 253, 261 (5th Cir. 2007) (citing Celotex Corp. v. Catrett , 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ). Once a movant submits a properly supported motion, the burden shifts to the non-movant to show that the Court should not grant the motion. Celotex , 477 U.S. at 321–25, 106 S.Ct. 2548.

The non-movant then must provide specific facts showing that there is a genuine dispute. Id. at 324, 106 S.Ct. 2548 ; Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). A dispute about a material fact is genuine if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The Court must draw all reasonable inferences in the light most favorable to the nonmoving party in deciding a summary judgment motion. Id. at 255, 106 S.Ct. 2505. The key question on summary judgment is whether a hypothetical, reasonable factfinder could find in favor of the nonmoving party. Id. at 248, 106 S.Ct. 2505.

III. Relevant Legal Framework

This Court is sitting in diversity, and both sides agree that Texas law governs here. See (Doc. Nos. 18 at 15 & 24 at 11). "In Texas, insurance policies are construed according to ordinary contract principles." New York Life Ins. Co. v. Travelers Ins. Co. , 92 F.3d 336, 338 (5th Cir. 1996). "The interpretation of an insurance policy is a question of law." Id.

Under Texas law, insurance cases involve shifting burdens. "[T]he...