Mosser Const., Inc. v. Travelers Indem. Co.
| Decision Date | 26 October 2009 |
| Docket Number | Case No. 3:08 CV 2363. |
| Citation | 665 F.Supp.2d 875 |
| Parties | MOSSER CONSTRUCTION, INC., Plaintiff, v. The TRAVELERS INDEMNITY COMPANY, Defendant. |
| Court | U.S. District Court — Northern District of Ohio |
Steven R. Smith, Adam S. Nightingale, Connelly, Jackson & Collier, Toledo, OH, for Plaintiff.
David L. Lester, Harold H. Reader, Ulmer & Berne, Cleveland, OH, for Defendant.
The issue in this case is whether a company who supplied crushed stone backfill to a general contractor is a "subcontractor" within the meaning of an insurance policy, or merely a "material supplier." Resolution of this question will determine whether the policy obligates Defendant Travelers Indemnity Company (Travelers) to defend and indemnify Plaintiff Mosser Construction, Inc. (Mosser) in an underlying lawsuit in state court. The parties stipulated to the material facts (Doc. No. 17) and filed Cross-Motions for Summary Judgment (Doc. Nos. 18-19). The matter has been fully briefed (Doc. Nos. 18-21), and the Court held a hearing on August 7, 2009.
Mosser is a defendant in an underlying lawsuit in the Ottawa County (Ohio) Court of Common Pleas. That lawsuit arises out of a construction contract between Mosser and the City of Port Clinton (Port Clinton) for improvements to a wastewater treatment facility. Mosser was the general contractor for the project. Port Clinton sued Mosser for damages after the walls of the facility began to crack, allegedly due to the failure of structural backfill beneath and around the foundation of the building. Gerken Materials, Inc. (Gerken) supplied the crushed limestone backfill under a purchase order from Mosser. Port Clinton alleges the backfill Gerken supplied was defective because it contained gypsum, which leached out of the material when exposed to groundwater, causing improper settling.
Travelers is Mosser's liability insurer. Mosser sought defense and indemnity from Travelers for Port Clinton's lawsuit. Travelers declined coverage, relying on an exclusion to coverage in the insurance policy. Generally, the policy covers "property damage," but there are a number of exclusions. One particular exclusion is at issue here, and the exclusion itself contains an exception:
This insurance does not apply to: . . .
1. Damage to Your Work
"Property damage" to "your work" arising out of it or any part of it 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 policy defines "your work" as:
(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.
Thus, the policy does not cover property damage arising out of Mosser's own work, but it does cover damage from work performed on Mosser's behalf by a subcontractor.
The parties' dispute is straightforward: Was Gerken a "subcontractor" within the meaning of the "your work" exclusion? Mosser argues that Gerken was a subcontractor, so the exception to the exclusion applies and Travelers is obligated to defend Mosser. Travelers disagrees, contending that Gerken was merely a material supplier, a class distinct from subcontractors, and that Travelers was therefore justified in declining coverage. The parties agree the policy does not define "subcontractor" and this Court should therefore give the term its ordinary, commonly accepted meaning; however, they disagree about that ordinary meaning.
Some additional background on Mosser's agreements with Port Clinton and Gerken is relevant to this dispute. The Port Clinton construction contract required Mosser to, among other obligations, excavate, backfill, compact, and grade the site of the wastewater treatment facility. It also defined Mosser's "work" as including the "furnishing . . . of materials." The contract specifically required Mosser to furnish crushed stone structural backfill that met the specifications of the Ohio Department of Transportation (ODOT) and the American Association of State Highway and Transportation Officials (AASHTO).
Mosser submitted a purchase order to Gerken for several grades of crushed limestone, listed by ODOT specification number. These grades of stone were standard items Gerken sold; none was custom-made for Mosser. Gerken performed standard testing on the stone, as it does for all its products. Gerken did not deliver any of the stone to the Port Clinton project, and none of its employees were ever on site at the project. Gerken billed Mosser periodically as Mosser picked up the material. Gerken did not post a performance bond for the Port Clinton project.
Pursuant to Federal Civil Rule 56(c), summary judgment is appropriate where there is "no genuine issue as to any material fact" and "the moving party is entitled to judgment as a matter of law." Id. When considering a motion for summary judgment, a court must draw all inferences from the record 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). A court is not permitted to weigh the evidence or determine the truth of any matter in dispute; rather, a court determines only whether the case contains sufficient evidence from which a jury could reasonably find for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
An insurance policy is "a contract and like any other contract is to be given a reasonable construction in conformity with the intention of the parties as gathered from the ordinary and commonly understood meaning of the language employed." Dealers Dairy Prods. Co. v. Royal Ins. Co., 170 Ohio St. 336, 339, 164 N.E.2d 745 (1960). However, where provisions in a contract are reasonably susceptible of more than one meaning, they are strictly construed against the insurer. King v. Nationwide Ins. Co., 35 Ohio St.3d 208, 211, 519 N.E.2d 1380 (1988). Specifically, "where exceptions . . . are introduced into an insurance contract, a general presumption arises to the effect that that which is not clearly excluded from the operation of such contract is included in the operation thereof." Andersen v. Highland House Co., 93 Ohio St.3d 547, 549, 757 N.E.2d 329 (2001) (quoting Home Indem. Co. of New York v. Plymouth, 146 Ohio St. 96, 64 N.E.2d 248 (1945)). In other words, "the insurer must establish not merely that the policy is capable of the construction it favors, but rather that such an interpretation is the only one that can be fairly placed on the language in question." Id. at 549, 757 N.E.2d 329 (citations omitted).
The onus is on Travelers to show that the only reasonable definition of "subcontractor" in its insurance policy does not include Gerken. Mosser argues Travelers cannot meet this burden because the ordinary meaning of subcontractors is expansive enough to encompass material suppliers like Gerken. Essentially, Mosser contends that all (or nearly all) material suppliers are subcontractors. Travelers, in contrast, points to a line of federal cases interpreting the Miller Act which distinguish between subcontractors and material suppliers. Mosser responds that courts' interpretation of a specific statute such as the Miller Act is irrelevant to determining the ordinary meaning of "subcontractor," and that this Court should therefore disregard the Miller Act cases. Mosser favors the broad definition of subcontractor advanced by the Ohio Supreme Court in J.T. Weybrecht's Sons Co. v. Hartford Acc. & Indem. Co., 161 Ohio St. 436, 443, 119 N.E.2d 836 (1954).
The Miller Act, 40 U.S.C. § 3131 (formerly 40 U.S.C. § 270), "requires a prime contractor of a federal project to furnish a payment bond to insure payment to individuals who supply labor and/or materials for federal projects." U.S. for the Use and Benefit of Consol. Pipe & Supply Co. v. Morrison-Knudsen Co., 687 F.2d 129, 131 (6th Cir.1982). Payment bonds under the Miller Act protect those who have a contractual agreement with the prime contractor or with a subcontractor; the Act does not protect those supplying labor or material to a mere material supplier. F.D. Rich Co., Inc. v. U.S. for the Use of Indust. Lumber Co., Inc., 417 U.S. 116, 122, 94 S.Ct. 2157, 40 L.Ed.2d 703 (1974). In deciding who was protected, it became necessary for federal courts to develop tests to distinguish between subcontractors and material suppliers. See, e.g., U.S. for the Use and Benefit of Conveyor Rental & Sales Co. v. Aetna Cas. & Sur. Co., 981 F.2d 448, 451-52 (9th Cir.1992) ().
To be sure, the definitions of subcontractor and material supplier adopted by courts interpreting the Miller Act are not binding on parties to a private insurance contract. Nevertheless, they can be evidence of what the terms mean in practice. See Simpson v. State Mut. Life Assurance Co. of Am., 135 Vt. 554, 382 A.2d 198, 200 (1977) ().
Mosser argues that this Court should pay no attention to the Miller Act cases, because Congress' purpose in drafting the Miller Act—and in drawing a distinction between subcontractors and material suppliers—was completely different than Travelers' and Mosser's intent in entering the insurance contract. Specifically, Mosser claims that Congress distinguished between subcontractors and material suppliers because it was concerned with limiting the access of remote claimants to a general contractor's payment bond. The "your work" exclusion in the insurance policy, in...
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