Mosser Constr. Inc. v. Travelers Indem. Co., 09-4449
| Decision Date | 14 July 2011 |
| Docket Number | No. 09-4449,09-4449 |
| Parties | MOSSER CONSTRUCTION, INC., Plaintiff - Appellant, v. THE TRAVELERS INDEMNITY COMPANY, Defendant - Appellee. |
| Court | U.S. Court of Appeals — Sixth Circuit |
NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 11a0481n.06
ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF OHIO
Before: MERRITT, ROGERS, and WHITE, Circuit Judges.
HELENE N. WHITE, Circuit Judge. In this diversity suit, Plaintiff Mosser Construction, Inc. ("Mosser") alleges that its insurer, Defendant, The Travelers Indemnity Company ("Travelers"), wrongfully declined to defend and indemnify Mosser against an underlying claim brought against Mosser by the City of Port Clinton, Ohio ("Port Clinton"). The district court granted summary judgment to Travelers after finding that the relevant term in the insurance contract between the parties had a plain meaning that absolved Travelers of the obligations to defend and indemnify Mosser in the underlying action. We reverse.
Mosser is a construction firm based in Fremont, Ohio. Travelers issued Mosser three consecutive commercial general liability ("CGL") insurance policies from 2005 to 2008. The insurance policy in effect at the times relevant to this suit established a general obligation of Travelers to defend Mosser against suits seeking damages for property damage caused by Mosser. The policy contained the following exclusion from coverage, known as the "your-work exclusion." The second sentence of the exclusion provides an exception to the exclusion known as the "subcontractor exception":
The your-work exclusion thus bars coverage for damage to "your work" (e.g. a structure constructed by Mosser) after work on it has been "completed or abandoned."1 The exception to the exclusion provides that Travelers will still provide coverage to damage to "your work" if the work was performed by a subcontractor. Unlike the other relevant terms in the policy, "subcontractor" is not defined. This suit concerns the meaning of "subcontractor."
On July 29, 2002, Mosser entered into a construction contract with Port Clinton to make improvements to Port Clinton's waste-water treatment facility. Mosser was the general contractor for the project. The contract required Mosser to "furnish all labor, materials, supplies, equipment and other facilities and things necessary or proper or incidental to complete performances of the work under [the] Contract." That work included placing structural backfill beneath and around the foundation of a new odor-control building. The contract required that the backfill meet the size and grading requirements for AASHTO #57 coarse aggregate.2
Mosser contracted with Gerken Materials, Inc. ("Gerken") for the purchase of the specified structural backfill. The only contract between Mosser and Gerken is a standard two-page purchase order that specifies that Gerken will sell to Mosser several grades of crushed limestone, including "#57 Stone @ $5.00/Ton." The purchase order notes that the stone is being obtained for use in the Port Clinton waste-water treatment plant, but does not otherwise refer to terms from Mosser's master contract with Port Clinton.
The #57 aggregate was a standard inventory item that Gerken regularly produced by crushing quarried limestone, and it regularly stocked the aggregate at its facility in Port Clinton. Gerken conducts standard quality control testing on all of the crushed stone it produces, but did not perform any special or additional testing on the backfill purchased by Mosser. Gerken did not deliver the stone to the construction site; Mosser picked up the backfill, trucked it to the site, and completed theon-site work itself. Gerken's invoices for the stone total $31,148.87, representing approximately 0.5% of the total master-contract price of $6.8 million.
Mosser substantially completed the Port Clinton project by December 31, 2004. After construction was complete, however, the walls of the new odor-control building began to crack. Port Clinton's investigation indicated that the cracking was due to failure of the structural backfill beneath and around the foundation of the building. Port Clinton alleged that the backfill material was defective because it contained gypsum that leached out of the material when exposed to groundwater, causing improper settling. Port Clinton alleged that in addition to the odor-control building, a 42-inch effluent line and a pressurized grit line placed in the backfill were also damaged due to the defective fill material. Port Clinton notified Mosser about these problems. Mosser then notified Travelers of the property damage via a notice of claim letter on June 28, 2007. Travelers denied Mosser coverage on November 6, 2007. Port Clinton filed suit against Mosser on December 26, 2007, seeking damages for property damage resulting from breach of contract. Mosser sent a copy of Port Clinton's complaint to Travelers, but Travelers again denied coverage on January 16, 2008.
Mosser filed suit against Travelers in Ohio state court in September 2008, seeking a declaratory judgment that Travelers had duties to defend and indemnify Mosser in the underlying action, and damages for breach of contract and bad faith. Travelers removed the action to the United States District Court for the Northern District of Ohio in October 2008, and the parties filed cross-motions for summary judgment. Travelers argued that Gerken was not a subcontractor and thus any damage caused by defective backfill it produced is not covered under the insurance policy becauseof the your-work exclusion. Mosser argued that Gerken was a subcontractor, and thus the subcontractor exception to the your-work exclusion preserved coverage. The district court granted Travelers' motion for summary judgment and denied Mosser's motion. It held that the meaning of "subcontractor" in the insurance agreement is unambiguous, and that Gerken was not a subcontractor under that definition.
We review a district court's grant of summary judgment de novo. Cady v. Arenac Cnty., 574 F.3d 334, 339 (6th Cir. 2009). We uphold summary judgment if "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). When considering a motion for summary judgment, we must draw all reasonable inferences and view all evidence in favor of the non-moving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Am. Express Travel Related Servs. Co. v. Kentucky, 641 F.3d 685, 688 (6th Cir. 2011).
This case requires that we interpret the term "subcontractor" as used in the subcontractor exception to the your-work exclusion in the insurance agreement, and to determine whether Gerken falls within that term under the circumstances presented.
Because this is a diversity case, we apply Ohio law. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938); Pennington v. State Farm Mut. Auto. Ins. Co., 553 F.3d 447, 450 (6th Cir. 2009). Ohio courts have "consistently held that insurance contracts must be construed in accordance withthe same rules as other written contracts." Hybud Equip. Corp. v. Sphere Drake Ins. Co., Ltd., 597 N.E.2d 1096, 1102 (Ohio 1992). Thus, "if the language of the policy's provisions is clear and unambiguous, this court may not 'resort to construction of that language.'" Id. (quoting Karabin v. State Auto. Mut. Ins. Co., 462 N.E.2d 403, 406 (Ohio 1984)). A contract term is unambiguous if it has a "plain and ordinary meaning." Karabin, 462 N.E.2d at 406.
If the meaning of a term is ambiguous, however, then that ambiguity should be "interpreted strictly against the drafter and in favor of the nondrafting party." Westfield Ins. Co. v. Galatis, 797 N.E.2d 1256, 1262 (Ohio 2003). "Thus, an ambiguity in an insurance contract is ordinarily interpreted against the insurer and in favor of the insured." Id. "[S]ince insurance policies are interpreted strictly against the insurer, '[i]t will not suffice for [the insurer] to demonstrate that its interpretation is more reasonable than the policyholder's.'" Andersen v. Highland House Co., 757 N.E.2d 329, 333 (Ohio 2001) (citation omitted) (second alteration in original). The insurer, "having prepared the policy, must also be prepared to accept any reasonable interpretation, consistent with the foregoing, in favor of the insured." Gomolka v. State Auto. Mut. Ins. Co., 436 N.E.2d 1347, 1348 (Ohio 1982).
Exclusions in insurance policies are construed narrowly such that "that which is not clearly excluded from the operation of the contract is included in the operation thereof." Southside River-Rail Terminal, Inc. v. Crum & Forster Underwriters of Ohio, 811 N.E.2d 150, 154 (Ohio Ct. App. 2004) . The burden is on the insurer to show that an exclusion specifically applies. Neal-Pettit v. Lahman, 928 N.E.2d 421, 424 (Ohio 2010). "[O]nce the insurer establishesthat an exclusion is applicable, the burden shifts back to the insured to establish the applicability of an exception to the exclusion." Goodrich Corp. v. Commercial Union Ins. Co., 2008 WL 2581579, at *23 (Ohio Ct. App. June 30, 2008). If a term in an exception to an exclusion is unambiguous, and if "the context in which it is employed does not indicate that it should be given any other meaning," then we must give that term its plain meaning. Hybud Equip., 597 N.E.2d at 1102. If a term is ambiguous, however, then, as with terms in the main body of the...
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