Pella Corp. v. Liberty Mut. Ins. Co.

• Decision Date: 01 November 2016
• Docket Number: No. 4:11-cv-00273-JEG,4:11-cv-00273-JEG
• Citation: 221 F.Supp.3d 1107
• Parties: PELLA CORPORATION, Pella Windows and Doors, Inc., and Pella Windows and Doors of Ontario Corp., Plaintiffs, v. LIBERTY MUTUAL INSURANCE COMPANY, Defendant. Liberty Mutual Insurance Company, Third-Party Plaintiff, v. Pella Corporation and Pella Windows and Doors of Ontario Corp., Third-Party Defendants.
• Court: U.S. District Court — Southern District of Iowa

221 F.Supp.3d 1107

PELLA CORPORATION, Pella Windows and Doors, Inc., and Pella Windows and Doors of Ontario Corp., Plaintiffs,

v.LIBERTY MUTUAL INSURANCE COMPANY, Defendant.

Liberty Mutual Insurance Company, Third-Party Plaintiff,

v.Pella Corporation and Pella Windows and Doors of Ontario Corp., Third-Party Defendants.

No. 4:11-cv-00273-JEG

United States District Court, S.D. Iowa, Central Division.

Signed November 1, 2016

Adam S. Ziffer, Kenneth H. Frenchman, Marc Thomas Ladd, John P. Winsbro, Keith McKenna, Robin L. Cohen, McKool Smith, Burt M. Garson, Kasowitz Benson Torres & Friedman LLP, New York, NY, Richard W. Lozier, Jr., Belin McCormick, P.C., Des Moines, IA, for Plaintiffs/Third Party Defendants.

Maryanne B. Foster, Charles W. Browning. Jeffrey C. Gerish, Kenneth C. Newa, Lauren Beth McMillen, Plunkett Cooney, Bloomfield Hills, MI, Robert VP Waterman, Jr., Lane & Waterman LLP, Davenport, IA, Shannon L. H. Phillips, Collins Einhorn Farrell PC, Southfield, MI, for Defendant/Third Party Plaintiff.

ORDER

JAMES E. GRITZNER, Senior Judge, U.S. DISTRICT COURT

This matter comes before the Court on cross-motions for partial summary judgment filed by Plaintiffs Pella Corporation, Pella Windows and Doors of Ontario Corporation, and Pella Windows and Doors, Inc. (collectively, Pella), ECF No. 169, and Defendant Liberty Mutual Insurance Company (Liberty Mutual), ECF No. 168. Both parties have filed responses and replies. A hearing on the Motions was held on August 31, 2016. Attorney Keith McKenna was present and argued on behalf of Pella, accompanied by attorneys Marc Ladd and Richard Lozier Jr. Attorney Jeff Gerish was present and argued on behalf of Liberty Mutual, accompanied by attorneys Charles Browning and Bob Waterman. The matter is fully submitted and ready for disposition.

I. BACKGROUND¹

A. Overview

Pella, a manufacturer of windows and doors, initiated this insurance coverage action against Liberty Mutual, its insurer during the relevant period. Liberty Mutual has asserted counterclaims against Pella. In Pella's present motion for partial summary judgment, Pella seeks a declaration that Liberty Mutual must pay Pella's costs associated with certain underlying lawsuits against Pella. Because there are many such underlying lawsuits against Pella, this litigation focuses on fifteen representative claims (the Sample Claims). The allegations of the Sample Claims differ somewhat, but they all generally allege that Pella's products were defectively designed, manufactured, or installed, and allowed water intrusion to buildings that resulted in third-party property damage or personal injury.

Liberty Mutual insured Pella during annual policy periods covering September 1, 2000 to September 1, 2008 under a series of insurance policies of two types: commercial general liability policies (CGL Policies), which insured Pella for reasonable attorneys' fees and other costs to defend against certain legal claims, subject to deductibles (termed "self-insured retentions" or "SIRs"); and "Aggregate SIR Policies," which capped, subject to deductibles (termed "Insured's Retentions"), the aggregate amount of SIR payments Pella might be required to pay under a given CGL Policy if numerous SIRs were required (referred to herein, collectively with the CGL Policies, as the Liberty Mutual Policies). Coverage under the CGL Policies is triggered when Pella is found liable for "personal injury" or "property damage" caused by an "occurrence" during the policy period (as defined in the CGL Policies). Pella App. 595, ECF No. 173-1. Liberty Mutual concedes that all the Sample Claims allege "personal injury" and/or "property damage" during the CGL Policy periods. "Occurrence" means "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Id. at 613. The CGL Policies provide that the insurance "does not apply to ... ‘[b]odily injury’ or ‘property damage’ expected or intended from the standpoint of the insured." Id. at 596. Coverage under the Aggregate SIR Policies can be triggered if there are several occurrences, requiring Pella to pay numerous SIRs.

Each of the CGL Policies includes a Supplementary Payments/Allocated Loss Adjustment Expense endorsement. Id. at 594. These endorsements provide that Liberty Mutual will reimburse Pella for "Allocated Loss Adjustment Expense" (ALAE) paid in excess of the SIR. Id. at 594. ALAE "includes but is not limited to ... reasonable attorneys' fees for claims in suit." Id. at 610. The reasonable attorneys fees covered by both the CGL and Aggregate SIR Policies is defined to include fees incurred at "rates which are actually paid by [Liberty Mutual] to attorneys retained in the ordinary course of business in the defense of similar actions in the community where the claim is being defended." App. 610, 627.

B. Prior Coverage Action

Though not controlling here, the parties have already litigated before this Court whether Liberty Mutual owed Pella coverage under the CGL Policies for defense costs incurred in two underlying class action lawsuits. Those lawsuits were: (1) Pappas v. Pella Corp. , No. 02–L–14558 (Ill. Cir. Ct., Cook Cty.), and (2) Saltzman v. Pella Corp. , Case No. 06–CV4481 (N.D. Ill.). See Pella Corporation and Pella Windows and Doors, Inc.'s First Amended Counterclaims at 1–2, Liberty Mut. Ins. Co. v. Pella Corp. , 4:07–cv–00508–JEG–TJS (S.D. Iowa May 5, 2008), ECF No. 41-1. The Pappas and Saltzman lawsuits alleged that design defects in Pella's windows allowed water to enter the plaintiffs' homes, causing property damage or bodily injury. The original and first amended complaints in Pappas alleged both strict liability and negligence, and Liberty Mutual, along with other carriers, agreed to participate in defending the Pappas suit. Later, the Pappas complaint was amended to allege only a single claim for consumer fraud. Liberty Mutual then filed an action in this Court (the Prior Coverage Action), alleging that each underlying lawsuit alleged that Pella knew its windows were defective and requesting a declaration that Liberty Mutual owed no duty to cover either the Pappas suit or the Saltzman suit. Prior Coverage Action Complaint at 7, 15–16, Liberty Mut. , No. 4:07–cv–00508–JEG–TJS (S.D. Iowa Nov. 6, 2007). On appeal from this Court, the Eighth Circuit held that because the allegations in Pappas and Saltzman contained only allegations that Pella knew its windows were defective, neither complaint alleged an "accident" under Iowa law. Liberty Mut. Ins. Co. v. Pella Corp. , 650 F.3d 1161, 1176 (8th Cir. 2011) Therefore, there could be no "occurrence," which precluded coverage under the CGL Policies. Id.

C. The Sample Claims

Pella alleges that it has paid defense and indemnity costs on over 100 claims covered by Liberty Mutual CGL policies. The Sample Claims at issue here include fifteen of the highest dollar-value claims (including defense and indemnity payments) that have been brought against Pella and for which Pella seeks coverage from Liberty Mutual. The Sample Claims are:

1. Pappas v. Pella Corp. , No. 02–L–14558 (Ill. Cir. Ct., Cook Cty.) (the Pappas Claim or Pappas Lawsuit)

2. 464 Prospect—La Jolla Homeowners Ass'n v. DTC – RECP OPCO, LLC , Case No. GIC842100 (Cal. Super. Ct., San Diego Cty.) (the 464 Prospect Claim);

3. Diamantis v. Pella Corp. , No. CV–08–900963–GWN (Ala. Cir. Ct., Madison Cty.) (the Diamantis Claim)

4. Eakins v. Pella Corp. , No. 05–5CVS–5CV 4696 (N.C. Super. Ct. Div., New Hanover Cty.) (the Eakins Claim); (7:05-CV-224-B)(2)

5. G.T. Leach Constr., Inc. v. Pella Corp. , No. 2009–11158 (Tex. Dist. Ct., Harris Cty., 334 Jud. Dist.) (the G.T. Leach Claim);

6. Kaslly Family Revocable Tr. v. Distinctive Gen. Contracting Inc. , No. A507598 (Nev. Dist. Ct., Clark Cty.) (the Kaslly Claim);

7. Leal v. Am. Nat'l Lloyd's Ins. Co. , No. CL–38, 608–A (Tex. Cty. Ct., Hidalgo Cty.) (the Leal Claim);

8. London Bay Constr., Inc. v. Pella Windows & Doors of Fla., Inc. , No. 06–1048–CA (Fla. Cir. Ct., Collier Cty.) (the London Bay Claim);

9. Marseilles Homeowners Condo. Ass'n v. Broadmoor, LLC , No. 2003–728 (La. Civ. Dist. Ct., Parish of Orleans) (the Marseilles Claim);

10. Morse v. Sec. Equip., Inc. , No. CI08–461 (Neb. Dist. Ct., Platte Cty.) (the Morse Claim);

11. Newland Cmtys. Texas L.P. v. Flynn Constr., Inc. , No. GN 401840 (Tex. Dist. Ct., Travis Cty.) (the Newland Claim);

12. Padovano v. Desai Chia, Inc. , No. 10217/04 (N.Y. Sup. Ct., Richmond Cty.) (the Padovano Claim);

13. Palmetto Elec. Coop., Inc. v. LS3P Assocs. Ltd. , No. 07–CP–27–020 (S.C. Ct. of Common Pleas, Jasper Cty.) (the Palmetto Claim);

14. Parkloft Condo. Owners Ass'n v. Parkloft, LLC , No. 880097 (Cal. Super. Ct., San Diego Cty.) (the Parkloft Claim); and

15. South Beach Club Horizontal Prop. Regime v. Associated Constr. Consultants, Inc. , No. 2004–CP–07–1872 (S.C. Ct. Common Pleas, Beaufort Cty.) (the South Beach Claim).

As noted above, Liberty Mutual concedes that each of the Sample Claims alleges or otherwise involves a claim for property damage or personal injury, as those terms are defined in the CGL Policies, during one or more of the policy periods. Pella App. 5055. Liberty Mutual also concedes that the Padovano and Morse Claims each allege an occurrence. Liberty Mut. Opp. Br. at 9 n. 5, ECF No. 180.

With respect to the Pappas Claim, only costs incurred in defending against the original and first amended complaints that fell within Pella's SIR are at issue here. Pella asserts its defense costs paid toward the original and first amended complaints in Pappas exceeded $1 million, citing an agreement among Pella and several of its insurers in which the insurers agreed to pay Pella's costs defending the Pappas action as well as another action, referred to as the Smith action. However, the agreement itself does not allocate defense costs between the two actions.

App. to Liberty Mut.'s Br. in Supp. of Mot. for Partial Summary Judgment at 004–005, Liberty Mut. , No. 4:07–cv–00508–JEG–TJS (...