Pinkerton & Laws v. Royal Ins. Co. of America

• Decision Date: 11 April 2002
• Docket Number: No. CIV.A.1:01-CV0890RWS.,CIV.A.1:01-CV0890RWS.
• Citation: 227 F.Supp.2d 1348
• Parties: PINKERTON & LAWS, INC., Plaintiff, v. ROYAL INSURANCE COMPANY OF AMERICA and Maryland Casualty Company, Defendants.
• Court: U.S. District Court — Northern District of Georgia

Page 1348

227 F.Supp.2d 1348

PINKERTON & LAWS, INC., Plaintiff, v. ROYAL INSURANCE COMPANY OF AMERICA and Maryland Casualty Company, Defendants.

No. CIV.A.1:01-CV0890RWS.

United States District Court, N.D. Georgia, Atlanta Division.

April 11, 2002.

COPYRIGHT MATERIAL OMITTED

J. Benn Shapiro, Jr., Ronald Alston Williamson, Shapiro Fussell Wedge Smotherman Martin & Price, Atlanta, GA,

Michael J. Athans, Andrew R. Diamond, Lord, Bissell & Brook, Atlanta, GA, Frank C. Bedinger, III, Heather C. Wright, Hawkins & Parnell, Atlanta, GA, Stephen Michael Schatz, Swift, Currie, McGhee & Hiers, Atlanta, GA, for defendants.

ORDER

STORY, District Judge.

Now before the Court for consideration are Defendant Royal Insurance Company's Motion for Summary Judgment [11-1], Defendant Maryland Casualty's Cross-Motion for Summary Judgment Against Royal and Motion for Summary Judgment Against Pinkerton & Laws [22-1], Plaintiff's Motion for Partial Summary Judgment Against Maryland Casualty Company [29-1], Plaintiff's Motion for Leave To File Supplemental Memorandum of Law [32-1], and Royal Insurance Company's Second Motion for Summary Judgment [39-1]. After reviewing the record and considering the parties' arguments, the Court enters the following Order.

BACKGROUND

On May 15, 1995, Pinkerton & Laws, Inc. ("P & L" or "Plaintiff") entered into a contract with Medalist Golf Company-Hobe Sound Partners, Ltd. ("Medalist") to construct a golf clubhouse in Hobe Sound, Florida. As part of its obligations under the construction contract, P & L was required to provide and install windows in the clubhouse. P & L subsequently entered into a subcontract with Oliveri Woodworking, Inc. ("Oliveri") to manufacture windows for the clubhouse, and P & L also entered into a subcontract with Treasure Coast Builders Services, Inc. ("Treasure Coast") to install the windows.

At all times relevant to the construction of the clubhouse, Maryland Casualty Company ("Maryland Casualty") insured Treasure Coast, the subcontractor, and P & L, the general contractor, was the additional insured for general liability coverage for work performed by Treasure Coast on the clubhouse. In addition, Royal Insurance Company of America ("Royal") provided general liability coverage to P & L.

Following the completion of the clubhouse in July 1996, Medalist notified P & L that the windows were rotting and required replacement. The August 13, 1996, punchlist from the Medalist Golf Club to P & L noted a leakage problem in all of the clear story windows in the clubhouse. Medalist wrote to P & L again on September 11, 1996, updating the list of items needing repair, and windows were still on the list.

More than two years later, in a letter dated November 2, 1998, Medalist wrote P & L about the "substantial construction deficiencies relating to windows throughout the Clubhouse." Medalist had concluded that the leakage resulted because "the window structures in the clear story and the joint work around the windows and the base of the clear story structure were not constructed according to specifications . . . ." In this letter, Medalist informed P & L that it had removed one of the deteriorated windows and "determined that the proper amount of flashing called for at the base of the window which is integral to the sealing process was not installed." Medalist demanded that P & L pay for the window replacement and threatened litigation. (Letter from Erickson to Jernigan of 11/2/98, at 1 (Royal's Mot. For Summ. J., Ex. E).)

On November 19, 1998, P & L forwarded this information to Treasure Coast and copied Treasure Coast's agent for the Maryland Casualty policy. This letter notified Treasure Coast and its insurer of Medalist's claim of "substantial deficiencies in the material, installation, and painting of the windows ...." (Letter from Jernigan to Treasure Coast of 11/19/98 (Royal's Mot. For Summ. J., Ex. F).) Approximately a month later, on December 7, 1998, Medalist sent its final demand letter to P & L to "make immediate arrangements to repair all defective work ...." (Letter from Erickson to Jernigan of 12/7/98 (Royal's Mot. For Summ. J., Ex. H).) P & L informed its insurance representative of the complaints relating to the alleged defects in the windows at the clubhouse in a letter dated July 12, 1999. (Letter from Jernigan to McCullough/Corroon of 7/12/99 (Royal's Mot. For Summ. J., Ex. I).) P & L's insurance representative informed Royal of the claim on July 13, 1999.

Thereafter, Medalist commenced an arbitration action against P & L, and P & L commenced third-party actions against Treasure Coast and Oliveri to recover the costs of replacing the windows. On May 8, 2000, Medalist, P & L, and Treasure Coast entered into a settlement agreement wherein P & L agreed to pay Medalist $68,000, and Treasure Coast, through its insurance carrier, Zurich Insurance Company, agreed to pay Medalist $20,000. Royal was not a party to the settlement agreement.

After the settlement, P & L sought indemnification from Maryland Casualty because P & L contends that the rotting windows and resulting damage were caused by Treasure Coast's improper installation of metal flashing and sealant on the windows. P & L also sought indemnification from its insurer, Royal. P & L seeks payment from Maryland Casualty and/or Royal in the amount of $112,329.62 ($68,000 for its portion of the settlement and $44,329.62 in attorneys' fees and expenses it incurred defending against Medalist's claims). After its claims for indemnity were denied, P & L filed this action against Royal and Maryland Casualty¹ alleging breaches of insurance contracts and requesting expenses of litigation under Georgia Code section 33-4-6.² Royal and Maryland Casualty move for summary judgment, and P & L moves for partial summary judgment against Maryland Casualty.

DISCUSSION

Summary judgment is appropriate only when the pleadings, depositions, and affidavits submitted by the parties show that no genuine issue of material fact exists and that the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The court should view the evidence and any inferences that may be drawn in the light most favorable to the non-movant. Adickes v. S.H. Kress & Co., 398 U.S. 144, 158-59, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). The party seeking summary judgment must first identify grounds that show the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S 317, 323-24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The burden then shifts to the non-movant, who must go beyond the pleadings and present affirmative evidence to show that a genuine issue of material fact does exist. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 257, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

Royal filed the first motion for summary judgment, in which it contends that any insurance coverage provided by Royal's policy is excess to Maryland Casualty's insurance coverage. Because one of Royal's arguments hinges on whether Maryland Casualty's policy provides coverage to P & L, the Court will address Maryland Casualty's and P & L's cross-motions for summary judgment before considering Royal's motion for summary judgment.

A. Maryland Casualty's and P & L's Cross-Motions for Summary Judgment

Maryland Casualty moves for summary judgment on Count II (Breach of Contract) and Count VI (Expenses of Litigation) of the Complaint. The Court will address each of these counts separately.

1. Count II: Breach of Contract

Initially, the Court notes that P & L's coverage under the Maryland Casualty policy is derivative through Treasure Coast. Under the terms of the Maryland Casualty policy, an entity that enters into a "work contract" with Treasure Coast is also an insured if it requires in the "work contract" that it be made an insured under the Maryland Casualty policy. (Maryland Casualty's Commercial Gen. Liab. Coverage Form at II.2.f.) Thus, P & L is an insured under the Maryland Casualty policy because it entered into a subcontract with Treasure Coast, and the contract required that P & L be made an insured under Treasure Coast's general liability insurance policy. However, although P & L is an insured under the policy, it "shall be an insured only with respect to covered ... `property damage' which results from [Treasure Coast's] work under that `work contract.'" (Maryland Casualty's Commercial Gen. Liab. Coverage Form at II.2.f.) Therefore, P & L is only insured under the Maryland Casualty policy and can only seek indemnity for property damage that resulted from Treasure Coast's work pursuant to the subcontract and that is covered by the policy. To determine whether P & L is entitled to indemnity, the Court must determine whether the property damage alleged in this case was covered (i.e., not excluded) under the Maryland Casualty policy.

Maryland Casualty contends that the damages for which P & L is seeking indemnification are not recoverable under the "business risk" exclusions in the policy. Generally, there are two types of risks that are incurred by a contractor in a construction project. The first is commonly known as a "business risk" and encompasses those risks borne by the contractor to replace and rebuild defective work to make the project conform to the agreed specifications. Insurers usually exclude "business risks" from coverage; otherwise, the insurer would find itself in the position of guaranteeing the quality and workmanship of the contractor's work. The second risk is that the defective or faulty workmanship will cause injury to people or damage to other property. General liability coverage is available to cover this second type of risk. Maryland Casualty argues that all of the damages for which P & L seeks indemnity under Maryland Casualty's policy fall under the first type of risk and are excluded by the "business risk" provisions of the policy.

The Florida Supreme Court³ in LaMarche v. Shelby Mutual Insurance Co., 390 So.2d 325 (Fl...