S. Owners Ins. Co. v. Gallo Bldg. Servs., Inc.

• Decision Date: 18 December 2018
• Docket Number: Case No: 8:15-cv-01440-EAK-AAS
• Parties: SOUTHERN OWNERS INSURANCE COMPANY, Plaintiff, v. GALLO BUILDING SERVICES, INC., KB HOME TAMPA, LLC, KB HOME ORLANDO, LLC, AND KB HOME FORT MYERS, LLC, Defendants.
• Court: U.S. District Court — Middle District of Florida

SOUTHERN OWNERS INSURANCE COMPANY, Plaintiff, v. GALLO BUILDING SERVICES, INC., KB HOME TAMPA, LLC, KB HOME ORLANDO, LLC,AND KB HOME FORT MYERS, LLC, Defendants.

Case No: 8:15-cv-01440-EAK-AAS

UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF FLORIDA TAMPA DIVISION

December 18, 2018

ORDER

THIS CAUSE comes before the Court for consideration of the Motion for Summary Judgment filed by Defendants KB Home Tampa, LLC, ("KB Home Tampa"), KB Home Orlando, LLC, ("KB Home Orlando"), and KB Home Fort Myers, LLC, ("KB Home Fort Myers") (collectively, "KB Homes"), (Dkt. 61), the accompanying Statement of Undisputed Facts filed by KB Homes, (Dkt. 62), the Response in Opposition to KB Homes' Motion for Summary Judgment filed by Plaintiff, Southern Owners Insurance Company, ("Southern"), (Dkt. 74), the Motion for Summary Judgment filed by Southern, (Dkt. 64), the accompanying Statement of Undisputed Facts filed by Southern, (Dkt. 65), the Response in Opposition to Southern's Motion for Summary Judgment filed by KB Homes, (Dkt. 75), the accompanying Statement of Disputed Facts filed by KB Homes, (Dkt. 76), the Supplemental Authorities filed by KB Homes, (Dkts. 81 and 86), and the Response in Opposition thereto filed by Southern, (Dkt. 82).

Upon consideration of all relevant filings, case law, and being otherwise fully advised, the Court GRANTS Defendants KB Homes' Motion for Summary Judgment, (Dkt. 61), and DENIES Plaintiff Southern's Motion for Summary Judgment, (Dkt. 64).

I. BACKGROUND

A. Insurance Policies

Southern issued a series of primary commercial general liability ("CGL") policies to Defendant Gallo Building Services, Inc. ("Gallo"), effective from December 31, 2009 through December 31, 2012 (collectively, the "CGL Policies").¹ (Dkt. 30 at 2; Dkt. 65 ¶ 15; Dkt. 76 ¶ 15). The parties agree that the relevant coverage provisions under the Insurance Policy are as follows:

1. The Insuring Agreements provide, in part, that "[Southern] will pay those sums that the insured becomes legally obligated to pay as damages because of . . . 'property damage' to which this insurance applies. [Southern] will have the right and duty to defend the insured against any 'suit' seeking those damages." (Dkt. 62 ¶ 25; Dkt. 65 ¶ 15).

2. "Property damage" is defined in the CGL Policies to include "[p]hysical injury to tangible property, including all resulting loss of use of that property . . . ." (Dkts. 62 ¶ 26, 65 ¶ 25). The CGL Policies define "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." (Dkts. 62 ¶ 27, 65 ¶16).

The parties agree that CGL Policies contain the following relevant coverage exclusions:

1. The Damage to Your Work Exclusion ("Your Work Exclusion") excludes coverage for "property damage to [Gallo's] work arising out of it or any part of it and included in the products-completed operations hazard." (Dkts. 62 ¶ 28, 65 ¶ 15) (internal quotations omitted). The CGL policies' "your work" definition includes "[w]ork or operations performed by [Gallo] or on [Gallo's] behalf" and "[m]aterials, parts or equipment furnished in connection with such work or operations." (Dkts. 62 ¶ 29, 65 ¶ 16). The "products-completed operations hazard," as used in the Your Work Exclusion, includes all "property damage occurring away from premises [Gallo] own[s] or rent[s] and arising out of . . . [Gallo's] work except . . . work that has not yet been completed or abandoned." (Dkts. 62 ¶ 30, 65 ¶ 16).

2. The Exterior Finishing System and Stucco Exclusion ("Stucco Exclusion") bars coverage for "any claim, 'suit,' action or proceeding for . . . 'property damage' . . . which is in any way related to or arising out of any 'exterior finishing system' or exterior 'stucco' application." (Dkts. 62 ¶ 31, 65 ¶ 17). The policy defines "exterior finishing system" as "an exterior insulating and finishing system applied to the exterior of a structure which incorporates any synthetic stucco or material similar in substance or purpose, and which may also include: insulating board or other material; adhesive or mechanical fasteners; and the applications of flashings, coatings, caulking or sealants. (Dkt. 65 ¶ 17). "Stucco" is defined in the CGL Policy as "a material made of Portland cement; sand, cement, line,and/or plaster, or any combination thereof, applied as a hard covering for exterior walls." (Dkt. 65 ¶ 15).

According to KB Homes, Southern also issued five commercial umbrella policies to Gallo between June 8, 2008 and December 31, 2011, (collectively, the "Umbrella Policies").² (Dkt. 62 ¶ 32). The coverage provisions in the Umbrella Policies state, in relevant part, "[Southern] will pay those sums included in the ultimate net loss that the insured becomes legally obligated to pay as damages because of . . . [p]roperty damage . . . to which this insurance applies caused by an incident." Id. ¶ 33. The defense and settlement payments provisions in the Umbrella Policies state, in relevant part: "[w]hen underlying insurance does not apply to an incident which is covered by this policy, [Southern has] the right and duty to defend any suit against the insured seeking damages on account of . . . property damage . . . ." Id. ¶ 34. "Property damage" has the same definition in the Umbrella Policies as in the CGL policies, to include "[p]hysical injury to tangible property, including all resulting loss of that property." Id. ¶ 35. Additionally, all Umbrella Policies contain an exclusion for property damage to the insured's work. Id. ¶¶ 37-39. According to KB Homes, two of the Umbrella Policies do not contain a stucco exclusion and the remaining two Umbrella Policies contain stucco exclusions that are identical to the exclusions in the CGL policies, except that they only apply if construction began on or after June 8, 2009, or, on or after December 31, 2010. Id. ¶¶ 41-44.

B. Underlying Action

Gallo entered into a master subcontract with KB Home Tampa related to, among other things, the construction of the Willowbrook Condominium Project (the "Project"), a 51-building, 270-unit condominium project located in Manatee County, Florida. (Dkt. 4-1 ¶ 44; Dkt. 62 ¶ 6; Dkt 65 ¶ 1; Dkt, 76 ¶ 1). KB Home Tampa was the developer for the Project and served as contractor for certain portions of the Project. (Dkt. 4-1 ¶ 44). KB Home Fort Myers and KB Home Orlando served as contractors for certain other portions of the Project. Id. "[A]ll of the work at the Project was subcontracted out by KB Homes to subcontractors, suppliers and material men." Id. ¶ 45. Following the completion of construction and turnover of control of the Project to the individual unit owners, Willowbrook Condominium Association, Inc. (the "Association") engaged an engineering firm to perform a turnover study at the Project. Id. ¶ 46. The Association's engineering firm published its report on November 21, 2011 (the "Karins Report"), which identified a number of alleged construction defects and deficiencies at the Project. Id. The Association served a Chapter 558 Notice³ transmitting the Karins Report to KB Homes on November 30, 2011, asserting various claims related to construction defects at the Project. Id. ¶ 47. In turn, KB Homes notified the subcontractors and designers of these claims and tendered its defense. KB Homes' tender was not accepted. Id.

KB Homes commenced an investigation of the Association's raised claims and discovered additional non-conforming work performed by subcontractors. (Dkt. 4-1 ¶ 48).The work of the subcontractors was "deficient within, and without limitation, the following systems:

- Substitutions in the size of the Hurri-Bolt system;

- Wall panel connections;

- Wall panel, balcony column and balcony deck strapping;

- Deck waterproofing;

- House wrap and flashings at rough openings and windows;

- Sealants at perimeter edge of windows and SGDs;

- Stucco is not installed in accordance with the requirements outlined on the Design Documents, fail to comply with ASTM C926, C1063 and applicable requirements."

Id.

KB Homes incurred significant costs to investigate and repair the defective work and resulting property damage at the Project, as well as significant costs to relocate residents during the course of repairs. (Dkt. 4-1 ¶ 53). KB Homes filed suit against Gallo and other subcontractors in the underlying state court action, KB Home Tampa, LLC, et. al. v. A&D Plus Construction Services, Inc., et. al., 2013 CA 002679, in the Twelfth Judicial Circuit in and for Manatee County, Florida (the "Underlying Action"). In the Underlying Action, KB Homes' Third Amended Complaint and Demand for Jury Trial (the "Underlying Complaint") includes 169 pages, 795 paragraphs and 158 Counts against approximately three dozen subcontractors and designers, including Gallo, in relation to their allegedly defective work on the Project, which, "caused damage to other building components,damage to other property, loss of use, and . . . relocation of residents of [Willowbrook Condominiums]." (Dkt 41-1; Dkt. 30 at 1-2; Dkt. 74 ¶ 4).

The Underlying Complaint asserts the following causes of action against Southern's named insured, Gallo, as follows:

- Count 49-Breach of Contract, Breach of Express and Implied Warranty, and Breach of Duty to Defend and Indemnify;

- Count 50-Negligence;

- Count 51-Breach of Statutory Warranty;

- Count 52-Common Law Indemnity; and

- Count 53-Statutory Cause of Action pursuant to section 553.84 of the Florida Statutes.

(Dkt. 4-1 ¶¶ 283-305).

Specifically, the Underlying Complaint alleges that Gallo engaged in the following alleged defects:

a. Failing to install all necessary and appropriate control joints;

b. Installing incorrect mid-wall flashing and other missing and/or improperly installed accessories;

c. Failing to lap lath properly;

d. Using incorrect sized staples that do not penetrate the framing members the minimum of 3/4 inch per Code;

e. Installing stucco in direct contact with dissimilar materials;

f. Installing the...