St. Paul Fire and Marine Ins. v. SEA QUEST INTERN.

• Decision Date: 17 December 2009
• Docket Number: Case No. 8:05-cv-962-T-TBM.
• Citation: 676 F. Supp.2d 1306
• Parties: ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Plaintiff, v. SEA QUEST INTERNATIONAL, INC., and Trident Shipworks, Inc., Defendants.
• Court: U.S. District Court — Middle District of Florida

676 F.Supp.2d 1306

ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Plaintiff, v. SEA QUEST INTERNATIONAL, INC., and Trident Shipworks, Inc.,¹ Defendants.

Case No. 8:05-cv-962-T-TBM.

United States District Court, M.D. Florida, Tampa Division.

December 17, 2009.

W. Gray Dunlap, Jr., W. Gray Dunlap, Jr., PA, Tampa, FL, for Plaintiff.

Stephen A. Marino, Jr., Ver Ploeg & Lumpkin, PA, Miami, FL, for Defendants.

ORDER

THOMAS B. McCOUN III, United States Magistrate Judge.

THIS MATTER is before the court on Sea Quest International, Inc.'s Motion for Summary Judgment and Incorporated Memorandum of Law (Doc. 45), Plaintiff's response in opposition (Doc. 52), St. Paul Fire and Marine Insurance Company's Dispositive Motion for Summary Judgment (Doc. 47), and Defendant's response (Doc. 51).² By their cross-motions, the parties seek summary judgment on the claims raised by Plaintiff in its two-count Complaint for declaratory relief as to the Marine General Liability ("MGL") policy of insurance (Count I) and the Bumbershoot ("excess") liability policy of insurance (Count II), both of which were issued by St. Paul to Trident.

I.

A.

The historical facts are fairly undisputed. Sea Quest and Trident entered into an agreement in November 1996 for the construction of a 117-foot luxury yacht by Trident. Thereafter, disputes arose between Sea Quest and Trident regarding various aspects of the construction, including the timeliness of construction and whether the vessel was being built in accordance with the plans and specifications. Approximately two years later, Sea Quest served Trident with a notice of default and demanded arbitration pursuant to the terms of their agreement.³ Shortly thereafter, Trident filed for bankruptcy, and the matter was stayed. In November 1999, the bankruptcy court entered an order granting relief from the automatic stay to allow Sea Quest to pursue litigation against Trident outside the bankruptcy to the extent of available insurance. See (Docs. 46 at 2-4; 47 at 2).

In March 2000, St. Paul filed a declaratory judgment action against Sea Quest and Trident in this court (the "First Coverage Action") for the purpose of determining the rights and liabilities under several policies of insurance issued by St. Paul to Trident. See St. Paul v. Sea Quest, Case No. 8:00-cv-571-T-MSS. In response, Sea Quest counterclaimed, alleging breach of contract based upon St. Paul's refusal to pay under the MGL policy, the excess policy, and two Builder's Risk policies. Id. In October 2001, the court determined that Sea Quest had prematurely asserted its claims under the MGL and excess policies based on the express "no action" clauses in those policies and thus dismissed those claims.⁴ Id. There followed a bench trial on Sea Quest's claims for coverage under the two Builder's Risk policies issued by St. Paul.⁵ On March 21, 2002, the court issued its Bench Order wherein the court directed judgment be entered in favor of Sea Quest and against St. Paul under the Builder's Risk policies. The order included detailed findings of fact. (Doc. 47-2). As for damages, the court found St. Paul liable to Sea Quest in the amount of $2,001,945.22 in damages and prejudgment interest, plus attorneys' fees and costs. Id.⁶ The parties appealed certain aspects of the Bench Order to the court of appeal. In April 2003, the Eleventh Circuit reversed the finding of coverage under the Builder's Risk policies.⁷ See (Doc. 47-3).

In March 2002, Sea Quest instituted an action for negligence and breach of contract against Trident in state circuit court in Miami, Dade County, Florida (the "Underlying Action").⁸ See (Doc. 1-4). During the pendency of that action, St. Paul provided its insured, Trident, with a defense under the MGL policy, subject to a reservation of rights. In June 2005, the state court granted Sea Quest's motion for summary judgment and entered final judgment against Trident based upon the findings of fact in the Bench Order.⁹ The trial court's judgment in favor of Sea Quest was affirmed by the state appellate court with the exception that the award of damages was reduced by $300,000. See Sea Quest Internat'l, Inc. v. Trident Shipworks, Inc., 958 So.2d 1115 (Fla.Dist.Ct.App.2007). Consistent with that opinion, an Amended Final Judgment awarding Sea Quest $3,543,155.30 in damages and prejudgment interest was entered in the Underlying Action in October 2007. See (Doc. 47-5). Recovery was limited to the insurance proceeds available to Trident, per the order of the Bankruptcy Court of November 1, 1999. Id. at 3.

In May 2005, St. Paul filed the instant complaint against Sea Quest and Trident seeking declaratory relief that it had no obligation to defend or indemnify Trident under either the MGL or the Bumbershoot policies in the Underlying Action. (Doc. 1). Pending the conclusion of the Underlying Action, the instant matter was stayed to "avoid possible piecemeal litigation and to allow the court to address all the issues that might potentially come before it."¹⁰ (Doc. 34 at 5-6). Following the final determination in Sea Quest's favor in the Underlying Action, the case was reopened in January 2008. See (Doc. 39). In February 2009, Sea Quest filed its Answer, Affirmative Defenses, and Counterclaim. (Doc. 41). By its counterclaim, Sea Quest sues St. Paul for breach of the MGL and excess policies and for enforcement of the judgment in the Underlying Action.

B.

The relevant policies of insurance are the MGL and Bumbershoot policies.¹¹ In practical terms, since St. Paul provided its insured with a defense in the Underlying Action, the issue for the court's consideration is whether St. Paul is obligated to indemnify Sea Quest for the damages awarded in that action. The parties agree that the findings of this court in the First Coverage Action, which were not altered by the Eleventh Circuit, are binding.

By its motion, St. Paul contends that no coverage exists under the MGL Policy for the costs of repairing Trident's defective workmanship as the damages awarded to Sea Quest in the Underlying Action are not "property damage" as such is defined in the policies. Generally, St. Paul urges that in deciding whether it must indemnify Trident, the court considers the policy coverages in light of the facts in the underlying case.¹² It contends the burden is on Sea Quest to prove that coverage exists and that under Florida law, Sea Quest cannot meet its burden. Citing Auto-Owners Insurance Co. v. Pozzi Window Co., 984 So.2d 1241, 1248-49 (Fla.2008), St. Paul argues that under Florida law the cost of repair or replacement of a subcontractor's defective work does not, standing, alone, constitute covered "property damage." Since the findings in the Bench Order limit damages to the cost of repairing and completing Trident's defective work, there is no covered property damage under either policy. Alternatively, St. Paul argues that exclusions contained in the MGL and excess policies nevertheless apply to bar coverage. Specifically, St. Paul urges that at all pertinent times, the yacht was under construction on Trident's premises. Under the MGL policy, coverage is excluded for property damage to property on the insured's premises for purposes of having operations performed on the property by or on behalf of the insured or to property in the custody of the insured which is to be installed, erected or used in construction by the insured.¹³ Under Florida law, courts have enforced such "operations exclusions" to bar coverage.¹⁴ Florida courts also enforce "care, custody or control" exclusions¹⁵ to bar coverage. Thus, St. Paul contends that even if there is coverage, these exclusions apply to bar coverage for property damage to the vessel during construction at Trident.¹⁶

In response, Sea Quest disputes that the award by the state court does not constitute "property damage" under the subject policies. Specifically, Sea Quest relies upon the holding in Pozzi Window, supra, wherein that court concluded that property that was not initially defective, but became defective due to faulty installation constituted "property damage" under a policy which similarly defined "property damage" as "physical injury to tangible property, including all resulting loss of use of that property." Here, Sea Quest was awarded damages for the negligent construction and restoration costs of the yacht. The record does not reveal nor does the Bench Order find that the materials used to construct the yacht were defective prior to their installation — they became defective only as a result of Trident's negligent construction. Accordingly, Sea Quest urges that the damages awarded are covered "physical loss or property damage" under the policies. Furthermore, it urges that St. Paul cannot rely on any exclusion to defeat coverage.

On Sea Quest's motion, it urges that it is entitled to judgment in its favor because the court has found property damage, in contemplation of the policies, resulting from an occurrence and no exclusion or condition exists to bar coverage. See (Doc. 45). More particularly, it cites the finding of negligent construction in the Bench Order, and argues that the negligent construction of the yacht is considered "property damage" under St. Paul's policies based upon Florida courts' broad construction of the term "property damage."¹⁷ Further, errors in construction, such as here occurred, which were neither expected nor intended are an "occurrence" as that term is defined in the policies as well.¹⁸ Alternatively, Sea Quest argues that coverage exists for Trident's breach of contract based upon the "Additional Coverages Endorsement" which expressly expands the definition of "incidental contract."¹⁹ As set forth in its response to St. Paul's motion, Sea Quest again argues that no exclusion applies to bar coverage under the MGL and excess policies. It contends that both the late notice defense and the defense arising from Trident's assignment agreement with Sea...