State Auto Mutual Ins. Co. v. Dover Const., Inc.

• Citation: 273 F.Supp.2d 1023
• Decision Date: 30 July 2003
• Docket Number: No. C03-4009-MWB.,C03-4009-MWB.
• Parties: STATE AUTO MUTUAL INSURANCE COMPANY, Plaintiff, v. DOVER CONSTRUCTION, INC., Defendant.
• Court: U.S. District Court — Northern District of Iowa

273 F.Supp.2d 1023

STATE AUTO MUTUAL INSURANCE COMPANY, Plaintiff, v. DOVER CONSTRUCTION, INC., Defendant.

No. C03-4009-MWB.

United States District Court, N.D. Iowa, Western Division.

July 30, 2003.

Jason D. Walke, Gunderson, Sharp & Rein, PC, Des Moines, IA, for Plaintiff.

John C. Gray, Heidmann Redmond Fredregill Patterson Plaza Dykstra & Prahl, Sioux City, IA, for Defendant.

MEMORANDUM OPINION AND ORDER REGARDING STATE AUTO'S MOTION FOR SUMMARY JUDGMENT

BENNETT, Chief Judge.

                TABLE OF CONTENTS
                

                I. INTRODUCTION ........................................................... 1024
                     A. Pertinent Factual Background ........................................ 1024
                     B. Procedural Background ............................................... 1026
                 II. DISCUSSION ............................................................. 1026
                     A. Choice of Law ....................................................... 1026
                     B. Applicable Standards ................................................ 1027
                     C. Parties' Arguments .................................................. 1027
                     D. Legal Analysis ...................................................... 1028
                        1. An insurer's duty to defend, generally ........................... 1028
                        2. Coverage for Eischeid's claims ................................... 1028
                           a. Potential liability based on Woods's negligence ............... 1029
                           b. Application of caselaw ........................................ 1031
                III. CONCLUSION ............................................................. 1031
                

This matter comes before the court on the plaintiff's Motion for Summary Judgment, filed June 9, 2003. On February 6, 2003, the plaintiff, State Auto Mutual Insurance Company ("State Auto") filed a Complaint for Declaratory Judgment. In a separate action pending before this court, James Eischeid ("Eischeid") has sued the defendant in this case, Dover Construction, Inc. ("Dover"), as well as his employer, Woods Masonry, Inc. ("Woods"), for injuries arising out of the collapse of a concrete wall at a construction site where Eischeid was working.¹ Woods was the subcontractor on that job, and Dover was the general contractor.

The plaintiff is this action, State Auto, was Woods's general liability insurer at the time Woods and Dover entered into a subcontract agreement. Pursuant to that agreement between Dover and Woods, Woods assumed, among other things, a duty to defend Dover for certain liabilities arising out of their business relationship. For that reason, when Eischeid filed suit against Dover, as Woods's insurance carrier, State Auto undertook Dover's defense in Eischeid's personal injury action. In this action, State Auto seeks a declaration that it has no duty to provide a defense for Dover in Eischeid's personal injury action for claims arising out of Dover's own negligence and a declaration that it has no duty to provide coverage for any judgment against Dover in the personal injury case arising out of Dover's own negligence.

I. INTRODUCTION

A. Pertinent Factual Background

The parties agree that the material facts in this case are undisputed. The coverage dispute in this declaratory judgment action has its genesis in Eischeid's pending personal injury action. In that lawsuit, C00-4100-MWB, Eischeid asserts claims arising from an accident at a construction site on March 17, 1999. Eischeid was working at the site as an employee of Woods, which was, in turn, a subcontractor for masonry work on the construction project for the general contractor, Dover. Eischeid was seriously injured when an unbraced, ungrouted wall under construction on the project collapsed, apparently under the force of gusty winds.

Prior to beginning work on the project, Woods and Dover entered into a subcontract agreement. The agreement required Woods to obtain insurance, the types and amounts of which Dover approved prior to the commencement of work at the Spencer, Iowa job site. Woods's general liability insurer at the time was State Auto. Pertinent to this lawsuit, the Subcontract Agreement included the following indemnity provision, captioned as "HOLD HARMLESS AGREEMENT":

The Subcontractor will and does agree to defend, indemnify, save and hold harmless, Contractor ... to the fullest extent permitted by law, of and from all claims, loss, damages, injury causes and actions, suits of whatsoever nature (except only any thereof resulting from the negligent act or omission of any or all of the indemnities [sic]), for personal injury ... alleged to arise out of, or any conditions, of the work performed under this Contract, whether by this Subcontractor or by any sub-Subcontractor of this Subcontractor, and whether any such claim, cause of action, or suit is asserted against Contractor, the owners, and/or the architects, their agents, employees and assigns or this Subcontractor severally, jointly, and/or jointly and severally.

[Pf.'s Statement of Undisputed Facts, ¶ 14; Pf.'s exh. 4, ¶ 12].

On September 15, 2000, Eischeid filed suit against Dover. In March of 2001, Eischeid amended his complaint and added a direct negligence claim against Woods. In the original and amended complaints, Eischeid alleges that Dover was responsible for maintaining a safe work site but failed to do so. He avers that this failure and Dover's negligence in performing construction work proximately caused his injuries. [Pf.'s exhs. 1, 7]. In the amended complaint, he alleges that Woods was negligent in performing construction work and that this negligence was a direct and proximate cause of his injuries. [Pf.'s exh. 7]. Dover filed a third-party complaint against Woods, claiming that, to the extent that there is a judgment rendered against Dover for Woods's negligence, Woods must indemnify Dover for that portion of the judgment that is attributable to Woods's negligence.

Shortly before State Auto filed the present declaratory judgment action, this court entered an Order in Eischeid's personal injury case, on June 2, 2003, regarding Woods's motion for summary judgment on Eischeid's claim against it and on Dover's third-party complaint against it. Eischeid did not resist Woods's summary judgment motion, and the court held that summary judgment was appropriate on the merits because of the exclusivity of Iowa's Workers' Compensation statute, Iowa Code chapter 85. Pertinent to State Auto's lawsuit, the court concluded that Dover and Woods's Subcontract Agreement required Woods to indemnify Dover for damages arising out of Woods's negligence but not out of Dover's own negligence. Eischeid v. Dover Constr., Inc., 265 F.Supp.2d 1047, 1056-57 (N.D.Iowa 2003). The court also granted Woods's unresisted motion to the extent Dover asserted claims of negligence, for contribution, and for breach-of-contract for failure to procure workers' compensation insurance.

The court denied Woods's motion insofar as it sought summary judgment on Dover's breach-of-contract claim for breaches of contractual duties to comply with the plans and specifications for the construction project and to comply with OSHA regulations and on Dover's claim for indemnity. Moreover, in accordance with the procedure outlined in the unpublished decision of the Iowa Court of Appeals in Sward v Nelson Construction, Inc., 662 N.W.2d 370, 2003 WL 118206 (Iowa Ct.App.2003), this court also illustrated how the court would instruct the jury in Eischeid's personal injury case in order to simultaneously address Dover's third-party claim for indemnity against Woods: the court will permit the jury to assign causal negligence to Woods in Eischeid's suit against the general contractor, Dover, in order to determine Woods's indemnity to Dover. Eischeid, 265 F.Supp.2d 1047, 1059-59.

Since the commencement of this lawsuit, State Auto has provided Dover with a defense, subject to a reservation of rights. It now seeks a determination that it has no such duty to continue to provide a defense. The parties do not dispute the facts before this court on this motion, and the parties agree that the court's determination on this motion will dispose of this declaratory judgment action.

B. Procedural Background

The present action was filed on February 6, 2003. Jurisdiction is proper under 28 U.S.C. § 1332 — diversity jurisdiction — because the plaintiff is an Ohio corporation with its principle place of business in Ohio, and the defendant is an Illinois corporation with its principle place of business in Illinois. The plaintiff avers in its complaint that the amount in controversy exceeds $75,000.00. The defendant, Dover, answered the complaint on April 22, 2003. Pursuant to the plaintiff's request, the court scheduled this matter for an expedited hearing on the merits. The plaintiff filed this motion for summary judgment on June 9, 2003. The court heard oral arguments in this case on July 25, 2003. At these arguments, the plaintiff was represented by Jason Walke of Gunderson, Sharp & Rhein, P.C., Des Moines, Iowa. The defendant was represented by John Gray of Heidman, Redmond, Fredregill, Patterson, Plaza, Dykstra & Prahl, Sioux City, Iowa.

II. DISCUSSION

Before turning to the substantive issues presented on this motion for summary judgment, the court must first address the applicable law, as well as outline the standards for summary judgment governing State Auto's motion.

A. Choice of Law

Although the parties did not raise the issue, evidently implicitly agreeing that Iowa law controls, the first question is what law controls the interpretation of this Subcontract Agreement. A federal court sitting in diversity must apply the choice of law rules of the forum state — in this case, Iowa. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Iowa law, in turn, employs the Second Restatement's "most significant relationship" test to determine which state's law will govern a contract's interpretation. See, e.g., Veasley v....