Taylor-Morley-Simon, Inc. v. Michigan Mut. Ins. Co.

• Decision Date: 23 September 1986
• Docket Number: No. 85-1799C(3).,85-1799C(3).
• Citation: Taylor-Morley-Simon, Inc. v. Michigan Mut. Ins. Co., 645 F.Supp. 596 (E.D. Mo. 1986)
• Parties: TAYLOR-MORLEY-SIMON, INC., Plaintiff, v. MICHIGAN MUTUAL INSURANCE CO., Defendant.
• Court: U.S. District Court — Eastern District of Missouri

645 F. Supp. 596

TAYLOR-MORLEY-SIMON, INC., Plaintiff, v. MICHIGAN MUTUAL INSURANCE CO., Defendant.

No. 85-1799C(3).

United States District Court, E.D. Missouri.

September 23, 1986.

Gerald A. Rimmel, David T. Weir, Susman, Schermer, Rimmel & Parker, St. Louis, Mo., for plaintiff.

Sam P. Rynearson, Evans & Dixon, St. Louis, Mo., for defendant.

MEMORANDUM

HUNGATE, District Judge.

This matter is before the Court to determine the merits of plaintiff's claim after a one-day nonjury trial.

In general, plaintiff brings this action seeking a declaration that, pursuant to an insurance policy issued by defendant, (a) defendant must defend and indemnify plaintiff in a state court lawsuit; (b) defendant is liable for plaintiff's attorneys' fees expended in defense of that lawsuit to the date of this declaratory judgment; and (c) defendant is liable for plaintiff's attorneys' fees in this action. Plaintiff also asserts that based on representations of an agent of defendant, defendant is now estopped to deny plaintiff coverage under the insurance policy. Defendant contends exclusions of the policy preclude defendant's liability.

Having carefully considered the pleadings, testimony, stipulations, evidence, and the entire record herein, the Court hereby makes and enters the following findings of fact and conclusions of law.

Findings of Fact

1. Plaintiff, Taylor-Morley-Simon, Inc., is a corporation organized and existing under the laws of the State of Missouri, with its principal place of business in the County of St. Louis, Missouri. Plaintiff is engaged in the construction business, including the construction of homes.

2. Defendant, Michigan Mutual Insurance Company, now known as Amerisure Companies, is a Michigan corporation with its principal place of business located in Michigan. Defendant is authorized to transact the business of selling insurance in the State of Missouri.

3. Associated General Insurance Company, one of defendant's insurance companies, issued a special multi-peril insurance policy, no. SAM G 86-0-C4619-2, to Taylor-Morley-Simon, Inc. The policy was in effect at all relevant times and provides $100,000 per occurrence (or $200,000 aggregate) property damage liability coverage.

4. The comprehensive general liability insurance portion of the policy provides that:

The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of

bodily injury or

property damage

to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company's liability has been exhausted by payment of judgments or settlements.

(emphasis contained in policy through boldface type).

5. The policy explicitly defines "occurrence" and "property damage" as follows:

"Occurrence" means an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured;

* * * * * *

"Property Damage" means (1) physical damage to or destruction of tangible property which occurs during the policy period, including the loss of use thereof at any time resulting therefrom, or (2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period.

(emphasis contained in policy through boldface type).

6. Section 1 of the policy explicitly excludes from comprehensive general liability insurance coverage:

(a) ... liability assumed by the insured under any contract or agreement except an incidental contract; but this exclusion does not apply to a warranty of fitness or quality of the named insured's products or a warranty that work performed by or on behalf of the named insured will be done in a workmanlike manner;

* * * * * *

(1) ... property damage to premises alienated by the named insured arising out of such premises or any part thereof; (m) ... loss of use of tangible property which has not been physically injured or destroyed resulting from

(1) a delay in or lack of performance by or on behalf of the named insured of any contract or agreement, or

(2) the failure of the named insured's products or work performed by or on behalf of the named insured to meet the level of performance, quality, fitness or durability warranted or represented by the named insured;

but this exclusion does not apply to loss of use of other tangible property resulting from the sudden and accidental physical injury to or destruction of the named insured's products or work performed by or on behalf of the named insured after such products or work have been put to use by any person or organization other than an insured; and (n) ... property damage to the named insured's products arising out of such products or any part of such products.

(emphasis contained in policy through boldface type).

Section VI(A)(3) of the broad form comprehensive general liability endorsement to the policy further excludes from coverage:

... property damage to work performed by the named insured arising out of such work or any portion thereof, or out of such materials, parts or equipment furnished in connection therewith.

(emphasis contained in policy through boldface type).

7. In 1980, Taylor-Morley-Simon, Inc., and Douglas K. McSherry and Bonnie J. McSherry entered into an agreement whereby the McSherrys would purchase, and Taylor-Morley-Simon would sell, certain real estate located at and known as 13941 Ladue Farm Road in St. Louis County, Missouri, with a home constructed thereon by Taylor-Morley-Simon, Inc. Thereafter, pursuant to a contract of sale and amendments thereto, Taylor-Morley-Simon conveyed the real estate and residence thereon to the McSherrys for good and sufficient consideration, and the McSherrys took possession thereof.

8. Approximately two years after the McSherrys took possession of the residence, they discovered that the concrete slab which supported a portion of their residence was sinking, allegedly because the slab was not supported by piers and the subsoil under the slab was not properly compacted. Because of the settling slab, the McSherrys asserted the walls and ceilings of the house started to crack, the hot and cold water lines and gas lines under the slab had become stressed, and the heating and air-conditioning ducts had torn loose, leaving minimal heat in part of the house. Further, the McSherrys noted the sewer line was unsupported. The McSherrys also claimed violation of the St. Louis County building codes in that (a) the natural gas line installed under the existing slab was not properly protected by conduits and proper venting; and (b) the heating ducts under the floor were not encased in two inches of concrete.

9. In 1983, when Taylor-Morley-Simon refused to correct these alleged defects to the McSherrys' satisfaction, the McSherrys filed suit against Taylor-Morley-Simon in the Circuit Court of St. Louis County, Missouri, styled Douglas K. McSherry and Bonnie J. McSherry v. Taylor-Morley-Simon, Inc., cause no. 493188, and which is still pending there. In their state court petition, the McSherrys attempt to recover against Taylor-Morley-Simon, Inc., on theories of breach of implied warranty (Count I); breach of express warranty (Count II); breach of contract (Count III); and negligent construction of the house, in violation of the St. Louis County building code (Count IV). Due to the alleged cracking, settling, and shifting of the home's walls, floors, and foundation, the McSherrys seek cancellation of the contract with Taylor-Morley-Simon, $150,000 in actual damages, interest, attorneys' fees, costs, and on Count IV only, punitive damages in the sum of $500,000.

10. Prior to the filing of the lawsuit, Taylor-Morley-Simon, Inc., placed its insurer on notice of a potential claim by the McSherrys against it.

11. After the filing of the McSherry state court lawsuit, Taylor-Morley-Simon, through its attorneys, formally requested Michigan Mutual Insurance Company to arrange for defense of Taylor-Morley-Simon and to indemnify it against the claims raised in the litigation.

12. In order to provide all relevant information to Michigan Mutual Insurance Company regarding the basis of the McSherrys' claim, a meeting was held at Taylor-Morley-Simon's corporate headquarters in early February of 1984.

13. At that meeting, a discussion occurred between an agent of Michigan Mutual Insurance Company and an agent of Taylor-Morley-Simon, Inc., as to whether or not the McSherrys' claim would be covered under the terms of the comprehensive general liability policy. The evidence is conflicting as to whether defendant's claims adjuster at the meeting told Taylor-Morley-Simon it was covered under the policy.

14. Subsequent to that meeting in February of 1984, Michigan Mutual Insurance Company took no affirmative action to defend and indemnify Taylor-Morley-Simon under the insurance policy, necessitating Taylor-Morley-Simon to expend legal fees to defend itself in the McSherry lawsuit.

15. Michigan Mutual Insurance Company responded to Taylor-Morley-Simon's formal demand by denying coverage of the claim some six months after the initial February 1984 meeting. In particular, defendant relies on exclusions (1), (n), and A(3) of the policy as a basis for not defending or indemnifying Taylor-Morley-Simon in the McSherry lawsuit.

16. The amount in controversy, exclusive of interest and costs, exceeds the sum of $10,000.

Conclusions of Law

1. Pursuant to 28 U.S.C....