Trehel Corp. v. Nat'l Fire & Marine Ins. Co.

• Decision Date: 15 March 2022
• Docket Number: C. A. 8:21-cv-01962-DCC
• Court: U.S. District Court — District of South Carolina
• Parties: Trehel Corporation, Plaintiff, v. National Fire and Marine Insurance Company; First Specialty Insurance Corp.; Frankenmuth Mutual Insurance Company; Employers Insurance Company of Wausau; Liberty Mutual Fire Insurance Company; Navigators Specialty Insurance Company; Peleus Insurance Company; Nationwide Mutual Fire Insurance Company; Atain Specialty Insurance Company f/k/a/ USF Insurance; Selective Insurance Company of South Carolina; American Guarantee and Liability Insurance Company; Carl Catoe Construction, Inc.; Environmental Materials, LLC d/b/a Environmental Stoneworks; P&L Enterprises, LLC, Defendants.

Trehel Corporation, Plaintiff, v. National Fire and Marine Insurance Company; First Specialty Insurance Corp.; Frankenmuth Mutual Insurance Company; Employers Insurance Company of Wausau; Liberty Mutual Fire Insurance Company; Navigators Specialty Insurance Company; Peleus Insurance Company; Nationwide Mutual Fire Insurance Company; Atain Specialty Insurance Company f/k/a/ USF Insurance; Selective Insurance Company of South Carolina; American Guarantee and Liability Insurance Company; Carl Catoe Construction, Inc.; Environmental Materials, LLC d/b/a Environmental Stoneworks; P&L Enterprises, LLC, Defendants.

C. A. No. 8:21-cv-01962-DCC

United States District Court, D. South Carolina, Anderson/Greenwood Division

March 15, 2022

OPINION AND ORDER

Donald C. Coggins, Jr. United States District Judge

This matter is before the Court on Defendant Atain Specialty Insurance Company f/k/a USF Insurance's (“Atain”) Motion to Dismiss. ECF No. 27. Plaintiff Trehel Corporation (“Trehel”) filed a Response in Opposition, and Atain filed a Reply. ECF Nos. 52 58. For the reasons set forth below, the Court grants in part and denies in part Atain's Motion to Dismiss.

BACKGROUND

This case is an insurance coverage dispute arising out of an underlying construction defect action (the “Underlying Action”) filed in the Anderson County Court of Common Pleas.^[1] In the Underlying Action, Trehel, along with Defendants Carl Catoe Construction, Inc.; Environmental Materials, LLC d/b/a Environmental Stoneworks; and P&L Enterprises, LLC (“P&L”) (collectively “Subcontractor Defendants”) have been sued for alleged defects in the construction of a condominium development, Overlook Condominiums, located in Anderson South Carolina. ECF No. 1-1 at 7. Defendants National Fire and Marine Insurance Company, First Specialty Insurance Corp., Frankenmuth Mutual Insurance Company (“Frankenmuth”), Employers Insurance Company of Wausau, Liberty Mutual Fire Insurance Company, Navigators Specialty Insurance Company, Peleus Insurance Company Nationwide Mutual Fire Insurance Company, Atain, Selective Insurance Company of South Carolina, and American Guarantee and Liability Insurance Company (collectively, “Insurer Defendants”) were not named as defendants in the Underlying Action.

On May 27, 2021, Trehel filed this action in state court against Insurer Defendants and Subcontractor Defendants seeking coverage under Subcontractor Defendants' insurance policies issued by Insurer Defendants (the “Coverage Action”). ECF No. 1-1. In its Complaint, Trehel alleges that each of the Subcontractor Defendants entered into a subcontract with Trehel to perform certain work on the Overlook Condominium project, and the subcontract required the Subcontractor Defendants to “[m]aintain commercial general liability insurance coverage . . . [n]ame Trehel as an additional insured on the insurance policies [and] [d]efend, indemnify and hold harmless Trehel with respect to any claims asserted against it arising out of the work on the [p]roject.” ECF No. 1-1 at 7. Trehel alleges causes of action against all Defendants for a declaratory judgment, breach of contract, bad faith, and indemnity/contribution. Id. at 7-10.

On June 30, 2021, Frankenmuth removed the Coverage Action to this Court. ECF Nos. 1. At the time of removal, complete diversity of the parties did not exist;^[2] thus, Frankenmuth moved to realign the Subcontractor Defendants as Plaintiffs, and Trehel moved to remand the case to state court. ECF Nos. 4, 26. This Court granted Frankenmuth's Motion to Realign and denied Trehel's Motion to Remand. ECF No. 67.

Thereafter, Atain filed a Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) on July 21, 2021. ECF No. 27. Trehel filed a Response in Opposition, and Atain filed a Reply. ECF Nos. 52, 58. The Motion is now before the Court.

APPLICABLE LAW

Rule 12(b)(6) of the Federal Rules of Civil Procedure permits the dismissal of an action if the complaint fails “to state a claim upon which relief can be granted.” Such a motion tests the legal sufficiency of the complaint and “does not resolve contests surrounding the facts, the merits of the claim, or the applicability of defenses . . . . Our inquiry then is limited to whether the allegations constitute ‘a short and plain statement of the claim showing that the pleader is entitled to relief.'” Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir. 1992) (internal quotation marks and citation omitted). In a Rule 12(b)(6) motion, the Court is obligated to “assume the truth of all facts alleged in the complaint and the existence of any fact that can be proved, consistent with the complaint's allegations.” E. Shore Mkts., Inc. v. J.D. Assocs. Ltd. P'ship, 213 F.3d 175, 180 (4th Cir. 2000). However, while the Court must accept the facts in a light most favorable to the nonmoving party, it “need not accept as true unwarranted inferences, unreasonable conclusions, or arguments.” Id.

To survive a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), the complaint must state “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). Although the requirement of plausibility does not impose a probability requirement at this stage, the complaint must show more than a “sheer possibility that a defendant has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A complaint has “facial plausibility” where the pleading “allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.

DISCUSSION

I. The Policy

Atain issued an insurance policy to P&L, one of Trehel's subcontractors on the Overlook Condominium Project, as the sole named insured, effective July 30, 2008, through July 30, 2009 (“the Policy”). ECF Nos. 27 at 2; 27-1 (Exhibit A - Policy No. LGBL64551). The Policy provides that Atain “will pay those sums that the insured becomes legally obligated to pay as damages because of . . . ‘property damage' to which this insurance applies. [Atain] will have the right and duty to defend the insured against any ‘suit' seeking those damages.” ECF No. 27-1 at 10. The Policy states that the “insurance applies to . . . ‘property damage' only if: (1) The . . . ‘property damage' is caused by an ‘occurrence' that takes place in the ‘coverage territory'; (2) The . . . ‘property damage' occurs during the policy period; and (3) Prior to the policy period, no insured . . . knew that the . . . ‘property damage' had occurred, in whole or in part.” Id. The Policy defines “property damage” as “[p]hysical injury to tangible property, including all resulting loss of use of that property” or “[l]oss of use of tangible property that is not physically injured.” Id. at 24.

Generally, contractual liability for damages is excluded from coverage under the Policy, unless such liability for damages is

[a]ssumed in a contract or agreement that is an ‘insured contract,' provided that the . . . “property damage” occurs subsequent to the execution of the contract or agreement. Solely for purposes of liability assumed in an “insured contract, ” reasonable attorney fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of . . . “property damage, ” provided:

(a) Liability to such party for, or for the cost of, that party's defense has also been assumed in the same “insured contract'”; and

(b) Such attorney fees and litigation expenses are for defense of that party against a civil or alternative dispute resolution proceeding in which damages to which this insurance applies are alleged.

Id. at 11. The Policy defines “insured contract” as

[t]hat part of any other contract or agreement pertaining to your business . . . under which you assume the tort liability of another party to pay for . . . “property damage” to a third person or organization.

Id. at 22, 33.

In addition, the Policy includes a Supplementary Payments Provision, which states in part:

If we defend an insured against a “suit” and an indemnitee of the insured is also named as a party to the “suit, ” we will defend that indemnitee if all of the following conditions are met:

a. The “suit” against the indemnitee seeks damages for which the insured has assumed liability of the indemnitee in a contract or agreement that is an “insured contract”;

b. This insurance applies to such liability assumed by the insured;

c. The obligation to defend, or the cost of the defense of, that indemnitee, has also been assumed by the insured in the same “insured contract”;

d. The allegations in the “suit” and the information we know about the “occurrence” are such that no conflict appears to exist between the interests of the insured and the interests of the indemnitee; [and]

e. The indemnitee and the insured ask us to conduct and control the defense of that indemnitee against such “suit” and agree that we can assign the same counsel to defend the insured and the indemnitee . . . .

Id. at 17.

Moreover, an endorsement amends the Policy “to include as an additional insured any person or organization for whom you are performing operations when you and such person have agreed in writing in a contract or agreement that such person be added as an additional insured on your policy.” Id. at 28 (emphasis added). The endorsement further states that “[s]uch person or organization is an additional insured only with respect to liability for . . . ‘property damage' . . . caused, in whole or in part, by: 1. Your acts or omissions; or 2. The acts or omissions of those acting on your behalf; in the performance of your ongoing operations for the additional insured.” Id.

However “[a] person's or organization's status as...