Westfield Ins. Co. v. Nautilus Ins. Co., 1:14-cv-772

• Decision Date: 07 January 2016
• Docket Number: 1:14-cv-772
• Citation: 154 F.Supp.3d 259
• Court: U.S. District Court — Middle District of North Carolina
• Parties: Westfield Insurance Company, Plaintiff, v. Nautilus Insurance Company, Defendant.

154 F.Supp.3d 259

Westfield Insurance Company, Plaintiff,

v.Nautilus Insurance Company, Defendant.

1:14-cv-772

United States District Court, M.D. North Carolina.

Signed January 7, 2016

J. Mark Langdon, William W. Silverman, Wall Templeton & Haldrup, P.A., Raleigh, NC, for Plaintiff.

James M. Dedman, IV, Gallivan White & Boyd, P.A., Charlotte, NC, Shelley S. Montague, Gallivan, White & Boyd, P.A., Columbia, SC, for Defendant.

MEMORANDUM OPINION AND ORDER

LORETTA C. BIGGS

, District Judge.

Plaintiff, Westfield Insurance Company (“Westfield”), brings this action against Nautilus Insurance Company (“Nautilus”), alleging that Nautilus breached its duty to defend and indemnify Westfield's insured, J. Wayne Poole, Inc. (“Poole”), in an underlying state court action. Before the Court are Westfield's Motion for Judgment on the Pleadings, (ECF No. 17), and Nautilus's Motion for Summary Judgment, (ECF No. 21). For the reasons that follow, the Court grants Nautilus's motion in part, to the extent it seeks judgment on its duty to defend, and denies Westfield's motion.

I. BACKGROUND

On or about February 7, 2012, Poole contracted with the Guilford County Board of Education to serve as the general contractor for a project involving renovations to the roof of Alamance Elementary School. (ECF No. 1 ¶ 12.) Poole then entered into a subcontractor agreement with Associated Steel Crane & Rigging, LLC (“Associated Steel”), whereby Associated Steel was to install structural steel and steel decking at the school. (Id. ¶ 13; ECF No. 1-4 § 2.) As part of the subcontract, Associated Steel was to obtain commercial general liability insurance and name Poole as an additional insured on the policy. (ECF No. 1-4 § 7.1.) Associated Steel secured a commercial general liability insurance policy from Nautilus, (ECF No. 1-2), that included an endorsement naming as an additional insured any entity that Associated Steel agreed to name as an additional insured. (ECF No. 1-3.) The endorsement provided coverage for the additional insured only with respect to liability for property damage caused in whole or in part by Associated Steel in connection with Associated Steel's ongoing operations for the additional insured. (Id. )

On July 20, 2012, a rain event led to water entering the interior of the school and causing damage. (ECF No. 1 ¶¶ 17–18.)¹ Poole contracted with Southeast Restoration, Inc., d/b/a Afterdisaster to perform remediation of the school's interior. (Id. ¶ 19.) On August 23, 2012, Afterdisaster billed Poole $258,437.25 for its work at the school. (Id. ¶ 20; ECF No. 1-5.) Poole then made a claim to Westfield for the costs of Afterdisaster's services to remediate the school due to the water intrusion. (ECF No. 1 ¶ 21.)

On December 3, 2012, Afterdisaster filed a lawsuit against Poole in state court because the bill for Afterdisaster's services had not been paid. (Id. ; ECF No. 1-6 ¶ 11.) In the lawsuit, Afterdisaster asserted that Poole had failed to pay $258,437.25, the amount of Afterdisaster's services to remediate the school. (ECF No. 1-6 ¶ 11.) Westfield provided a defense for Poole in that lawsuit under a full reservation of rights. (ECF No. 1 ¶ 22.) On February 28, 2013, Poole filed a third-party complaint against Associated Steel in the state court lawsuit. (Id. ¶ 23; ECF No. 1-7.) In the third-party complaint, Poole claimed that Associated Steel breached the subcontractor agreement by failing to protect the school's premises from the water intrusion. (ECF No. 1-7 ¶ 34.) Poole further claimed that Associated Steel agreed to indemnify Poole for “any damages, losses, or expenses arising out of or resulting from [Associated Steel's] work on the Project.” (Id. ¶ 41.) Nautilus provided a defense for Associated Steel against Poole's claims. (ECF No. 1 ¶ 25.)

On May 17, 2013, Poole tendered a demand to Nautilus for defense and indemnity based on the claim asserted by Afterdisaster. (Id. ¶ 26; ECF No. 1-9.) Nautilus responded that although Poole was an additional insured under Associated Steel's policy, there was no coverage for Afterdisaster's claim against Poole. (ECF No. 1 ¶¶ 28–30; ECF No. 1-10 at 4.) Specifically, Nautilus stated:

The Complaint alleges that your client refused to pay a debt and the Plaintiff is seeking to recover the value of the services contracted for by your client. Unfortunately the allegations in the Complaint do not allege an “occurrence” resulting in “property damage” to trigger coverage as an additional insured on our policy.

(ECF No. 1-10 at 4.)

In July 2013, Poole entered into a settlement agreement with Afterdisaster, and Westfield paid the entire settlement amount of $268,000. (ECF No. 1 ¶¶ 32–33.) Poole also dismissed its third-party suit against Associated Steel. (Id. ¶ 32.) Following resolution of the state court action, Poole assigned to Westfield all of its rights to pursue coverage under the Nautilus policy for the damages arising out of the July 2012 incident at Alamance Elementary School. (Id. ¶ 35.)

On September 9, 2014, Westfield filed this action against Nautilus to recover the amounts it paid in defending and settling the state court action between Poole and Afterdisaster. Westfield asserts four causes of action: (1) that Westfield is entitled to a declaratory judgment that Nautilus had a duty to defend Poole in the state action; (2) that Nautilus breached its contractual obligations under the Nautilus policy by not providing a defense and indemnifying Poole in the state action; (3) that Westfield is entitled to subrogation against Nautilus to recover amounts incurred in investigating, defending, and resolving the claims arising out of the water intrusion event; and (4) that Westfield is entitled to equitable subrogation against Nautilus to recover the amounts it incurred in resolving the water intrusion event. (See ECF No. 1 at 8–12.)

II. PENDING MOTIONS

On March 16, 2015, Westfield moved, pursuant to Rule 12(c), for judgment on the pleadings as a matter of law, requesting a declaration that Nautilus breached its duty to defend Poole in the underlying state action. (ECF No. 17.) Nautilus then moved for summary judgment under Rule 56, asserting that it had no duty to defend Poole in the underlying state action and further that it is entitled to summary judgment on all claims brought by Westfield. (ECF No. 21.) The parties' briefings reference a number of documents attached to the complaint, and Nautilus has attached the notices of dismissal in the state court action to its briefing. Ordinarily, before a court exercises its discretion to convert a motion under Rule 12(c) into one for summary judgment, “[a]ll parties must be given a reasonable opportunity to present all the material that is pertinent to the motion.” Fed. R. Civ. P. 12(d)

. However, Nautilus and Westfield agree that the duty to defend issue is ripe for review and needs no further factual development to resolve. (See ECF No. 27 at 2 n.1.) This Court, therefore, converts Westfield's motion into one for summary judgment, thus treating the parties' motions as cross-motions for summary judgment. See

Sea

–

Land Serv., Inc. v. United States, 622 F.Supp. 769, 771–72 (D.N.J.1985) (converting the motion to dismiss into one for summary judgment, thereby “treat[ing] the motions ... as cross-motions for summary judgment because they raise the identical legal issue, and the parties appear to agree that no material facts are in dispute”).

III. LEGAL STANDARD

“Summary judgment is appropriate only if the record shows ‘that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.’ ” Woollard v. Gallagher , 712 F.3d 865, 873 (4th Cir.2013)

(quoting Fed. R. Civ. P. 56(a) ). Where, as in this case, the court has before it cross-motions for summary judgment, the court reviews each of them separately to determine if either party is entitled to judgment as a matter of law. Rossignol v. Voorhaar , 316 F.3d 516, 523 (4th Cir.2003)

.

IV. DISCUSSION

The Court has subject matter jurisdiction in this action based on diversity of citizenship and therefore looks to North Carolina's choice of law principles to determine which state's substantive law applies. See Klaxon Co. v. Stentor Elec. Mfg. Co. Inc. , 313 U.S. 487, 496–97, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941)

. Under North Carolina law, where the parties' dispute involves an insurance policy, the state in which the policy was issued governs the dispute. See

Roomy v. Allstate Ins. Co. , 256 N.C. 318, 322, 123 S.E.2d 817, 820 (1962). The Nautilus policy was issued in North Carolina to its insured, Associated Steel, (ECF No. 1-2 at 3), and thus, the Court must interpret the policy according to North Carolina law.

A. Overview of North Carolina Insurance Law

In North Carolina, an insurance policy is a contract, and its terms govern the parties' rights and duties. Fidelity Bankers Life Ins. Co. v. Dortch , 318 N.C. 378, 380, 348 S.E.2d 794, 796 (1986)

. Courts are to construe the policy's provisions with the goal of determining the parties' intent at the time the policy was issued. Woods v. Nationwide Mut. Ins. Co. , 295 N.C. 500, 505, 246 S.E.2d 773, 777 (1978). The party seeking benefits under the policy bears the burden of demonstrating coverage. Fortune Ins. Co. v. Owens , 351 N.C. 424, 430, 526 S.E.2d 463, 467 (2000). Interpretation of an insurance policy is a question of law for the court. Allstate Ins. Co. v. Runyon Chatterton , 135 N.C.App. 92, 94, 518 S.E.2d 814, 816 (1999).

The North Carolina Supreme Court has held that an insurer's duty to defend is broader than, and is independent from, its duty to indemnify. See Waste Mgmt. of Carolinas, Inc. v. Peerless Ins. Co. , 315 N.C. 688, 691, 340 S.E.2d 374, 377 (1986)

. The duty to defend is generally determined by analyzing the pleadings in the underlying lawsuit. Id. To determine whether circumstances give rise to a duty to defend, courts employ the “comparison test;” “the pleadings are read side-by-side with the policy” to...