Wm. C. Vick Const. Co. v. Pennsylvania Nat. Mut., 5:97-CV-692-BR(1).

• Decision Date: 24 March 1999
• Docket Number: No. 5:97-CV-692-BR(1).,5:97-CV-692-BR(1).
• Citation: 52 F.Supp.2d 569
• Court: U.S. District Court — Eastern District of North Carolina
• Parties: WM. C. VICK CONSTRUCTION CO., Plaintiff, v. PENNSYLVANIA NATIONAL MUTUAL CASUALTY INSURANCE COMPANY and Great American Insurance Co., Defendants.

52 F.Supp.2d 569

WM. C. VICK CONSTRUCTION CO., Plaintiff, v. PENNSYLVANIA NATIONAL MUTUAL CASUALTY INSURANCE COMPANY and Great American Insurance Co., Defendants.

No. 5:97-CV-692-BR(1).

United States District Court, E.D. North Carolina, Western Division.

March 24, 1999.

COPYRIGHT MATERIAL OMITTED

Daniel K. Bryson, Lewis & Roberts, PLLC, Raleigh, NC, A. Graham Shirley, Lewis & Roberts, P.L.L.C., Raleigh, NC, for Wm. C. Vick Construction Co., plaintiff.

Walter Brock, Jr., Young, Moore & Henderson, Raleigh, NC, for Pennsylvania National Mutual Casualty Insurance Co., defendant.

Theodore B. Smyth, Thompson & Smyth, Raleigh, NC, for Great American Insurance Company, defendant.

ORDER

BRITT, Senior District Judge.

This matter is before the court on the Memorandum and Recommendation ("M & R") of United States Magistrate Judge William Norton Mason filed 12 February 1999. Plaintiff filed objections to Magistrate Judge Mason's M & R on 22 February 1999. Defendant Pennsylvania National responded to plaintiff's objections on 4 March 1999 and defendant Great American responded to plaintiff's objections on 5 March 1999.

The court has conducted the required de novo review of the M & R, paying particular attention to those portions to which plaintiff objected. The court finds plaintiff's objections to be without merit and the same are hereby OVERRULED. The court adopts Magistrate Judge Mason's M & R as its own, and for the reasons stated in recommendations 1, 2 and 3 therein, both defendants' motions for summary judgment are GRANTED in their entirety, and this matter is hereby DISMISSED.

MEMORANDUM AND RECOMMENDATION

MASON, United States Magistrate Judge.

THIS MATTER has been referred to the undersigned magistrate judge for a Memorandum and Recommendation on the Defendants' separate Motions for Summary Judgment. The parties have submitted memoranda in support of their respective positions, and the Motions are, therefore, ripe for ruling.

I.

The insurance coverage claims at issue in this declaratory judgment action, brought pursuant to 28 U.S.C. § 2201 and Federal Rule of Civil Procedure 57, stem from a deteriorated contractual relationship between Wm.C. Vick Construction Company ("Vick Construction"), the Plaintiff, and North Carolina Farm Bureau Federation ("Farm Bureau"). Vick Construction entered into a construction contract with Farm Bureau on June 6, 1986, for the construction of an addition to Farm Bureau's office building located in Raleigh, North Carolina (referred to hereinafter as "the Project"). Vick Construction was the General Contractor for the Project in 1986 and 1987. (William C. Vick, Jr. Aff. ¶ 8.) The addition was to include a print shop, other facilities, an expansion of the cafeteria, and a plaza deck above the print shop and other facilities. (William C. Vick, Jr. Aff. ¶ 8.)

Defendant Great American Insurance Company ("Great American") insured Vick Construction under comprehensive general liability and excess liability policies covering the period from July 11, 1986, until July 11, 1987. (Compl.¶ 7-8.) Defendant Pennsylvania National Mutual Casualty Insurance Company ("Penn National") insured Vick Construction under comprehensive general liability policies covering the period from July 11, 1987, until July 11, 1994. Penn National also covered Vick Construction under excess liability policies for the periods from July 11, 1987, until July 11, 1988; and July 11, 1991, until July 11, 1994. (Compl.¶ 9-10.)¹

Vick Construction subcontracted with Chamberlin Company of Raleigh, Inc. on November 18, 1986, to perform a portion of the roofing work for the Project which involved the installation of a waterproofing system. (See Compl. ¶ 12; William C. Vick, Jr. Aff. ¶ 9.) Chamberlin Company of Raleigh, Inc. was later acquired by, and renamed, Division 7 Contracting Company ("Division 7"). (Compl.¶ 14.) Problems arose when the waterproofing membrane on the plaza deck began leaking.

Architect Frank Harmon's Construction Log for the plaza deck waterproofing indicates that Division 7 applied the first coat of waterproofing to the deck on December 17, 1986, with a final coat applied on January 15, 1987. (See Pl.'s Appendix to Pl.'s Memorandums of Law [hereinafter "Pl.'s App."], Attach. 1.) Mr. Harmon completed a water test shortly thereafter on January 23, 1987, and reported that "water penetration was observed at junction of deck slab and parapet wall on east and south walls". (Pl.'s App., Attach. 6.) In February 1987, Division 7 applied additional waterproofing as suggested by Mr. Harmon. (Pl.'s App., Attach. 5.) Mr. Harmon's Field Report dated April 16, 1987, indicates that he visited the Project site after a heavy rain and saw leaks in the storage room, mechanical equipment room, corridor, the print shop ceiling and elevator equipment room. (File document ("FD") 21, Ex. 3.) That report further noted that the "[l]eakage in waterproofing must be repaired[ ]" and that "[l]eakage on N wall must be stopped." (FD 21, Ex. 3.) On May 23, 1987, Mr. Harmon issued a Certificate of Substantial Completion. (Pl.'s App., Attach. 4.) Evidence of leaks and damage to the parapet was again noted in the Construction Log on June 16, 1987, which states: "Blistering occurs at vertical waterproofing at parapet[.]" (Pl.'s App., Attach. 5.) Less than one month later, on July 11, 1987, Vick Construction's general and excess liability policies with Great American expired, and Vick Construction's policies with Penn National took effect.

On August 3, 1987, the City of Raleigh Inspections Department issued a Certificate of Compliance authorizing occupancy of the Project addition. (FD 26, Ex. 7.) On August 10, 1987, Mr. Harmon and Aaron Vick, Vice-President of Vick Construction, discussed repairing certain leakage. Shortly thereafter, they met with representatives of Division 7 to discuss the same. (Pl.'s App., Attach. 5.) Subsequent repair work to remedy the leaks was "performed and completed in February of 1988." (Aaron C. Vick Aff. ¶ 7.) In October 1988, however, Farm Bureau notified Vick Construction that the roof on the Project was again leaking. This new leak came down through the roof into the print shop, which is an area different from where the previous leaks occurred. (Aaron C. Vick Aff. ¶ 8-9.)

On October 26, 1988, Mr. Harmon approved Vick Construction's final Application and Certificate for Payment. (FD 26, Ex. 8.) On October 27, 1988, Mr. Harmon informed Vick Construction about a leak over a window in the print shop, and the following day, Vick Construction removed the sheetrock at the site of the leak. (Pl.'s App., Attach. 5.) Mr. Harmon inspected the area and instructed Vick Construction to uncover the waterproofing in the area above the print shop window. (Pl.'s App., Attach. 5.) In a letter dated October 31, 1988, Vick Construction requested that Division 7 repair a leak at the southern side of the plaza deck where it abuts the parapet wall. (Pl.'s App., Attach. 11.) On November 9, 1988, Vick Construction uncovered defective waterproofing at the plaza deck above the print shop. An entry in the Construction Log notes that the area uncovered was approximately 200 square feet. (Pl.'s App., Attach. 5.)

Vick Construction claims that upon further inspection it determined that the waterproofing membrane "had been installed upside-down by Division 7 and, therefore, had not properly adhered to the concrete." (Pl.'s Mem. at 5-6.; see Aaron C. Vick Aff. ¶ 8.) Division 7 later made some repairs and fixed certain leaks, though it did not replace the waterproofing membrane as suggested by Vick Construction. On December 9, 1988, additional leaks were reported at "column D6" in the print shop. (Pl.'s App., Attach. 5.) More generally, problems with leaks continued to occur in 1989 and 1990.²

By registered letter dated March 6, 1989, Farm Bureau demanded that Vick Construction remedy these recurring problems, citing the warranty provisions of the standard form AIA construction contract entered into between Vick Construction and Farm Bureau. (Pl.'s App., Attach. 13.) Apparently, numerous meetings were held and efforts were made to remedy the leaks, and various parties hired experts to determine causation and suggest possible solutions. (Pl.'s Mem. at 4.) These efforts were unavailing, and on January 18, 1991, Farm Bureau commenced an arbitration proceeding against Vick Construction in accordance with the terms of the construction contract. (See Demand for Arbitration, Pl.'s App., Attach. 14.)

An arbitration hearing was held on September 13-17, 1993. On October 20, 1993, the arbitrator awarded judgment against Vick Construction in an amount in excess of $100,000.00. (Compl.¶ 20.) The arbitrator denied the counterclaim filed by Vick Construction. (See Award of the Arbitrator, FD 21, Ex. 13.)³ On July 14, 1994, the North Carolina Superior Court (Wake County) denied Vick Construction's Motion to Vacate Arbitration Award Pursuant to N.C.G.S. Section 1-567.13. The North Carolina Court of Appeals, however, reversed the Superior Court's denial of Vick Construction's motion to vacate the award, citing the arbitrator's failure to disclose significant business relationships and friendships with Farm Bureau's counsel. See William C. Vick Const. Co. v. North Carolina Farm Bureau Federation, 123 N.C.App. 97, 102, 472 S.E.2d 346, 349, disc. rev. denied, 344 N.C. 739, 478 S.E.2d 14 (1996). The North Carolina Supreme Court denied discretionary review, and thus the arbitrator's award "has been effectively vacated and set aside." (Compl.¶ 22.)

It is in the context of this underlying construction dispute that Vick Construction is litigating a number of insurance coverage issues with its insurers, Defendants Great American and Penn National. Specifically, Vick Construction seeks recovery from the Defendants for allegedly breaching their respective duties to defend and/or pay for the defense of Vick Construction in the arbitration proceeding and...