Younglove Constr. Llc. v. Psd Dev. Llc. .

• Decision Date: 21 July 2010
• Docket Number: Case No. 3:08CV1447.
• Citation: 724 F.Supp.2d 847
• Parties: YOUNGLOVE CONSTRUCTION, LLC, Plaintiff v. PSD DEVELOPMENT, LLC, et al., Defendants.
• Court: U.S. District Court — Northern District of Ohio

724 F.Supp.2d 847

YOUNGLOVE CONSTRUCTION, LLC, Plaintiff

v.PSD DEVELOPMENT, LLC, et al., Defendants.

Case No. 3:08CV1447.

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

July 21, 2010.

COPYRIGHT MATERIAL OMITTED.

Todd A. Harpst, Aaron M. Walker, Ryan P. Kennedy, Roetzel & Andress, Akron, OH, James R. Jeffery, Spengler Nathanson, Toledo, OH, for Plaintiff.

Michael R. Reed, Zeiger, Tigges & Little, Columbus, OH, John J. Hunter, Jr., Hunter & Schank, Toledo, OH, Joseph T. Chapman, Office of the Attorney General-Collections Enforcement, Columbus, OH, Douglas D. Rowland, Office of the Prosecuting Attorney-Wyandot County, Upper Sandusky, OH, for Defendants.

ORDER

JAMES G. CARR, District Judge.

This is a contract dispute between a subcontractor and insurance company as to whether the subcontractor's policy requires the insurance company to defend and indemnify it in the instant litigation. Third-party defendant Custom Agri Systems, Inc. (Custom Agri) claims that intervening defendant Westfield Insurance Co. (Westfield) must defend and indemnify Custom Agri in the current litigation under Custom Agri's insurance contract with Westfield.

Jurisdiction is proper under 28 U.S.C. § 1332. ¹ Pending are: 1) Westfield's motion for summary judgment on Westfield's duty to defend and indemnify Custom Agri [Doc. 115]; 2) Custom Agri's countermotion for summary judgment on Westfield's duty to defend Custom Agri [Doc. 148]; and 3) Westfield's motion to certify two questions of Ohio law to the Ohio Supreme Court [Doc. 159].

For the following reasons, Custom Agri's motion for summary judgment [Doc. 148] shall be granted, Westfield's summary judgment motion [Doc. 115] shall be denied, and Westfield's motion for certification [Doc. 159] shall be denied.

Background

On April 3, 2006, Younglove Construction, LLC (Younglove) entered into a contract with PSD Development, LLC (PSD). Under this contract, Younglove was to ensure design and construction of an animal feed manufacturing facility for PSD.

In turn, Younglove hired Custom Agri as a subcontractor to design and construct a steel grain bin for this project. Custom Agri then obtained the bin from Brock Grain Systems (Brock), and subcontracted: 1) the design and installation of the cement foundation and discharge openings for the bin to Krietemeyer Silo (Krietemeyer); and 2) the erection of the bin to Jerry O'Conick.

Custom Agri completed its portion of the project, and the bin began operation in approximately October, 2007.

From late 2006 through 2007, a dispute developed between Younglove and PSD regarding the quality of materials and work performed, and regarding certain damages that PSD claimed flowed therefrom.

In late 2007, PSD informed Younglove that PSD was withholding partial payment because of the dispute.

In early 2008, Younglove filed a mechanic's lien against the project, and this litigation ensued when Younglove sued PSD for the balance of payments due.

PSD counterclaimed for damages from Younglove, and Younglove filed a third-party complaint against Custom Agri for contribution and indemnity. Custom Agri, in turn, filed similar complaints against its subcontractors and also demanded that Westfield defend and indemnify it in the instant litigation.

PSD asserts several claims possibly triggering Custom Agri's liability: 1) defective construction of the bin; 2) defective construction and/or installation of the foundation; 3) resultant damages from uneven settling of the foundation; 4) resultant damage to the bin due to it “bend[ing] out of shape”; 5) resultant damage to the “top edge and roof of the bin”; 6) financial damage from inability to use the bin; 7) improper and/or inadequate safety signage and warnings regarding the bin; and 8) resultant damage to the strength and durability of the entire facility from these issues. [Doc. 70-1, at 12-13 ¶¶ 31-39].

At all pertinent times, Westfield insured Custom Agri under a commercial general liability (CGL) policy.

Standard of Review

A party is entitled to summary judgment on motion under Rule 56 when the opposing party fails to show the existence of an essential element for which that party bears the burden of proof. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

The moving party must first show the absence of a genuine issue of material fact. Id. at 323, 106 S.Ct. 2548.

Once the moving party meets that initial burden, the non-moving party “must [then] set forth specific facts showing that there is a genuine issue for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (quoting Fed.R.Civ.P. 56(e)). The non-moving party cannot rest on its pleadings or merely reassert its previous allegations. Rule 56(e) “requires the non[-]moving party to go beyond the [unverified] pleadings” and present evidence in support of its position. Celotex Corp., supra, 477 U.S. at 324, 106 S.Ct. 2548.

In deciding a motion for summary judgment, a court accepts the non-moving party's evidence as true and construes the evidence in the light most favorable to the non-moving party. Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 456, 112 S.Ct. 2072, 119 L.Ed.2d 265 (1992). A court shall grant summary judgment only if the materials offered in support of the motion show that there is no genuine issue as to any material facts, and that the moving party is thus entitled to summary judgment as a matter of law. Celotex Corp., supra, 477 U.S. at 323, 106 S.Ct. 2548.

Discussion ²

The two questions at issue between Custom Agri and Westfield are whether Westfield must: 1) defend and, if so, 2) indemnify Custom Agri as to PSD's relevant claims in the instant litigation. The two duties are distinct, and an insurer may have to defend an insured, even if it ultimately need not indemnify the insured. City of Sharonville v. Am. Employers Ins. Co. (Sharonville), 109 Ohio St.3d 186, 189, 846 N.E.2d 833 (2006).

I. Westfield's Duty to Defend

The Ohio Supreme Court has stated: “ ‘[W]here the insurer's duty to defend is not apparent from the pleadings in the action against the insured, but the allegations do state a claim is potentially or arguably within the policy coverage, or there is some doubt as to whether a theory of recovery within the policy coverage has been pleaded, the insurer must accept the defense of the claim.’ ” Sanderson v. Ohio Edison Co., 69 Ohio St.3d 582, 585-86, 635 N.E.2d 19 (1994) (quoting City of Willoughby Hills v. Cincinnati Ins. Co. (Willoughby Hills), 9 Ohio St.3d 177, 180, 459 N.E.2d 555 (1984)). An insurer, therefore, “has an absolute duty to defend an action when the complaint contains an allegation in any one of its claims that could arguably be covered by the insurance policy[.]” Sharonville, supra, 109 Ohio St.3d at 189, 846 N.E.2d 833 (internal citation omitted). ³ “Once an insurer must defend one claim within a complaint, it must defend the insured on all the other claims within the complaint, even if they bear no relation to the insurance-policy coverage.” Id. (internal citation omitted).

The reason for this rule is that an insurer's duty to defend “may arise at a point subsequent to the filing of the complaint[,]” and “under the Federal Rules of Civil Procedure the dimensions of a lawsuit are not determined by the pleadings because the pleadings are not a rigid and unchangeable blueprint of the rights of the parties.” Willoughby Hills, supra, 9 Ohio St.3d at 179, 459 N.E.2d 555 (internal quotation and citation omitted).

An insurer “need not defend any action or claims within the complaint [, however,] when all the claims are clearly and indisputably outside the contracted coverage.” Ohio Gov't Risk Mgmt. Plan v. Harrison, 115 Ohio St.3d 241, 246, 874 N.E.2d 1155 (2007).

If any arguable basis for coverage exists, therefore, Westfield has an absolute duty to defend Custom Agri. Sharonville, supra, 109 Ohio St.3d at 189, 846 N.E.2d 833. ⁴

A. Coverage

PSD is suing Younglove, and Younglove in turn suing Custom Agri, on two general theories relevant to disposition of these motions: 1) defective construction; and 2) consequential damages stemming from such defective construction. ⁵

1. Defective Construction

It is an open question under Ohio law whether defective construction claims fall under the auspices of a CGL policy like that Custom Agri has with Westfield. Compare Erie Ins. Exch. v. Colony Dev. Corp. (Colony I), 136 Ohio App.3d 406, 414, 736 N.E.2d 941 (10th Dist.1999) (holding that such a policy does protect against such claims); Ind. Ins. Co. v. Alloyd Insulation Co., 2002 WL 1770491, *4 (Ohio Ct.App.2d Dist.) (same); Cincinnati Ins. Co. v. G.L.H., Inc., 2008 WL 2940663, *7 (Ohio Ct.App. 6th Dist.) (same), vacated on other grounds, 2008 WL 4408597 (Ohio Ct.App. 6th Dist.), with Heile v. Herrmann, 136 Ohio App.3d 351, 354, 736 N.E.2d 566 (1st Dist.1999) (holding that such a policy does not protect against such claims); Royal Plastics, Inc. v. State Auto. Mut. Ins. Co., 99 Ohio App.3d 221, 225-26, 650 N.E.2d 180 (8th Dist.1994) (same); Envtl. Exploration Co. v. Bituminous Fire & Marine Ins. Co. ( Bituminous ), 2000 WL 1608908, *6 (Ohio Ct.App. 5th Dist.) (same); Ohio Cas. Ins. Co. v. Hanna, 2008 WL 2581675, *4 (Ohio Ct.App. 9th Dist.) (same); Westfield Ins. Co. v. R.L. Diorio Custom Homes, Inc. (Diorio), 2010 WL 918030, *3 (Ohio Ct.App. 12th Dist.) (same).

I need not resolve this question, however, because I find that even assuming arguendo that Custom Agri's policy covers defective construction, the contractual liability exclusion removes such claims from coverage. See Part I.B.1, infra. ⁶

Custom Agri's insurance policy thus does not provide coverage for defective construction claims.

2. Consequential Damages

Consequential damages, however, even those resulting from defective construction, are covered by Custom Agri's insurance policy. See Heile, supra, 136 Ohio App.3d at 354, 736 N.E.2d 566 (holding...