Ap Atl., Inc. v. Crescent Univ. City Venture, LLC

2017 NCBC 59

Opinion

AP Atl., Inc. v. Crescent Univ. City Venture, LLC, 2017 NCBC 59.

NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION MECKLENBURG COUNTY 15 CVS 14745 (Master File) 16 CVS 14844 (Related Case) AP ATLANTIC, INC. d/b/a ADOLFSON & PETERSON CONSTRUCTION,

Plaintiff,

v.

CRESCENT UNIVERSITY CITY VENTURE, LLC AND THE GUARANTEE COMPANY OF NORTH AMERICA USA; BB & M ARCHITECTURE, PLLC; SCA ENGINEERS, INC.; MADISON CONSTRUCTION GROUP, INC.; TRUSSWAY MANUFACTURING, INC.; and T. A. KAISER HEATING & AIR, INC., ORDER AND OPINION ON Defendants, ARCH INSURANCE COMPANY’S v. MOTION FOR JUDGMENT ON THE PLEADINGS SEARS CONTRACT, INC. and ARCH INSURANCE COMPANY,

Third-Party Defendants.

MADISON CONSTRUCTION GROUP, INC.,

Third-Party Plaintiff,

v.

MANUEL BUILDING CONTRACTORS, LLC,

Third-Party Defendant. 1. THIS MATTER is before the Court upon Third-Party Defendant Arch

Insurance Company’s (“Arch”) Motion for Judgment on the Pleadings (the “Motion”)

in the above-captioned case.

2. Having considered the Motion, the parties’ briefs in support of and in

opposition to the Motion, and the arguments of counsel at the hearing on the Motion

on May 31, 2017, the Court GRANTS Arch’s Motion for Judgment on the Pleadings

and dismisses Crescent’s claim for breach of contract against Arch without prejudice.

Teague Campbell Dennis & Gorham LLP, by Courtney C. Britt and Mindy Wudarsky, for Third-Party Defendant Arch Insurance Company.

Swindell & Bond, PLLC, by John D. Bond, III, and Bradley Arant Boult Cummings LLP, by Douglas L. Patin and Avery A. Simmons, for Defendant Crescent University City Venture, LLC.

Bledsoe, Judge.

I.

FACTUAL BACKGROUND

3. The Court does not make findings of fact on motions to dismiss under Rule

12(c), but only recites those allegations in Crescent’s and Arch’s pleadings that are

relevant and necessary to the Court’s determination of the Motion.

4. This case arises out of multi-party litigation regarding the construction of a

student housing apartment complex in Charlotte, North Carolina (the “Project”), and

the alleged failure of the Project’s floor truss system. (Crescent’s Am. Countercl. ¶

2.)

5. Crescent University City Venture, LLC (“Crescent”) is the developer and

owner of the Project. (Crescent’s Am. Countercl. ¶ 2.) On or about December 19, 2012, Crescent executed a construction contract with “AP Atlantic dba Adolfson &

Peterson Construction” (“AP Atlantic”), a subsidiary of Adolfson & Peterson, Inc.

(“A&P”), to serve as the general contractor for the Project (the “Construction

Contract”). (Crescent’s Am. Countercl. ¶¶ 3, 9.)

6. Arch is an insurance company that is registered as an active insurance

company with the North Carolina Department of Insurance. (Crescent’s Am.

Countercl. ¶ 1; Arch’s Answer ¶ 1.)

7. Arch issued a commercial general liability policy—policy # 51PKG8919400

(the “Policy”)—to A&P, with A&P and its subsidiaries, including AP Atlantic, as

Named Insureds. (Crescent’s Am. Countercl. ¶ 27; Arch’s Answer ¶ 27, Ex. 1, 11, 50.)

A&P provided Crescent with a certificate of liability insurance that listed Crescent

as an additional insured on the Policy. (See Crescent’s Am. Countercl. ¶ 27.) The

Policy, which was attached to and relied upon in Arch’s Answer,1 specifically provides,

in relevant part, as follows:

1 Where the pleading specifically refers to and depends on certain documents, the Court may consider those documents without converting the motion into one for summary judgment under Rule 56 even if presented by defendant. See Schlieper v. Johnson, 195 N.C. App. 257, 261, 672 S.E.2d 548, 551 (2009); Oberlin Capital, L.P. v. Slavin, 147 N.C. App. 52, 60, 554 S.E.2d 840, 847 (2001). We[2] will pay those sums that the insured[3] becomes legally obligated to pay as damages because of “bodily injury” or “property damage”[4] to which this insurance applies.

(Arch’s Answer Ex. 1, 64.)

8. An endorsement modifying the commercial general liability coverage

provided in the Policy was added for Owners, Lessees or Contractors, such as

Crescent here (the “Endorsement”). (Arch’s Answer Ex. 1, 95.) The Endorsement

provides:

Section II – Who is An Insured is amended to include as an additional insured the person(s) or organization(s) shown in the Schedule, but only with respect to liability for “bodily injury”, “property damage” or “personal and advertising injury” caused, in whole or part, by: 1. Your[5] acts or omissions; or 2. The acts or omissions on those acting on your behalf; in the performance of your ongoing operations for the additional insured(s) at the location(s) designated above.

(Arch’s Answer Ex. 1, 95.)

9. The Schedule listed the Name(s) of Additional Insured Person(s) or

Organizations as “ALL PARTIES WHERE AGREED TO BY A WRITTEN

2 The Policy states that “[t]he words ‘we’, ‘us’ and ‘our’ refer to the company providing this insurance [i.e., Arch here].” (Arch’s Answer Ex. 1, 64.)

3 The Policy states that “[t]he word ‘insured’ means any person or organization qualifying as such under Section II –Who is An Insured.” (Arch’s Answer Ex. 1, 64.)

4 The Policy states that “[o]ther words and phrases that appear in quotation marks have special meaning. Refer to Section V – Definitions.” (Arch’s Answer Ex. 1, 64.)

5 The Policy states that “[t]hroughout this policy the words ‘you’ and ‘your’ refer to the Named Insured shown in the Declarations [i.e., AP Atlantic here], and any other person or organization qualifying as a Named Insured under this policy.” (Arch’s Answer Ex. 1, 64.) CONTRACT[,]” which the parties do not dispute included Crescent. (Arch’s Answer

Ex. 1, 95.)

10. Crescent alleges that AP Atlantic breached the Construction Contract by

failing to achieve substantial completion of the Project by the dates required under

that contract, as altered by various change orders. Crescent contends that AP

Atlantic’s alleged breach entitles it to liquidated damages equal to AP Atlantic’s full

fee as defined by the Construction Contract. (Crescent’s Am. Countercl. ¶¶ 35–36,

49.)

11. Crescent additionally alleges that AP Atlantic materially breached the

Construction Contract by refusing and failing to repair the Project’s allegedly

defective and damaged floor truss system and refusing to reimburse Crescent for the

cost of the repairs to the floor truss system. (Crescent’s Am. Countercl. ¶ 89.) More

specifically, Crescent alleges that as a result of A&P’s, AP Atlantic’s, and their

subcontractors’ negligence and improper performance, the Project’s truss system

failed, which resulted in costs, losses, and damages to Crescent that Crescent was

obligated to repair (the “Resulting Damage”). (Crescent’s Am. Countercl. ¶ 94.)

Crescent alleges that such Resulting Damage constitutes a covered “occurrence”

resulting in “property damage” as defined by the Policy (the “Claim”). (Crescent’s

Am. Countercl. ¶ 95; Arch’s Answer ¶ 95, Ex. 1.)

12. On June 2, 2015, Crescent provided notice of its Claim arising from the

Resulting Damage by letter to A&P, AP Atlantic, and Arch’s representative, Willis of

Minnesota, Inc. (“Willis”). (Crescent’s Am. Countercl. ¶ 96.) Willis acknowledged receipt of the Claim and assigned an adjuster and claim number to the Claim.

(Crescent’s Am. Countercl. ¶ 97.) Crescent alleges that Arch has breached the Policy

by not responding to the notice or providing coverage for Crescent’s Claim.

(Crescent’s Am. Countercl. ¶ 99.)

II.

PROCEDURAL BACKGROUND

13. On August 5, 2015, AP Atlantic filed this action against Crescent and The

Guarantee Company of North America USA, alleging claims arising out of the Project

for (i) breach of the Construction Contract, (ii) suit on bond/enforcement of a claim of

lien on real property, (iii) priority and, in the alternative, enforcement of the claim of

lien, and (iv) in the alternative, quantum meruit. AP Atlantic subsequently filed an

amended complaint on November 20, 2015, alleging various alternative claims

against the subcontractor defendants for either breach of contract or negligence.

14. On January 29, 2016, Crescent filed its Answer to the Amended Complaint

and asserted a counterclaim against AP Atlantic for breach of the Construction

Contract. At the time Crescent filed its counterclaim, Crescent was the plaintiff in a

related federal court litigation against AP Atlantic and Arch (the “Federal Court

Action”).

15. On April 14, 2016, the above-captioned case was designated a complex

business case under Rules 2.1 and 2.2 of the General Rules of Practice for the Superior

and District Courts and assigned to the undersigned. Thereafter, the parties in this

action and in the Federal Court Action agreed to attempt to consolidate the two actions into one forum. Pursuant to that agreement, Crescent voluntarily dismissed

the Federal Court Action and, on August 19, 2016, filed a substantially similar action

against AP Atlantic in Mecklenburg County Superior Court captioned Crescent

University City Venture, LLC v. Adolfson & Peterson, Inc, 2016-CVS-14844 (the

“Crescent Action”). The Crescent Action was designated as a mandatory complex

business case pursuant to N.C. Gen. Stat. 7A-45.4(b) and assigned to the undersigned

by Order of Chief Business Court Judge James L. Gale on August 22, 2016.

16. Shortly thereafter, Crescent moved for consolidation of the above-captioned

case and the Crescent Action. On October 10, 2016, the Court consolidated the two

actions and designated the above-captioned case as the “Lead Action” for all purposes

(the “Consolidation Order”).

17. Before the Court entered the Consolidation Order, Crescent moved to amend

its counterclaim against AP Atlantic to add Arch as a party to assert a claim against

Arch for breach of contract. The claim against Arch for breach of contract had also

been asserted by Crescent against Arch in the Federal Court Action.

18. AP Atlantic objected to Crescent’s proposed amendment on grounds of

undue prejudice and futility. The Court rejected both of AP Atlantic’s assertions and,

on January 13, 2017, entered an Order granting Crescent’s Motion to Amend under

N.C. R. Civ. P. 15. The Court concluded that Crescent’s allegations were “sufficient

to state a claim for breach of contract, and AP Atlantic’s attachment of two pages of

the Policy to its response brief does not convince the Court that Crescent’s proposed counterclaim would be clearly futile.” (Order Mot. Am. Countercl. to Add Additional

Countercl. Def. 4.)

19. On January 19, 2017, Crescent filed its Answer and Amended Counterclaim,

asserting claims against AP Atlantic and Arch, each for breach of contract (as to Arch,

the “Claim Against Arch”).

20. On March 27, 2017, Arch filed its responsive pleading to the Answer and

Amended Counterclaim and moved for judgment on the pleadings under N.C. R. Civ.

P. 12(c) seeking dismissal of the Claim Against Arch. Arch attached and incorporated

into its responsive pleading the entire Policy.6

21. After full briefing, the Court held a hearing on the Motion on May 31, 2017,

at which Arch and Crescent were represented by counsel.

22. The Motion is now ripe for resolution.

III.

LEGAL STANDARD

23. A motion for judgment on the pleadings under Rule 12(c) “is the proper

procedure when all the material allegations of fact are admitted in the pleadings and

only questions of law remain.” Ragsdale v. Kennedy, 286 N.C. 130, 137, 209 S.E.2d

494, 499 (1974). The Court must “view the facts and permissible inferences in the

light most favorable to the nonmoving party,” id., and may consider “only the

pleadings and exhibits which are attached and incorporated into the pleadings[,]”

6 Arch titled its filing as “Arch Insurance Company’s Answer to Third-Party Plaintiff Crescent University Venture, LLC’s Answer & Amended Counterclaim to Amended Complaint and Third-Party Complaint.” Davis v. Durham Mental Health/Dev. Disabilities/Substance Abuse Area Auth., 165

N.C. App. 100, 104, 598 S.E.2d 237, 240 (2004) (quoting Helms v. Holland, 124 N.C.

App. 629, 633, 478 S.E.2d 513, 516 (1996)). “[W]hen a complaint does not allege ‘facts

sufficient to state a cause of action or pleads facts which deny the right to any

relief[,]’” the court should grant a Rule 12(c) motion. Reese v. Brooklyn Vill., LLC,

209 N.C. App. 636, 641, 707 S.E.2d 249, 253 (2011) (quoting Robertson v. Boyd, 88

N.C. App. 437, 440, 363 S.E.2d 672, 675 (1988)).

IV.

ANALYSIS

24. Arch argues that the Court should enter judgment in its favor as to

Crescent’s breach of contract claim against Arch because Crescent (i) does not have a

contractual or legal right to sue Arch directly and (ii) has not pleaded facts to support

a claim against Arch under the Policy.

25. As to Arch’s first argument, Arch contends that Wilson v. Wilson, 121 N.C.

App. 662, 468 S.E.2d 495 (1996) establishes that Crescent (as an additional insured

with a claim against AP Atlantic (the named insured)) cannot maintain a direct action

against Arch (the insurer). (Arch’s Br. Supp. Mot. J. Pleadings 4–6.) Crescent objects

to Arch’s characterization of Crescent’s Claim Against Arch as well as Arch’s

interpretation of Wilson and argues that, as pleaded, Arch has contractual obligations

to Crescent independent of any obligations Arch may owe to AP Atlantic. (Crescent’s

Resp. Opp’n Mot. J. Pleadings 4–6.) The Court agrees with Crescent. 26. Wilson does not change this result and is easily distinguished. The Court of

Appeals has explained its holding in Wilson as follows: “[i]n Wilson, we established

the rule, that when ‘plaintiff is neither an insured nor in privity with the insurer . . .

a private right of action under N.C.G.S. § 58-63[-]15 and N.C.G.S. § 75-1.1 may not

be asserted by a third-party claimant against the insurer of an adverse party.’”

Murray v. Nationwide Mut. Ins. Co., 123 N.C. App. 1, 14–15, 472 S.E.2d 358, 365

(1996) (quoting Wilson, 121 N.C. App. at 665, 468 S.E.2d at 497). Critical to the

Wilson court’s conclusion was the fact that the plaintiff’s relationship to the

defendant insurer was “as a third[-]party because she [sought] to recover from the

insurer’s liability coverage provisions for her husband, rather than from a coverage

provision provided for her own interest.” Wilson, 121 N.C. App. at 667, 468 S.E.2d at

498–99 (emphasis added).

27. Unlike the plaintiff in Wilson, Crescent asserts a claim for breach of contract

against Arch as an additional insured under the Policy. As a result, Crescent is in

privity with Arch, with direct contract rights under the Policy, and asserts rights

under the Policy under a provision provided for Crescent’s own interest. Wilson

therefore has no application on the facts as alleged. See, e.g., Murray, 123 N.C. App.

at 15, 472 S.E.2d at 366 (holding that because plaintiff was an intended beneficiary

of the [insurance policy], plaintiff and the insurer were in privity of contract, which

made Wilson inapplicable); see also, e.g., Pecker Iron Work of N.Y., Inc. v. Traveler’s

Ins. Co., 99 N.Y.2d 392, 393 (N.Y. 2003) (“Additional insured is a recognized term in

insurance contracts . . . [with] the well-understood meaning . . . [of] an entity enjoying the same protection as the named insured.” (internal quotations and citations

omitted)).

28. Accordingly, viewing Crescent’s allegations and the Policy in the light most

favorable to Crescent, the Court concludes that, unlike the plaintiff in Wilson,

Crescent has pleaded facts in support of its contention that Arch provided coverage

to Crescent in Crescent’s own right and for Crescent’s own interest and that “Arch

has breached the Policy by not responding to Crescent’s claim and not accepting

coverage for Crescent’s claim under the Policy[.]” (Crescent’s Am. Countercl. ¶ 99.)

As a result, Arch has failed to persuade the Court that Crescent does not have a

contractual or legal right to sue Arch directly under the holding in Wilson.

29. For its second argument, Arch contends that Crescent has not pleaded facts

demonstrating that Arch’s coverage obligations to Crescent as an additional insured

have been triggered under the Policy. The Policy provides that Arch will pay sums

that an insured, including Crescent as an additional insured, “becomes legally

obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which

this insurance applies[,]” subject to various limitations and exclusions. (Arch Answer

Ex. 1, 64, 95.) Arch asserts that Crescent’s Claim Against Arch must be dismissed

because it fails to allege that Crescent ever became “legally obligated to pay as

damages,” as that term is defined in Lida Manufacturing Co. v. United States

Insurance Co., 116 N.C. App. 592, 448 S.E.2d 854 (1994). Crescent does not dispute

the holding in Lida but instead contends that Lida does not require a third-party to have an active case or obtained a judgment against the insured to have successfully

pleaded that the insured is “legally obligated to pay as damages.”

30. In North Carolina, “different rules of construction govern the interpretation

of policy provisions which extend coverage as opposed to policy provisions which

exclude coverage.” State Capital Ins. Co. v. Nationwide Mut. Ins. Co., 318 N.C. 534,

538, 350 S.E.2d 66, 68 (1986) (emphasis omitted). Provisions of insurance policies

extending coverage “must be construed liberally so as to provide coverage, whenever

possible by reasonable construction.” Id. (citing Moore v. Hartford Fire Insurance Co.,

270 N.C. 532, 155 S.E.2d 128 (1967); Jamestown Mutual Insurance Co. v. Nationwide

Mutual Insurance Co., 266 N.C. 430, 146 S.E.2d 410 (1966)). Provisions excluding

coverage “are not favored and therefore all ambiguous provisions will be construed

against the insurer and in favor of the insured.” Id. (citing Wachovia Bank & Trust

Co. v. Westchester Fire Insurance Co., 276 N.C. 348, 172 S.E.2d 518 (1970)).

31. “A contract which is plain and unambiguous on its face will be interpreted

as a matter of law by the court. If the agreement is ambiguous, however,

interpretation of the contract is a matter for the jury.” Metcalf v. Black Dog Realty,

LLC, 200 N.C. App. 619, 633, 684 S.E.2d 709, 719 (2009) (quoting Dockery v. Quality

Plastic Custom Molding, Inc., 144 N.C. App. 419, 421–22, 547 S.E.2d 850, 852 (2001));

see also De Torre v. Shell Oil Co., 84 N.C. App. 501, 504, 353 S.E.2d 269, 272 (1987)

(holding that only questions of law remain on a breach of contract claim when the

court can construe the plain and unambiguous language of the contract to determine

if it has been breached). “Ambiguity exists where the contract’s language is reasonably susceptible to either of the interpretations asserted by the parties.”

Dockery v. Quality Plastic Custom Molding, Inc., 144 N.C. App. 419, 422, 547 S.E.2d

850, 852 (2001).

32. Turning then to the language at issue, the phrase “legally obligated to pay

as damages” is not defined in the Policy. Thus, the Court “must read the phrase in

accordance with ‘the ordinary meaning of [that phrase].’” Pulte Home Corp. v. Am. S.

Ins. Co., 185 N.C. App. 162, 167, 647 S.E.2d 614, 618 (2007) (alteration in original)

(quoting City of Greenville v. Haywood, 130 N.C. App. 271, 276, 502 S.E.2d 430, 433–

34 (1998)).

33. The Court of Appeals had the opportunity to consider the ordinary meaning

of this specific phrase in a commercial general liability insurance policy similar to the

Policy here in its decision in Lida. In that case, the Court of Appeals concluded that

the ordinary meaning of the phrase “legally obligated to pay as damages” required

that a third-party “must have a cause of action [against the insured and] ‘a remedy

by which it can reduce its right to damage to judgment[.]’” Id. at 595, 448 S.E.2d at

856 (quoting Silvers v. Horace Mann Ins. Co., 324 N.C. 289, 293–94, 378 S.E.2d. 21,

24 (1989)).

34. As Crescent notes, the court in Lida did not hold that the cause of action

had to be asserted in pending litigation or that a judgment had to be rendered for an

insured to be “legally obligated to pay as damages.” Instead, the Lida court concluded

that the third-party’s inability to “‘reduce [its] right to damage to judgment’ because

of [a] covenant not to execute” rendered the insured “not ‘legally obligated to pay’ [the third-party] for any damages[.]” Id. at 596, 448 S.E.2d at 857. As a result, the court

concluded that the insurance company’s obligation under the policy was extinguished.

Id. (“A defendant insurance company’s liability is ‘derivative in nature; therefore, its

liability depends on whether or not its insured is liable to the [third-party].’”)

35. Here, neither party has asserted an interpretation of the ordinary meaning

of the phrase “legally obligated to pay as damages” in the Policy that is inconsistent

with the Court of Appeals’ interpretation of materially identical policy language in

Lida, and the Court concludes, in light of Lida, that the phrase “legally obligated to

pay as damages” is unambiguous.7 Dockery, 144 N.C. App. at 422, 547 S.E.2d at 852.

Liberally construing the phrase to provide coverage whenever possible by reasonable

construction, the Court concludes that the definition articulated in Lida states the

plain and ordinary meaning of the phrase as it is used in the Policy at issue in this

case. Thus, the Court concludes that the phrase “legally obligated to pay as

damages,” as used in the Policy, requires that a third-party “must have a cause of

action [against the insured and] ‘a remedy by which it can reduce its right to damage

to judgment[.]’” Id. at 595, 448 S.E.2d at 856.

36. Turning then to the allegations forming the basis for Crescent’s claim

against Arch, Crescent avers that it “was obligated to repair damage resulting from

the truss failures[,]” (Crescent’s Am. Countercl. ¶ 94), because “[i]f not repaired

7 Crescent admits in its brief that “[t]he Arch Policy provides that Arch is required to indemnify Crescent for property damage liability arising out of an occurrence relating to damages caused by the work of AP Atlantic and its subcontractors.” (Crescent’s Resp. Opp’n Mot. J. Pleadings 6.) Crescent thus recognizes that policy coverage is triggered when Crescent has “property damage liability,” i.e., when Crescent is liable to a third-party for property damage. immediately, these deficiencies and failures could have led to life-safety

consequences[,]” (Crescent’s Am. Countercl. ¶ 79). Crescent nowhere alleges,

however, that a third-party had or has a cause of action for damages against Crescent

because of “property damage” or “bodily injury” covered under the Policy.

37. Viewing these allegations in the light most favorable to Crescent, the Court

finds that they fail to allege facts showing that a third-party had or has a cause of

action and a remedy by which it can reduce its right to damage to judgment against

Crescent. As a result, the Court concludes that, as pleaded, Arch’s obligation to

indemnify Crescent under the Policy has not been triggered, and, thus, that Arch has

not breached its contractual obligations under the Policy to Crescent as an additional

insured. The Court therefore dismisses Crescent’s breach of contract claim against

Arch without prejudice.

V.

CONCLUSION

38. Based on the foregoing, the Court hereby GRANTS Arch’s Motion for

Judgment on the Pleadings and DISMISSES Crescent’s breach of contract claim

against Arch without prejudice.8

SO ORDERED, this the 13th day of July, 2017.

/s/ Louis A. Bledsoe, III Louis A. Bledsoe, III Special Superior Court Judge for Complex Business Cases

8 This Order and Opinion does not address or impact any obligations Arch may have under

the Policy to AP Atlantic.