Cincinnati Insur. v . Fab Tech, et a l . 03-CV-410-SM 06/24/05 UNITED STATES DISTRICT COURT
DISTRICT OF NEW HAMPSHIRE
The Cincinnati Insurance Company, Plaintiff
v. Civil N o . 03-cv-410-SM Opinion N o . 2005 DNH 096 Fab Tech, Inc., d/b/a Corle Building Systems; Seacoast Crane Company, Inc.; Peerless Insurance Company a/s/o Crowning Holdings, Inc.; Federal Insurance Company a/s/o Lason Systems, Inc.; and North American Specialty Insurance Company, Defendants
O R D E R
The Cincinnati Insurance Company (“Cincinnati”) seeks
judgment declaring that it is not obligated to defend or
indemnify its insured, Fab Tech, Inc. (“Fab Tech”), in a
subrogation action brought by Peerless Insurance Company
(“Peerless”) and Federal Insurance Company (“Federal”).1 It also
seeks a declaration that North American Specialty Insurance
1 The underlying subrogation action will be referred to as “the Peerless action.” Company (“North American”) 2 is obligated to provide Fab Tech a
defense against claims arising from the collapse of a building
that Fab Tech designed and fabricated for Crowning Holdings, Inc.
(“Crowning”) while acting as a subcontractor to Seacoast Crane
Company (“Seacoast”). Before the court are motions for summary
judgment filed by Cincinnati, North American, Peerless, Fab Tech,
and Federal.
Summary Judgment Standard
Summary judgment is appropriate when the record reveals “no
genuine issue as to any material fact and . . . the moving party
is entitled to a judgment as a matter of law.” FED. R . CIV. P .
56(c). “The role of summary judgment is to pierce the
boilerplate of the pleadings and provide a means for prompt
disposition of cases in which no trial-worthy issue exists.”
Quinn v . City of Boston, 325 F.3d 1 8 , 28 (1st Cir. 2003) (citing
Suarez v . Pueblo Int’l, Inc., 229 F.3d 4 9 , 53 (1st Cir. 2000)).
When ruling on a party’s motion for summary judgment, the court
2 North American is the successor in interest to Underwriters Insurance Company, which issued an insurance policy to Fab Tech which is a subject of this litigation. For convenience, that policy is referred to as “the North American policy.”
2 must view the facts in the light most favorable to the nonmoving
party and draw all reasonable inferences in that party’s favor.
See Lee-Crespo v . Schering-Plough Del Caribe Inc., 354 F.3d 3 4 ,
37 (1st Cir. 2003) (citing Rivera v . P.R. Aqueduct & Sewers
Auth., 331 F.3d 183, 185 (1st Cir. 2003)).
Background
On August 1 4 , 1996, Seacoast entered into an agreement with
Crowning under which Seacoast constructed an 80-foot by 180-foot
pre-engineered building addition for Crowning. The work was to
be completed “within 14 weeks of Site Plan Approval by town or
issuance of a building permit by Town.” (Peerless Mot. Summ. J.,
Ex. 2 at 1.) The agreement called for the building to be
designed, fabricated, and constructed in conformity with the 1990
BOCA Code. (Id. at 7.) The roof was to be capable of bearing a
snow load of 42 PSF. (Id.) The total cost was agreed to be
$284,270. (Id. at 2.) The “Bid Price Sheet” completed by
Seacoast included the following items and prices: Pre-engineered
steel building/All sitework, foundation, excavation and roof,
$224,000; Demolition, $6,250; Sprinkler System, $14,150;
3 Electrical, $8,835; Heating, $12,800; Alarms, $1,035; Paving,
$16,000; and Miscellaneous, $1,200. (Id. at 14.)
Seacoast subcontracted with Corle Building Systems, Inc.3
for the design and fabrication of the building’s component parts
by means of a purchase order dated September 6, 1996. (Peerless
Mot. Summ. J., Ex. 1.) That purchase order reflected a cost of
$58,365.50 (id. at 3 ) , and included the following special
condition: “John Corle [of Fab Tech] has agreed to a six week
turnaround on this project. Please deliver no later than Oct.
1 8 , 1996.” (Id. at 5.) “The work performed in connection with
the addition in question was completed during the time period
September of 1996 through February of 1997.” (North American
Mot. Summ. J., Ex. 1 (First Set of Interrogs. to Seacoast) at
8.) 4 Under its agreement with Seacoast, Fab Tech designed and
3 Fab Tech is the successor in interest to Corle Building Systems. For convenience, the name “Fab Tech” is used throughout to refer to both entities. 4 On this point, Seacoast concedes that “[a]ll work performed by Fab Tech pursuant to the [purchase order] was completed prior to November 8 , 1999” and that “[a]ll of [its] work performed in connection with the building and addition was completed prior to November 8 , 1999.” (North American Mot. Summ. J., Ex. 4 (Seacoast’s Resp. to North American’s First Set of Reqs. for Admis.) at 2.) Fab Tech has also conceded that its “design and fabrication of the addition, and any additional work
4 fabricated the component parts of the building addition in
Pennsylvania and shipped them to New Hampshire, where the
building was assembled by another Seacoast subcontractor, Cyr
Construction.
For purposes of resolving the pending questions, it is
assumed, but not found, that the building addition Fab Tech
designed, and for which it fabricated the component parts,
collapsed on March 1 4 , 2001, under a snow load lighter than that
specified in both the agreement between Crowning and Seacoast,
and the agreement between Seacoast and Fab Tech. At the time of
the collapse, Fab Tech was covered under three insurance policies
at issue here: (1) an Architects and Engineers Professional
Liability Insurance Policy issued by North American (Cincinnati’s
Mot. Summ. J., Ex. J ) ; (2) a Commercial General Liability policy
issued by Cincinnati (Cincinnati’s Mot. Summ. J., Ex. E ) ; and (3)
a Commercial Umbrella Liability Policy also issued by Cincinnati
(Cincinnati’s Mot. Summ. J., Ex. F ) .
performed in connection with said addition, was completed prior to November 8 , 1999.” (North American Mot. Summ. J., Ex. 5 (Fab Tech’s Resp. to North American’s First Set of Reqs. for Admis.) at 4.)
5 On March 2 0 , 2001, Fab Tech filed a notice of
occurrence/claim with North American stating, as the occurrence,
“[b]uilding manufactured by insured collapsed.” (North
American’s Mot. Summ. J., Ex. 7.) By letter dated November 2 3 ,
2001, Target Professional Associates, acting on behalf of North
American, denied coverage, explaining:
“[T]he work performed by your company was performed on or about September 1 6 , 1996. The retroactive date of this policy is November 9, 1999. Because the work performed was prior to the policy’s retroactive date, there is no coverage for this matter.
We hereby disclaim coverage for this claim. We will provide neither a defense nor indemnity for this matter. You are urged to immediately retain your own private counsel to protect your interests at your own expense.
(North American Mot. Summ. J., Ex. 8.)
Peerless and Federal, however, both paid claims arising out
of the roof collapse. The building’s owner, Crowning, claimed
reconstruction costs of $366,375.71. (Cincinnati’s Mot. Summ.
J., Ex. C (Peerless’s Answers to Cincinnati’s Interrogs.) at 2.)
Peerless paid $346,847.88 on that claim ( i d . ) , and paid
“additional expenses in the amount of $66,162.80 for demolition,
6 $16,612.13 for stabilization of the building after the collapse,
and $4,519.84 for snow removal and consulting service relating to
stabilization after the loss.” (Id.) Crowning’s tenant, Lason
Systems, Inc. (“Lason”), a document storage company, claimed
damages related to document drying of $388,132.46 and “extra
expenses resulting from the collapse in the amount of $777,381.66
for moving the boxes [of documents] to the new warehouse,
temporary manpower at the new warehouse, temporary warehouse
leasing, moving back to the reconstructed building, and
miscellaneous personal property and supplies.” (Cincinnati Mot.
Summ. J., Ex. D (Federal’s Answers to Cincinnati’s Interrogs.) at
2.) Federal paid both those claims. (Id.)
By writ of summons dated December 5 , 2002, Peerless, as
subrogee of Crowning, and Federal, as subrogee of Lason, sued
Seacoast and Fab Tech in the New Hampshire Superior Court to
recover payments they made to their respective insureds.
The state court writ in the Peerless action alleged:
On or about July 2 6 , 1996, the defendant Seacoast Crane submitted to Crowning Holdings a proposal to construct a prefabricated building as an addition to
7 the existing masonry and frame building located at 527 Mammoth Road, Londonderry, New Hampshire.
In this proposal, the defendant Seacoast Crane expressly represented that the new addition would be designed, fabricated and constructed with a roof live load of 42 PSF, and further that it would be designed, fabricated and constructed in compliance with the BOCA 1990 Code.
On or about October 5 , 1996, plaintiff Crowning Holdings and defendant Seacoast Crane entered into an agreement for the construction of the addition specified in Seacoast Crane’s original proposal. A copy of said proposal is attached as Exhibit A .
Defendant Seacoast Crane subsequently subcontracted with defendant Fab Tech, Inc., Corle Building Systems and/or Corle Information Services, Inc. (collectively referred to as the Corle defendants hereinafter) for the design and fabrication of the building’s component parts.
Fab Tech and/or the Corle defendants prepared design plans for the building in which they affirmatively represented that the building, as designed, fabricated and constructed would comply with the 1990 BOCA Code, and that it would have a 42 PSF roof snow load.
(Cincinnati Mot. Summ. J . , E x . A at 3-4.) Based upon those
factual allegations, Peerless and Federal asserted the following
claims against Fab Tech: strict liability, negligence, negligent
misrepresentation, violation of N . H . R E V . STAT. A N N . § 358-A,
breach of express warranties, and breach of implied warranties.
8 Fab Tech did not provide written notice of the Peerless/
Federal suit to North American, but did provide notice to
Cincinnati, which is defending under a reservation of rights.
(North American Mot. Summ. J., Ex. 5 at 5-6.)
Cincinnati filed a two-count declaratory judgment action in
this court seeking a determination that it has no duty to defend
or indemnify Fab Tech in the Peerless action, and a declaration
that North American has a duty to defend Fab Tech and is liable
to Cincinnati for all or some of the defense costs Cincinnati has
already expended.
Discussion
I . Count I : Cincinnati’s Obligation to Fab Tech
In Count I of its petition for declaratory judgment,
Cincinnati asserts that insurance coverage is not available under
either the Commercial General Liability (“CGL”) policy or the
Commercial Umbrella Policy because: (1) the March 1 4 , 2001, roof
collapse was not an “occurrence” as that term is defined by the
policies at issue; and (2) coverage is precluded by various
policy exclusions including those for damage t o : (a) real
9 property on which Fab Tech worked (exclusion (j)(5) in the CGL
policy); (b) property that must be restored because Fab Tech’s
work was incorrectly performed on it (exclusion (j)(6) in the CGL
policy); (c) Fab Tech’s product (exclusion (k) in the CGL policy;
exclusion 5 in the Umbrella policy); (d) Fab Tech’s work
(exclusion (l) in the CGL policy; exclusion 6 in the Umbrella
policy); and (e) impaired property or property not physically
injured (exclusion (m) in the CGL policy).
In its motion for summary judgment, Cincinnati refines its
claims somewhat, arguing that: (1) “it does not owe a duty to
indemnify Fab Tech against Peerless’s entire subrogation claim as
this claim is excluded from coverage under both the CGL and
Umbrella policies by operation of the ‘Damage To Your Product’
and/or ‘Damage To Your Work’ exclusions . . . and does not owe a
duty to indemnify Fab Tech against Federal’s subrogation claim
for expenses incurred in moving boxes into a new warehouse,
temporary warehouse manpower, temporary warehouse leasing, and
the cost to move boxes back into the building once it was
reconstructed.” Cincinnati’s second argument, that it is not
liable for the moving and storage expenses paid by Federal to
10 Lason, is based upon an assertion that those expenses fall
outside the definition of “property damage.”
A . Occurrence
Both the CGL policy and the Umbrella policy provide coverage
for property damage resulting from occurrences. Both policies
define the term “occurrence” to mean “an accident.” (Cincinnati
Mot. Summ. J., Ex. E at 1 1 ; Ex. F. at 12.)
The word “accident” is not defined in the policy, and the term must therefore be interpreted in its usual, ordinary and popular sense. “Webster has defined it as ‘an event that takes place without one’s foresight or expectation; an undesigned, sudden, and unexpected event; chance, contingency.’ Many courts have quoted this definition, and some have added to or embellished i t , but in reality few have improved upon it.” Lacey v . Washburn & Williams Co., 164 A . 7 2 4 , 725 [(Pa. 1932)]. This definition is substantially repeated in United States Mutual Accident Ass’n v . Barry, 131 U.S. 100 [(1889)], where it was said that an “accident” within the meaning of an insurance policy is an event “happening by chance; unexpectedly taking place; not according to the usual course of things;” or “not as expected”. It seems clear that an accident is the antithesis of something likely to occur, foreseeable in due course. If an occurrence is the ordinary and expected result of the performance of an operation, then it cannot be termed an accident. To constitute an accident, the occurrence must be “an unusual or unexpected result attending the operation or performance of a usual or necessary act or event”; Hey v . Guarantors’ Liability Indemnity Co., 37 A . 402 [(Pa.
11 1897)]. And see Hamilton v . American Indemnity Co., 82 Pa.Super. 191 [(1923)].
M . Schnoll & Son, Inc. v . Std. Accident Ins. Co., 154 A.2d 4 3 1 ,
432 (Pa. Super. C t . 1959) (parallel citations omitted). Based
upon that definition, there can be little doubt that, under
Pennsylvania law, the March 1 4 , 2001, roof collapse as described
in the Peerless action was an “occurrence” for purposes of
determining coverage under the Cincinnati CGL and Umbrella
policies.
B . Exclusion (j)(5)
The CGL policy contains an exclusion for “[p]roperty damage”
to “[t]hat particular part of real property on which [the
insured] or any contractors or subcontractors working directly or
indirectly on [the insured’s] behalf are performing operations,
if the ‘property damage’ arises out of those operations.”
(Cincinnati Mot. Summ. J., Ex. E . at 3.) Here, it is undisputed
that neither Fab Tech nor any contractors or subcontractors
working for Fab Tech performed any operations on any real
property that suffered property damage for which claims have been
12 made against the CGL policy. Thus, exclusion (j)(5) does not bar
coverage.
C . Exclusion (j)(6)
The CGL policy contains another exclusion for “[p]roperty
damage” to “[t]hat particular part of any property that must be
restored, repaired or replaced because ‘[the insured’s] work’ was
incorrectly performed on it.” (Cincinnati Mot. Summ. J., Ex. E
at 3.) However, that “exclusion does not apply to ‘property
damage’ included in the ‘products-completed operations hazard.’”
(Id.) In turn the
“[p]roducts-completed operations hazard” includes all . . . “property damage” occurring away from premises [the insured] own[s] or rent[s] and arising out of “[the insured’s] product” or “[the insured’s] work” except:
(1) Products that are still in [the insured’s] possession; or
(2) Work that has not yet been completed or abandoned.
(Id. at 11.) Because the property damage alleged in this case
arose out of the failure of work that had been completed by Fab
Tech and/or products that had left Fab Tech’s possession, and
arose away from any premises owned or rented by Fab Tech, Fab
13 Tech is seeking coverage for property damage included in the
“products-completed operations hazard,” which takes its claim
outside the limits of exclusion (j)(6).
D. The “Your Product” exclusion
Both the CGL policy and the Umbrella policy contain
exclusions for “‘property damage’ to ‘your product’ arising out
of it or any part of it.” (Cincinnati Mot. Summ. J., Ex. E at 3 ,
Ex. F. at 2.) The term “your product” is defined as follows:
“Your product” means: a. Any goods or products, other than real property, manufactured, sold, handled, distributed or disposed of by:
(1) [the insured];
(2) Others trading under [the insured’s] name; or
(3) A person or organization whose business or assets [the insured has] acquired; and
b. Containers (other than vehicles), materials, parts, or equipment furnished in connection with such goods or products.
“Your product” includes: a. Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of “your product”; and
14 b. The providing of or failure to provide warnings or instructions.
“Your product” does not include vending machines o other property rented to or located for the use of
(Id., Ex. E at 11-12; Ex. F at 13-14.)
Cincinnati asserts that Peerless’s subrogation claim is
precluded by the “your product” exclusion, because Fab Tech is
seeking coverage for a claim arising out of property damage to
its product, i.e., the building components it designed and
fabricated for Crowning, under contract to Seacoast. Peerless
contends that the “your product” exclusion is inapplicable,
because once Fab Tech’s components were assembled and the
building was complete, the components became real property and,
thus, fell outside the definition of “your product.” Cincinnati
does not contest that argument.
Pennsylvania law describes the relationship between
personalty and real property as follows:
Chattels used in connection with real estate can fall into one of three categories. Clayton v . Lienhard, 167 A . [321,] 322 [(Pa. 1933)]. First,
15 chattels that are not physically attached to realty are always personalty. Id. Second, chattels which are annexed to realty in such a manner that they cannot be removed without materially damaging either the realty or the chattels are always fixtures. Id. at 322. The third category consists of those chattels that are physically connected to the real estate but can be removed without material injury to either the land or the chattels. Id. at 322. When a chattel falls into the third category, its status as a fixture or as personalty depends upon the “objective intent of the [owner] to permanently incorporate [the] chattel into real property, as evidenced by the proven facts and surrounding circumstances entered into evidence.” Noll v . Harrisburg Area YMCA, 643 A.2d 8 1 , 88 (1994).
Lehmann v . Keller, 684 A.2d 6 1 8 , 621 (Pa. Super. C t . 1996)
(parallel citations omitted).
Here, it is undisputed that the product Fab Tech provided to
Seacoast was a building, or more properly, the design and
fabrication of the component parts thereof. It is similarly
undisputed that the component parts provided by Fab Tech were, in
fact, assembled, resulting in a finished building. Cincinnati
does not argue, nor could it reasonably argue, that the Fab Tech
components constituted chattels rather than fixtures at the time
of the roof collapse. Because Fab Tech’s product had become a
fixture, that i s , “an article . . . of personal property which
has been so annexed to the realty that it is regarded as part and
16 parcel of the land,” id. (quoting Smith v . Weaver, 665 A.2d 1215,
1218 (Pa. Super. C t . 1995)), it is not subject to the “your
product” exclusion. See Nat’l Union Fire Ins. C o . v . Structural
Sys. Tech., Inc., 756 F. Supp. 1232, 1239 (E.D. M o . 1991)
(holding that a radio tower, once constructed, became “a fixture
of the real property onto which it [was] attached” and,
therefore, not subject to CGL policy “your product” exclusion).
E . The “Your Work” Exclusion
exclusions for “‘property damage’ to ‘your work’ arising out of
it or any part of it and included in the ‘products-completed
operations hazard.” (Cincinnati Mot. Summ. J., Ex. E at 3-4; Ex.
F. at 2.) The term “your work” is defined as follows:
“Your work” means: a. Work or operations performed by [the insured] or on [the insured’s] behalf; and
b. Materials, parts or equipment furnished in connection with such work or operations.
“Your work” includes: a. Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of “your work”; and
17 b. The providing of or failure to provide warnings or instructions.
(Cincinnati’s Mot. Summ. J., Ex. E at 1 2 ; Ex. F at 14.)
In its petition and in its motion for summary judgment,
Cincinnati argues that Peerless’s subrogation claim is entirely
precluded by the “your work” exclusion, because Fab Tech is
seeking coverage for a claim arising out of property damage to
its work, i.e., the building components it designed and
fabricated for Crowning, under contract to Seacoast. Peerless
concedes that “[t]he cost of the unassembled structural steel
building components supplied by [Fab Tech] is included in the
Your Work exclusions set forth in the Cincinnati primary and
excess policies and, therefore, Cincinnati has no duty to
indemnity Fab Tech . . . for the cost of the structural steel
used in the replacement building . . .” Thus, Peerless seeks a
declaration that, should it prevail in the underlying action,
Cincinnati must indemnify Fab Tech for $308,010.21. That figure
is derived by subtracting the cost of the Fab Tech components
($58,365.50) from the total cost of rebuilding Crowning’s
18 building ($366,375.71).5 In its objection to defendants’ motions
for summary judgment, Cincinnati appears to concede that some of
the property damage caused by the roof collapse falls outside the
“your work” exclusion, and suggests that its liability to pay a
judgment against Fab Tech should not include the cost of the
components provided by Fab Tech or the costs of stabilizing and
demolishing the building after the collapse.
Given the parties’ positions, there appears to be no
dispute. They agree that Cincinnati is not liable for the value
of the Fab Tech building components, and they agree on a value of
$58,365.50. And Peerless does not appear to press a claim for
the costs of stabilization or demolition. Thus, all agree that
Cincinnati must indemnify Fab Tech against Peerless’s subrogation
claims to the extent those claims arise from property damage to
elements of the building other than the components that
Peerless argues, in the alternative, that “Cincinnati must provide indemnity to Fab Tech . . . for the fair and reasonable cost of the replacement building, including but not limited t o : a ) the cost of concrete, demolition, electrical, heating, ventilation and air conditioning, plumbing, as well as the cost of managing, supervising and erecting the steel building metal components 19 constitute Fab Tech’s work. In other words, the portion of Count
I pertaining to the “your work” exclusion is moot.
F. Exclusion (m)
The CGL policy contains an exclusion for damage to impaired
property or property not physically injured. Cincinnati cites
that exclusion in its petition for declaratory judgment, but does
not do so in its motion for summary judgment. More importantly,
in its objection to the summary judgment motions filed by
Peerless, Federal, and Fab Tech, Cincinnati does not mention
Exclusion ( m ) , leading the court to conclude that Cincinnati no
longer intends to rely upon that policy provision.
G. Property Damage
As noted above, Cincinnati seeks to avoid liability for the
moving and storage expenses incurred by Lason as a result of the
roof collapse, arguing that those “extra expenses” do not qualify
as “property damage” under the policies at issue.
In both the CGL policy and the Umbrella policy, the term
“property damage” is defined as follows:
20 “Property damage” means:
a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused i t ; or
b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the “occurrence” that caused i t .
(Cincinnati Mot. Summ. J., Ex. E at 1 1 ; Ex. F at 13.)
Cincinnati appears to concede that it is obligated to cover
the costs Lason incurred in drying documents that were damaged as
a result of the roof collapse, but contends, without citation to
any relevant authority, that the costs of moving Lason’s property
to and from an alternate storage facility, and the costs of
alternate storage during the reconstruction of the damaged
building, are not associated with “property damage” under the
policy. Federal, naturally, disagrees.
While the precise issue raised by Cincinnati, i.e., its
obligation to cover economic damages resulting from property
damage, has not been addressed by the Pennsylvania Supreme Court,
21 it has been addressed in a decision by the Pennsylvania Court of
Common Pleas. Mattiola Construction Corp. v . Commercial Union
Insurance Co., 60 P a . D. & C.4th 412 (Pa. C t . Com. P l . 2002),
involved a CGL policy worded identically to the CGL policy in
this case. The court held in Mattiola Construction that
liquidated damages Mattiola was obligated to pay on account of
delays created by damage it did to a bridge were covered by its
CGL policy, because that policy, like the CGL policy at issue
here, provided coverage for “sums that the insured becomes
obligated to pay as damages because of . . . ‘property damage’ to
which this insurance applies.” (Cincinnati Mot. Summ. J., Ex. E
at 1 (emphasis added).) Liquidated damages were covered by the
policy in Mattiola Construction because the construction company
was obligated to pay damages arising from the property damage it
inflicted on the bridge. So too here. If Fab Tech is obligated,
as a result of the Peerless action, to pay the costs Lason
incurred in moving and storing documents because of the damage
inflicted on those documents (and the building in which they were
stored) then those costs are damages Fab Tech is legally
obligated to pay because of property damage to which the
Cincinnati CGL policy applies.
22 The conclusion that Cincinnati is obligated, under
Pennsylvania law, to cover economic damages resulting from
covered property damage follows directly from the resolution in
Mattiola Construction, and it is consistent with holdings in
several other jurisdictions. See, e.g., Jacob v . Russo Builders,
592 N.W.2d 2 7 1 , 277 (Wis. C t . App. 1999) (explaining, in suit by
homeowner against builders for faulty construction that “damages
such as relocation costs . . . represent . . . costs associated
with addressing and correcting that situation . . . which can be
recovered in tort, and . . . are covered by West Bend’s CGL
policy”); Cyprus Amax Minerals C o . v . Lexington Ins. Co., 74 P.3d
294, 306 (Colo. 2003) (“We find no authority showing that
liability cannot include a mix of property damages and other
kinds of damages.”); Amerisure Ins. C o . v . ML & Assocs., Inc. (In
re ML & Assocs., I n c . ) , 302 B.R. 8 5 7 , 861 (Bankr. N.D. Tex. 2003)
(granting insured’s motion for summary judgment on theory that
loss of use of building due to damage to the building was covered
“property damage”).
If Federal obtains a judgment against Fab Tech in the
Peerless action, Cincinnati will be obligated to indemnify Fab
23 Tech for expenses arising from Lason’s efforts to repair damage
to documents it stored, as well as expenses involved in dealing
with the loss of use of the damaged building during its
reconstruction, including reasonable costs associated with moving
documents to and from a temporary storage facility and of leasing
any such facility. The latter expenses were incurred because of
property damage to which the insurance applies, and qualify as
property damage in their own right, because they arose from loss
of use occasioned by physical injury to tangible property. In
other words, Lason’s “extra expenses” are covered by the plain
language of the CGL policy.
To summarize, regarding Count I , Cincinnati is obligated to
indemnify Fab Tech for any damages it must pay Peerless for
property damage to those portions of Crowning’s building that
fall outside the “your work” exclusion, i.e., all the building
components not fabricated by Fab Tech, and Cincinnati is also
obligated to indemnify Fab Tech for the full ranges of damages it
must pay Lason for drying documents, moving documents to and from
a temporary storage facility, and operating that temporary
facility.
24 I I . Count I I : North American’s Duty to Fab Tech
In Count I I , Cincinnati asserts that it has no obligation to
defend and indemnify Fab Tech in the Peerless action, but North
American does have such an obligation. As a result, Cincinnati
says North American is liable for defense costs Cincinnati has
already incurred in defending the Peerless action in state court.
All agree that the North American policy issued to Fab Tech
was a “claims made” policy - one that required North American to
defend claims made against Fab Tech for “wrongful acts” committed
during the policy period, or “prior to the policy period but on
or after the retroactive date, if any . . . .” (Cincinnati’s
Mot. Summ. J., Ex. J at 10.) The policy included a retroactive
date of November 8 , 1999. (Id. at 1.) Cincinnati argues that
because the Peerless complaint did not specify precisely when Fab
Tech allegedly committed the wrongful act(s) for which it was
being sued, North American was obligated to defend Fab Tech until
a court determined that Fab Tech’s wrongful act(s) occurred
before the retroactive date. North American counters that it was
relieved of any obligation to defend Fab Tech as soon as it
determined that the wrongful act for which Fab Tech sought
25 coverage – its design and fabrication of the building that
collapsed – took place before the retroactive date stated in the
policy. North American is correct.
Under Pennsylvania law, an “insurer’s obligation to defend
is fixed solely by the allegations in the underlying complaint,”
Erie Ins. Exch. v . Muff, 851 A.2d 919, 926 (quoting Aetna Cas. &
Sur. C o . v . Roe, 650 A.2d 9 4 , 98 (Pa. Super C t . 1994)), and “the
insurer owes a duty to defend if the complaint against the
insured alleges facts which would bring the claim within the
policy’s coverage if they were true.” Id. (citation omitted).
However, “[n]ot all claims asserted against an insured . . .
activate the insurer’s duty to defend.” Id. “The duty to defend
is limited to only those claims covered by the policy.” Aetna,
650 A.2d at 98 (citing D’Auria v . Zurich Ins. Co., 507 A.2d 8 5 7 ,
859 (Pa. Super. C t . 1986)) (emphasis in the original). Finally,
“the duty to defend remains with the insurer [only] until it is
clear the claim has been narrowed to one beyond the terms of the
policy.” Bd. of Pub. Educ. v . Nat’l Union Fire Ins. Co., 709
A.2d 9 1 0 , 913 (Pa. Super. C t . 1998) (citing Britamco
Underwriters, Inc. v . Weiner, 636 A.2d 649, 652 (Pa. Super. C t .
26 1994); Stidham v . Millvale Sportsmen’s Club, 618 A.2d 945, 953-54
(Pa. Super. C t . 1992)).
Here, the writ of summons in the Peerless action alleges no
conduct of any kind by Fab Tech that took place on or after
November 8 , 1999, the retroactive date established in the policy
North American issued to Fab Tech. To the contrary, the writ
incorporated by reference a copy of the agreement between
Crowning and Seacoast, the general contractor, which called for
Seacoast’s work – which necessarily included Fab Tech’s work – to
be completed within fourteen weeks of site plan approval or
issuance of a building permit. The complaint alleges no facts
that would support a finding that the municipal approval process
delayed the construction process such that any of Fab Tech’s work
(as Seacoast’s subcontractor) took place on or after November 8 ,
1999. Thus, the allegations in the underlying complaint, even if
proven true, are insufficient to bring the Peerless claim within
the coverage of North American’s policy.
In Cincinnati’s view, the failure of the Peerless complaint
to “set forth any allegations that conclusively establish when
27 Fab Tech completed its duties relative to the design, fabrication
and construction of the building at issue . . . [creates] the
potential that Peerless and/or Federal can obtain recovery
against Fab Tech based upon a ‘wrongful act’ after November 8 ,
1999, thereby triggering [North American]’s duty to defend.”
Cincinnati bases its argument on both the well-established
proposition that “[a]n insurer’s duty to defend is a distinct
obligation, different from and broader than its duty to
indemnify,” Erie, 851 A.2d at 925 (citation omitted), and the
novel proposition that North American may only be relieved of its
duty to defend by a judicial determination that the Peerless
claims are outside the scope of coverage.
Pennsylvania courts have repeatedly held that the duty to
defend is broader than the duty to indemnify. See, e.g., Erie,
851 A.2d at 925; Board of Public Education, 709 A.2d at 913;
Aetna, 650 A.2d at 9 8 ; Britamco, 636 A.2d at 651; D’Auria, 507
A.2d at 859. But, as Aetna explains, the duty to defend is
broader than the duty to indemnify in the following specific way:
“An insured has purchased not only the insurer’s duty to
indemnify successful claims which fall within the policy’s
28 coverage, but also protection against those groundless, false, or
fraudulent claims regardless of the insurer’s ultimate liability
to pay.” 650 A.2d at 98 (citation omitted). But while an
insurer has a duty to defend against both meritorious and
meritless claims, its duty to defend is not so broad that it is
obligated to defend against claims alleging injuries that fall
outside the policy’s coverage.
Rather, the insurer has a “duty to defend . . . [only] until
it is clear the claim has been narrowed to one beyond the terms
of the policy.” Board of Public Education, 709 A.2d at 913
(citation omitted). Here, it was clear to North American over a
year before the Peerless action was filed that Fab Tech had
committed no potentially actionable wrongful acts on or after the
retroactive date. And, indeed, the Peerless writ contained no
factual allegations concerning any relevant acts by Fab Tech
occurring on or after November 8 , 1999.6 If the Peerless writ
had alleged acts by Fab Tech after the retroactive date, then,
6 The correctness of North American’s determination that no possible claim against Feb Tech could be within the terms of the policy was confirmed by the uncontradicted admissions of both Seacoast and Fab Tech that their work on the building that collapsed was fully completed prior to November 9, 1999.
29 perhaps, North American would have been obligated to provide a
defense up to the point when the Peerless action no longer
contained any claims based upon acts by Fab Tech occurring on or
after the retroactive date. But that is not this case.
There is no suggestion in any of the cases applying the rule
stated in Board of Public Education that an insurer is obligated
to provide a defense until a court determines that a claim lies
beyond the terms of the relevant insurance policy. In an opinion
cited by the Pennsylvania Superior Court, Judge Learned Hand once
explained that “[i]n most cases . . . it will not be difficult
for the insurer to compel the injured party to disclose whether
the injury is within the policy; and, if it transpires that it is
not, the insurer need go on no longer.” Lee v . Aetna Cas. & Sur.
Co., 178 F.2d 7 5 0 , 752 (2d Cir. 1949) (cited in Stidham, 618 A.2d
at 9 5 4 ) ; see also, Lucker Mfg. v . Home Ins. Co., 23 F.3d 8 0 8 , 813
(3d Cir. 1994) (applying Pennsylvania law) (“[The] duty to defend
remains with the insurer until facts sufficient to confine the
claims to liability not within the scope of the policy become
known to the insurer.”) (emphasis added, citations omitted);
Charter Oak Fire Ins. C o . v . Sumitomo Marine & Fire Ins. Co., 750
30 F.2d 2 6 7 , 272 (3d Cir. 1984) (applying Pennsylvania law)
(explaining that insurer is relieved of its duty to defend “until
it can confine the claim to a recovery excluded from the scope of
the policy”) (emphasis added, citations omitted).
Finally, the theory on which North American relies – that
the Peerless writ’s silence regarding when Fab Tech’s alleged
wrongful acts occurred creates the possibility that they occurred
on or after the retroactive date, thereby imposing upon North
American a duty to defend – has been rejected by at least one
Pennsylvania court. In Aetna, a teacher, her husband, and a
fellow teacher were sued by a set of parents, on behalf of their
children, for committing, “inter alia . . . [various] specific
acts of sexual, physical and mental abuse.” 650 A.2d at 9 6 . Two
of the underlying defendants, a teacher and her husband, made a
claim for defense and indemnification on their comprehensive
homeowners insurance policy. Id. at 9 7 . The insurer, in turn,
sought a declaratory judgment and argued, on summary judgment,
that it was relieved from its duty to provide a defense by the
policy’s exclusions of coverage for bodily injuries that are
expected or intended by the insured, and personal injuries
31 resulting from criminal acts. Id. In ruling against the
insureds, the Pennsylvania Superior Court rejected their argument
that even though the underlying complaint enumerated only
intentional criminal acts, its use of the phrase “inter alia”
created the possibility that the underlying plaintiffs might also
be attempting to recover damages for other unenumerated
unintentional non-criminal acts which would be outside the scope
of the policy exclusion. Id. at 98 (“Aetna was bound, appellants
submit, to remain in the action until any ambiguity which arose
from the use of the proviso “inter alia” was resolved. . . . We
disagree.”).
Because the facts alleged in the Peerless writ did not
implicate the coverage provided by the policy North American
issued to Fab Tech, and because it is undisputed that Fab Tech’s
design and fabrication of the building was completed before
November 8 , 1999, North American is not obligated to defend Fab
Tech against the Peerless action. Accordingly, North American is
entitled to Summary Judgment on Count I I .
32 I I I . Attorneys’ Fees
Relying upon N . H . R E V . S T A T . A N N . ( “ R S A ” ) § 491:22-b, Fab
Tech requests attorneys’ fees, while Federal, without citation to
authority, seeks reasonable costs and attorney’s fees.
Cincinnati objects to both requests, arguing that: ( 1 ) it is not
liable for Fab Tech’s fees because it never denied coverage to
Fab Tech and because it will prevail in the declaratory judgment
action; and ( 2 ) it is not liable for Federal’s costs and fees
because there is no legal basis for deviating from the general
rule that each party is responsible for its own attorneys’ fees
and costs.
Turning first to Fab Tech’s request, R S A 491:22-b provides
that “[i]n any action to determine coverage of an insurance
policy pursuant to R S A 491:22, if the insured prevails in such
action, he shall receive court costs and reasonable attorneys’
fees from the insurer.” Cincinnati’s declaratory judgment action
founded on diversity jurisdiction, naming Fab Tech as a
defendant, plainly qualifies as “action to determine coverage of
an insurance policy pursuant to R S A 491:22,” and Cincinnati does
not contest the applicability of R S A 491:22-b to the facts of
33 this case. Rather, Cincinnati contends that Fab Tech is not
entitled to attorneys’ fees because Cincinnati never denied
coverage and, in fact is currently defending Fab Tech in the
Peerless action subject to a reservation of rights.
There is no requirement that an insured must suffer a denial
of coverage before it is entitled to an award under RSA 491:22-b.
Moreover, there can be no doubt Cincinnati, by defending Fab Tech
under a reservation of rights and by claiming in this action that
it has no duty to defend or indemnify Fab Tech, has disputed
coverage. Fab Tech has been forced to litigate against
Cincinnati in order to obtain the insurance coverage to which it
is contractually entitled. In other words, the mere fact that
Cincinnati has not formally denied coverage to Fab Tech is no bar
to an award of attorneys’ fees under RSA 491:22-b. C f . Binda v .
Royal Ins. Co., 144 N.H. 613, 616-17 (2000) (holding that RSA
491:22 “does not, as Binda suggests, require an actual denial of
coverage by an insurer before an insured must seek a
determination of coverage or risk being time-barred”). Because
the absence of a formal denial of coverage is no bar to obtaining
an award of attorneys’ fees, and because Fab Tech has prevailed
34 in this action, Fab Tech is entitled to court costs, if any, and
reasonable attorneys’ fees from Cincinnati.
Federal, however, is not entitled to an award of costs and
attorneys’ fees from Cincinnati. While Federal has prevailed in
this action, Federal stands in the shoes of its subrogor, Lason,
and Lason is not an “insured” vis à vis Cincinnati. RSA 491:22-b
limits shifting of costs and fees to insureds who prevail in
suits seeking to obtain coverage from their insurers. C f .
Liberty Mut. Ins. C o . v . Home Ins. Indem. Co., 117 N.H. 269, 271-
72 (1977) (“The purpose of RSA 491:22-b (Supp. 1975) is to
protect consumers against wrongful refusal of insurance companies
to provide coverage.”) (citation omitted). Rather than being
Cincinnati’s insured, or subrogated to Cincinnati’s insured,
Federal a/s/o Lason is in effect bringing a tort claim against
Cincinnati’s insured (Fab Tech). Federal, therefore, is like the
underlying tort claimant who was denied costs and attorney’s fees
from the tortfeasor’s insurance company in Providence Mutual Fire
Insurance Company v . Scanlon, 138 N.H. 3 0 1 , 307 (1994) (citing
Am. Home Assur. C o . v . Star Speedway, Inc., 119 N.H. 9 5 4 , 955
(1979)). In other words, for purposes of its dispute with
35 Cincinnati, Federal is not a consumer of insurance, but a
claimant against Cincinnati’s insured, and, because it is not
seeking to enforce coverage under a policy issued to it by
Cincinnati, Federal is not entitled to costs or fees under RSA
491:22-b.
IV. Findings of Fact
In its motion for summary judgment, Peerless asks the court
to issue an order finding that “[t]he roof of the building
located at 527 Mammoth Road, Londonderry, New Hampshire failed on
March 1 4 , 2001” and that “[t]he roof failed due to inadequately
sized purlin clips.” Cincinnati objects on grounds that Peerless
is asking this court to decide factual matters that are
uncontested in this action, but disputed in the underlying
Peerless action. The legal issues in this case have been
resolved without the necessity of deciding the two factual issues
identified by Peerless. Accordingly, the court declines to make
the requested findings. See, Howard v . Hartford Ins. Co., 127
N.H. 7 2 7 , 730 (1986) (quoting U.S. Fid. & Guar. C o . v . Johnson
Shoes, Inc., 123 N.H. 1 4 8 , 154 (1983)) (explaining that this
36 court’s factual findings would have preclusive effect in the
underlying action).
Conclusion
Cincinnati’s motion for summary judgment (document n o . 61)
is denied. North American’s motion for summary judgment
(document n o . 62) is granted. Peerless’s motion for summary
judgment (document n o . 63) is granted. Fab Tech’s motion for
summary judgment (document n o . 64) is granted. Federal’s motion
for summary judgment (document n o . 66) is granted in part and
denied in part. The Clerk of Court shall enter judgment in
accordance with this order and close the case.
SO ORDERED.
Steven J. McAuliffe Chief Judge June 2 4 , 2005
cc: Adam M . Barnes, Esq. Doreen F. Connor, Esq. David W . Johnston, Esq. Charles A . Jones, Esq. Edward M . Kaplan, Esq. Matthew F. Noone Andrew W . Serell, Esq. John P. Sherman, Esq. James Q . Shirley, Esq.