371 F.3d 336 | 6th Cir. | 2004
appeals the award of summary judgment in favor of Before: KEITH, MARTIN, and SUTTON, Circuit Judges.
1 Nos. 02-1324/1419 Detroit Water Team v. 3 4 Detroit Water Team v. Nos. 02-1324/1419 Agricultural Ins. Co., et al. Agricultural Ins. Co., et al. Agricultural of its expenses. [1] After both insurers denied Agricultural with respect to coverage under the builder’s risk policy. For the reasons discussed below, the district court’s coverage, this lawsuit ensued and all parties moved for judgment is affirmed in part and reversed in part. summary judgment. The district court held that coverage was
available under the American National commercial general I. BACKGROUND liability policy, but not under the Agricultural builder’s risk policy. American National appeals the award of summary Detroit Water Team entered into a “design/build” contract judgment in favor of Detroit Water Team, and Detroit Water with the City of Detroit to renovate the City’s water plant. In Team appeals the award of summary judgment in favor of connection with that project, Detroit Water Team procured Agricultural. two insurance policies: (1) a commercial general liability policy issued by American National, which covered Detroit II. ANALYSIS Water Team and one of its subcontractors, Adamo Demolition Company; and (2) a builder’s risk policy issued by We review de novo a district court’s award of summary Agricultural, which covered Detroit Water Team, all of its judgment, as well as its interpretation of an insurance subcontractors and other identified parties. contract. Parameter Driven Software v. Massachusetts Bay
Ins. Co. , 25 F.3d 332, 336-37 (6th Cir. 1994). Summary The water plant renovation project called for demolition of judgment should be granted when “the pleadings, depositions, a portion of an old reservoir. Detroit Water Team hired answers to interrogatories, and admissions on file, together Adamo, a demolition subcontractor, to perform this with the affidavits, if any, show that there is no genuine issue demolition work. Connected to one wall of the reservoir was as to any material fact and that the moving party is entitled to a semi-circular manhole structure. The reservoir and the a judgment as a matter of law.” F ED . R. C IV . P. 56(c). In manhole structure shared one common wall that was made of determining whether a genuine issue of material fact exists, concrete; the rest of the manhole structure was made of
we must draw all reasonable inferences in favor of the masonry. The manhole structure contained an electrical nonmoving party. Bonds v. Cox , 20 F.3d 697, 701 (6th Cir. system comprised of live wires, feeds and tubes, which 1994). provided power and air to the functioning water plant. The City and Detroit Water Team agreed that this electrical A. American National Policy system, along with the manhole structure that housed it, Our analysis of whether coverage is available under the would remain entirely intact throughout the renovation American National policy begins – and ends – with the project so that the water plant could continue to operate policy’s insuring agreement, which provides that American during that time. Nevertheless, in the course of demolishing National “will pay those sums that the Insured becomes the reservoir, Adamo also tore down the concrete wall that the reservoir shared with the manhole, which caused the entire manhole structure to collapse and the electrical system within to sustain considerable damage. [1] As discussed more fully herein, Detroit W ater T eam argues that it
Detroit Water Team immediately repaired the damaged was obliga ted to repair the electrical system by virtue of its contract with the City, which required it to “take immediate action to restore” any electrical system and notified American National and interrupted service “within twenty-four (24) hours or less.” Nos. 02-1324/1419 Detroit Water Team v. 5 6 Detroit Water Team v. Nos. 02-1324/1419 Agricultural Ins. Co., et al. Agricultural Ins. Co., et al. legally obligated to pay as damages because of ‘bodily injury’ (Mich. App. 1969); MacDonald v. State Farm Mut. Auto. Ins. or ‘property damage’ to which this insurance applies.” The Co. , 165 N.W.2d 665 (Mich. App. 1968)). In this case, it is district court held that Detroit Water Team was not “legally undisputed that there has been no judicial determination or obligated” to repair the electrical system, but predicted – settlement establishing Detroit Water Team’s liability. noting the lack of Michigan cases on point – that the Detroit Water Team argues that its legal obligation to repair Michigan Supreme Court would nevertheless require the electrical system derives from two sources: general tort American National to prove that it suffered prejudice as a principles and its contract with the City. We disagree on both result of Detroit Water Team’s actions in order to bar fronts. In an effort to establish tort liability, Detroit Water coverage. Finding that American National had failed to Team argues that “[t]here is a well settled princip[le] in demonstrate any prejudice, the district court held that
Michigan, as well as other jurisdictions, that a duty of coverage was not barred. For the following reasons, we hold ordinary care arises from the performance of a contractual that the district court was correct in determining that Detroit obligation.” Chamberlain v. Bissell , 547 F. Supp. 1067, 1081 Water Team was not “legally obligated” to repair the (W.D. Mich. 1982). Detroit Water Team contends that, by electrical system, but incorrect in predicting that the Michigan virtue of its design/build contract with the City, it had a Supreme Court would require American National to prove contractual obligation “to exercise ordinary care to protect the that it suffered prejudice in order to bar coverage on that [City]’s property from damage resulting from [Detroit Water ground.
Team’s] demolition activities,” and that Detroit Water Team’s It is well-established that an insured has the initial burden negligent performance of that contractual obligation was of proving that its losses fall within the scope of the policy’s actionable in tort. Detroit Water Team Br. at 41. insuring agreement. See, e.g., Esicorp, Inc. v. Liberty Mut.
Detroit Water Team’s argument misconstrues the identity Ins. Co. , 266 F.3d 859, 864 (8th Cir. 2001); Data Specialties, of the negligent party, if any, in this case. As the parties have Inc. v. Transcont’l Ins. Co. , 125 F.3d 909, 911 (5th Cir. stipulated, it was Adamo, not Detroit Water Team, whose 1997). Thus, Detroit Water Team has the burden of proving demolition activities proximately caused the damage to the that it was “legally obligated” to pay the “sums” that it electrical system. There is no evidence that Detroit Water incurred in repairing the damaged electrical system. The Team has committed any negligence whatsoever. Detroit phrase “legally obligated” necessitates “more than inchoate or Water Team apparently assumes that it is liable for Adamo’s potential liability.” Aetna Cas. & Sur. Co. v. Dow Chem. Co. , negligence, but the general rule under Michigan law is that a 10 F. Supp. 2d 771, 797 (E.D. Mich. 1998) (citing Ryan v.
general contractor is not liable for the negligence of its Royal Ins. Co. of Am. , 916 F.2d 731, 738-43 (1st Cir. 1990)). subcontractor. Candelaria v. B.C. Gen. Contractors, Inc. , Although the Michigan Supreme Court has never expressly 600 N.W.2d 348, 352 (Mich. App. 1999). While several defined the phrase “legally obligated,” decisions from the exceptions to this general rule exist, id. , Detroit Water Team Michigan Court of Appeals “imply” – but do not expressly has not argued that any apply here, and our independent hold – “that the term ‘legal obligation’ requires either a review of the record confirms that none of the exceptions judicial determination of liability or a settlement between the applies under the facts of this case. Therefore, Detroit Water insurer, insured and the claimant . . . .” Coil Anodizers, Inc. Team has failed to carry its burden of proving that it was v. Wolverine Ins. Co. , 327 N.W.2d 416, 418 (Mich. App.
“legally obligated” in tort to repair the electrical system. 1982) (citing Giffels v. Home Ins. Co. , 172 N.W.2d 540 Nos. 02-1324/1419 Detroit Water Team v. 7 8 Detroit Water Team v. Nos. 02-1324/1419
Agricultural Ins. Co., et al. Agricultural Ins. Co., et al. Detroit Water Team also argues that it was “legally answer to that question would generally depend upon whether obligated” to make the repairs by virtue of its contract with Detroit Water Team’s risks in dealing with the City – the City, which required it to “take immediate action” to specifically, the risk that it would have to take immediate restore any interrupted service within twenty-four hours. [2]
action to restore an interrupted service – aligned with the risks There is some dispute as to whether contractual liability, as that Detroit Water Team and American National agreed opposed to tort liability, can ever constitute a “legal[] would be insured under the policy. While we do not believe obligat[ion]” within the meaning of the policy’s insuring that these risks aligned, we need not definitively decide that agreement. Compare 1 Lee R. Russ & Thomas F. Segalla, issue given that coverage would be barred in any event Couch in Insurance § 103:14 (3d ed. 2003) (“While the because Detroit Water Team’s contractual obligation to make phrase ‘legal liability’ includes liability assumed by contract, the repairs was not sufficiently definite as to constitute a legal the phrases ‘liability imposed by law,’ and ‘legally obligated obligation for which the insuring agreement provides to pay as damages’ do not.”), and Hartford Accident & coverage. Indem. Co. v. Reale , 644 N.Y.S.2d 442, 443 (App. Div. 1996) In determining whether a particular loss falls within the (“the purpose of a commercial general liability policy . . . is scope of an insuring agreement, it is necessary to focus upon to provide coverage for tort liability for physical damage to “[t]he nature of the damage and the risk involved . . . .” others and not for contractual liability of the insured for Vandenburg , 982 P.2d at 244. The nature of the damage in economic loss”), and Action Ads, Inc. v. Great Am. Ins. Co. , this case is that during the course of its demolition work, 685 P.2d 42, 45 (Wyo. 1984) (liability insurance
Adamo caused property damage to the electrical system that “encompasses liability which the law imposes on all insureds was running the City’s water plant. Adamo was a named for their tortious conduct and not on the liability which a insured under the American National policy that was issued particular insured may choose to assume pursuant to to Detroit Water Team, and the risk of Adamo causing such contract”), with Vandenburg v. Superior Court , 982 P.2d 229, property damage was precisely the “nature” of the “risk” for 243-46 (Cal. 1999) (holding that it is “incorrect” to which Adamo was insured under that policy. If any party was “distinguish[] contract from tort liability for purposes of the “legally obligated” to pay any “sums” because of this CGL insurance coverage phrase ‘legally obligated to pay as incident, it was Adamo. Notably, had Detroit Water Team damages[]’”).
not rushed to repair the damage, the City presumably would Assuming – without deciding – that contractual liability have sought damages from Adamo, in which case coverage can, in appropriate cases, constitute a legal obligation within likely would have been available under the American the meaning of the policy’s insuring agreement, the question National policy. Detroit Water Team’s anticipatory actions, becomes whether this is such an appropriate case. The however, thwarted that process from occurring. Although
Detroit Water Team did undertake certain contractual obligations to restore interrupted service, any legal liability that Detroit Water Team may have incurred on the basis of [2] Detroit W ater Team seems to suggest that this provision requires that contract is entirely speculative. There was certainly no
any interrupted service to be completely restored within twenty-four hours judicial determination or settlement establishing Detroit of the interruptio n. In fact, however, we rea d the p rovisio n as merely
Water Team’s liability in this regard, nor any other reason to requiring that “immediate action” aimed at restoring the service be taken believe that its liability was anything more than merely within twenty-four ho urs. Nos. 02-1324/1419 Detroit Water Team v. 9 10 Detroit Water Team v. Nos. 02-1324/1419
Agricultural Ins. Co., et al. Agricultural Ins. Co., et al. “inchoate” or “potential.” Aetna , 10 F. Supp. 2d at 797 burden of proving the applicability of the insuring agreement, (citing Ryan , 916 F.2d at 738-43). Therefore, Detroit Water see supra Esicorp , 266 F.3d at 864; Data Specialties , 125 Team has failed to carry its burden of proving that it was F.3d at 911, and has shifted that burden onto the insurer. We “legally obligated” by contract to repair the electrical system. do not believe that the Michigan Supreme Court would adopt
a rule that would lead to these consequences, particularly in Having concluded that Detroit Water Team was not light of the conspicuous lack of authority supporting such a “legally obligated” to repair the electrical system, we must rule. next address the district court’s prediction that the Michigan Supreme Court would require insurers like American National In sum, we hold that because Detroit Water Team was not to prove that they suffered prejudice in order to bar coverage “legally obligated” to pay for the repairs to the electrical for a loss that does not fall within the policy’s insuring system, American National properly denied coverage on that agreement. The district court’s prediction was based upon its ground – regardless of whether it suffered prejudice as a result view that the purpose of the “legally obligated” language is of Detroit Water Team’s actions. analogous to the purpose of “notice” and “cooperation” B. Agricultural Builder’s Risk Policy provisions – i.e., to prevent collusion between the insured and the claimant – and that because insurers generally must prove
The only issue regarding the Agricultural builder’s risk prejudice in order to bar coverage in reliance upon an policy concerns the applicability of “Exclusion M,” which insured’s breach of a “notice” or “cooperation” provision, a bars coverage for: similar prejudice requirement should apply to the “legally obligated” language in the insuring agreement. Notably,
[l]oss or damage to property in existence at the however, the district court cited no cases – from Michigan or commencement of this policy which [1] is not a part of any other jurisdiction – that recognize or impose such a the construction operations insured hereunder and/or requirement. [2] for which the value is not included in the total insured value shown in the schedule attached to this policy.
We begin by noting that not even Detroit Water Team attempts to defend the district court’s imposition of the Detroit Water Team appeals the district court’s determination prejudice requirement, and our independent research leads us that this exclusion bars coverage for the loss at issue in this to conclude that the imposition of such a requirement is case. indefensible. The critical flaw in the district court’s reasoning is that it overlooks a significant distinction between the
It is undisputed that the electrical system was “property in “legally obligated” language and the “notice” and existence at the commencement of th[e] policy.” Detroit “cooperation” provisions: the “legally obligated” language Water Team asserts that the phrase “and/or” is ambiguous appears in the policy’s insuring agreement, whereas the other and, therefore, that the exclusion should be read to apply only provisions appear in the policy’s exclusions. By requiring an if both conditions are satisfied – i.e., if both the property “is insurer to prove that it suffered prejudice as a result of having not a part of the construction operations insured hereunder” to provide coverage for a loss that does not even fall within and the “value [of the property] is not included in the total the insuring agreement, the district court has not only insured value shown in the schedule attached to this policy.” sanctioned an absurd result, it has relieved the insured of its Nos. 02-1324/1419 Detroit Water Team v. 11 12 Detroit Water Team v. Nos. 02-1324/1419
Agricultural Ins. Co., et al. Agricultural Ins. Co., et al. Detroit Water Team also asserts that, regardless of how this case – indicates that the “Total Insured Value” does not “and/or” is interpreted, neither condition specified in include the value of the electrical system contained within the exclusion M is satisfied in this case. We find both assertions manhole. unpersuasive.
Because the value of the electrical system was “not First, we hold that the use of the “and/or” language in included in the total insured value shown in the schedule exclusion M unambiguously means that the exclusion applies attached to th[e] policy,” the district court properly held that if either or both of the two specified conditions are met. See, exclusion M bars coverage under the Agricultural policy. e.g., Michigan Pub. Serv. Co. v. City of Sheboygan , 37 III. CONCLUSION N.W.2d 116, 129 (Mich. 1949) (“There are occasions where intent may properly be expressed by ‘and/or,’ indicating
For all the foregoing reasons, we REVERSE the district ‘both, or either.’”); Local Div. 589, Amalgamated Transit court’s award of summary judgment in favor of Detroit Water Union, AFL-CIO, CLC v. Commonwealth , 666 F.2d 618, 627 Team and REMAND this case to the district court with (1st Cir. 1981) (“the words ‘and/or’ commonly mean ‘the one instructions to award summary judgment in favor of or the other or both’”). American National, and we AFFIRM the district court’s award of summary judgment in favor of Agricultural.
Second, we hold that the second condition specified in exclusion M has been satisfied – i.e., the “value” of the electrical system was “not included in the total insured value shown in the schedule attached to th[e] policy.” The schedule attached to the policy provides as follows:
(a) Estimated Contract Price . . . . . . . . . . $214,542,000 (b) Soft Costs . . . . . . . . . . . . . . . . . . . . . . . .$2,500,000 (c) Value of Owner Furnished Material . . . .$ Included (d) Total Insured Value . . . . . . . . . . . . . . $217,042,000
The record reveals that the “Total Insured Value” figure is equivalent to the amount of the actual cash replacement value of the insurable work, or the amount that would be necessary to redo the entire project if everything were somehow destroyed. The undisputed deposition testimony of David May, Vice President and General Counsel of Walsh Construction Company of Illinois – a general contractor that participated in the joint venture with Detroit Water Team in