Lead Opinion
This declaratory judgment action was brought by Secura Insurance (Secura), an insurer for Horizon Plumbing, Inc. (Horizon), a subcontractor on a troubled construction project. Horizon’s two other insurers, State Auto Property & Casualty Insurance Company (State Auto) and Federated Mutual Insurance Company (Federated) later joined. Their dispute with Weitz Company, LLC (Weitz) arose out of a construction project in which Weitz was the general contractor for MH Metropolitan, LLC and MacKenzie House, LLC (collectively Metropolitan). After Weitz and Metropolitan brought breach of contract claims against each other, both filed third party complaints against Horizon for defective plumbing. Horizon’s insurers defended and settled all claims against it and reimbursed Weitz for its defense of claims against Horizon. Weitz then contended that since it was an “additional insured” on Horizon’s policies, the insurers should pay approximately $1.1 million for attorney fees and costs it incurred in defending against Metropolitan’s entire counterclaim.
The insurers filed this action seeking a final judgment that they not be required to pay the attorney fees and costs sought by Weitz in defending against Metropolitan’s counterclaim. The district court
I.
In May 2005 Metropolitan hired Weitz as the general contractor on a project to build an apartment complex in Kansas City, Missouri. Weitz then subcontracted with Horizon for plumbing work. The subcontract required that Weitz be covered as an additional insured on Horizon’s commercial general liability policies. Af
Earlier in February 2007 Weitz had sued Metropolitan for breach of contract, alleging that Metropolitan had improperly terminated it from the project and failed to pay all sums due it. Metropolitan counterclaimed for breach of contract in June, alleging in part that Weitz had failed timely to complete the project, failed to provide progress reports, failed to supervise, coordinate, and pay subcontractors timely, failed to maintain adequate accounting records, and failed to correct deficient and defective work. Metropolitan filed initial Rule 26(a)(1) disclosures in September 2007, detailing the damages it sought from Weitz.
After filing third party complaints against other subcontractors, Weitz filed a third party complaint against Horizon for indemnity, contribution, and attorney fees based on the allegedly defective plumbing. Metropolitan also filed a third party complaint against Horizon, pleading that it had accepted assignment of the plumbing subcontract and seeking damages for the work. Horizon’s insurers defended it against these claims and settled them. Weitz and Horizon stipulated that Weitz’s claim for attorney fees would be decided after trial.
Horizon had purchased a business umbrella liability policy with Secura, as well as commercial general liability policies with Secura, State Auto, and Federated. All of the policies contained provisions stating that property damage was covered only if it was “caused by an occurrence.” The policies also included “additional insured” endorsements. Those provisions specified that any party for which Horizon had agreed by contract to provide liability insurance would be an “additional insured” only for property damage arising from Horizon’s work.
Weitz had earlier attempted to tender its defense of Metropolitan’s entire counterclaim to the insurers, claiming that it was an “additional insured” under the policies. State Auto and Secura apparently did not respond. Federated agreed to participate in Weitz’s defense under a reservation of rights and paid the two bills Weitz sent it for “time incurred relative to the Horizon Plumbing issue,” a total of $3,803.50.
The case between Weitz and Metropolitan proceeded to a trial in which Horizon did not participate. At the trial’s conclusion the jury awarded Metropolitan approximately $5 million in damages and nothing to Weitz. The district court then ordered Horizon to pay Weitz $115,619.80 in attorney fees and $12,576.30 in costs for its defense against Metropolitan’s claims related to Horizon’s work under its subcontract with Weitz. Counsel for the insurers have stated that they paid this amount on Horizon’s behalf, and a satisfaction of judgment was entered. Weitz then demanded from the insurers approximately $1.1 million in attorney fees and costs for defending against Metropolitan’s entire counterclaim.
Secura filed this declaratory judgment action, alleging that it had had no duty to defend Weitz in the underlying case. Secura later named State Auto and Federated as third party defendants for contribution. Weitz filed a counterclaim against Secura and cross claims against State Auto and Federated for breach of insurance contracts and vexatious refusal to pay, seek
The district court granted summary judgment in favor of the insurers, concluding that Metropolitan’s breach of contract counterclaim was not an “occurrence” giving rise to coverage under the policies. Weitz filed a motion to alter the judgment or for reconsideration; it was denied. Weitz now appeals, arguing that the insurers had a duty to defend it because Metropolitan’s breach of contract counterclaim stated an “occurrence” under the policies.
II.
We review de novo the district court’s grant of summary judgment based on its interpretation of insurance policy provisions. State Farm Fire & Cas. Co. v. Nat’l Research Ctr. for College & Univ. Admissions,
State law governs the interpretation of insurance policies when federal jurisdiction is based on diversity of citizenship. Langley v. Allstate Ins. Co.,
A duty to defend “arises whenever there is a potential or possible liability to pay based on the facts at the outset of the case,” and it is “broader than the duty to indemnify.” McCormack Baron Mgmt. Servs., Inc. v. Am. Guarantee & Liab. Ins. Co.,
Each policy covers “property damage” caused by an “occurrence.” The policies define “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Missouri courts have determined that the plain meaning of accident is “[a]n event that takes place without one’s foresight or expectation; an undesigned, sudden and unexpected event.” Mathis,
Weitz asserts that the insurers had a duty to defend it because Metropolitan’s counterclaim for breach of contract sought damages for losses covered under the policy. Weitz claims that Horizon’s alleged failure to connect the drain pipes was an “occurrence” under the policy. Weitz asserts that whether an event is an “occurrence” depends not on the label given to the underlying cause of action, but on the known facts. See Amerisure Mut. Ins. Co. v. Paric Corp., No. 4:04cv430,
We have previously recognized that under Missouri law, a lawsuit seeking damages caused by breach of contract does not state an “occurrence.” J.E. Jones Constr. Co. v. Chubb & Sons, Inc.,
Applying Missouri law, we reject Weitz’s argument that Metropolitan’s counterclaim asserted potentially covered losses under the policies. Metropolitan’s only counterclaim against Weitz was for breach of contract. The allegations supporting that counterclaim included failure timely to complete the project, failure to provide progress reports, failure to supervise, coordinate, and pay timely subcontractors, failure to maintain adequate accounting records, and failure to correct deficient and defective work. Weitz’s performance of the contract according to its terms was “within [its] control and management and its failure to perform cannot be described as an undesigned or unexpected event.” Mathis,
Moreover, Weitz has not presented evidence of facts known to the insurers or reasonably ascertainable “at the time the action [was] commenced” which would have given rise to a duty to defend. Trainwreck,
Contrary to Weitz’s contention, the disclosure of damages sought for failure to remediate defective workmanship was not based on an “occurrence” but rather a breach of a specific contractual duty to correct deficient work. There was no allegation of an accident or that Weitz’s conduct had caused property damage. The fact that Weitz’s failure to correct the defective workmanship resulted in financial expenses to Metropolitan was a “normal, expected consequence of [Weitz’s] breach of contract and not an occurrence.” Mathis,
We are not persuaded by Weitz’s additional arguments to be compensated for the $1.1 million in fees and costs it seeks. Weitz argues that by defending and indemnifying Horizon under the same policies, the insurers waived any right to deny a duty to defend Weitz. We conclude that the insurers did not intentionally relinquish a known right, as required for waiver. See O’Connell v. Sch. Dist. of Springfield R-12,
Additionally, we reject Weitz’s argument that summary judgment was improperly granted to Federated because it had initially accepted Weitz’s tender of defense, thereby admitting an obligation to defend Weitz. The record belies Weitz’s contention. Federated stated that it would participate in Weitz’s defense “against liability arising out of Horizon’s operations,” but did so expressly reserving all rights under the policy “including the right to deny coverage” or to “withdraw from the defense.” It also specifically stated that there would be no coverage “[t]o the extent that any of the claims against Weitz
While Weitz now seeks $1.1 million in fees and costs for defending the entire counterclaim, including claims unrelated to Horizon’s work, the policies expressly limit coverage for “additional insureds” to damages arising out of Horizon’s work. Insurers should not be held “liable for the defense costs of claims their policies do not cover, even when those claims are joined with covered claims.” Enron Corp. v. Lawyers Title Ins. Corp.,
III.
Accordingly, the judgment of the district court is affirmed.
Notes
. The Honorable Gary A. Fenner, United States District Judge for the Western District of Missouri.
. We deny Secura’s motion to supplement the record as unnecessary since the relevant information is included in the district court record to which we have access.
. While only State Auto raised this argument at summary judgment, Weitz received notice of it and had an opportunity to respond. We reject its contention that the argument was somehow waived. The district court acted within its authority when it decided the case on this ground. See Interco Inc. v. Nat’l Sur. Corp.,
Concurrence Opinion
concurring in the result.
I believe Metropolitan’s Rule 26(a)(1) disclosures provided the insurers with notice of a potentially covered claim and triggered a duty to defend Weitz. See Kirk King, King Constr., Inc. v. Continental W. Ins. Co.,
Despite my disagreement with the majority on whether Metropolitan’s Rule 26(a)(1) disclosures included a potentially covered claim and triggered a duty to defend Weitz, I nonetheless concur in the result. As the majority noted, the insurers have already reimbursed Weitz for all of its attorney fees and expense costs associated with defending the claims involving Horizon’s work. Thus, for the reasons expressed in the final paragraph of Section II of the majority’s opinion, I join in affirming the judgment of the district court.