United States District Court, E.D. California
EMPLOYERS MUTUAL CASUALTY COMPANY and ILLINOIS EMCASCO INSURANCE COMPANY, Plaintiffs,
v.
NORTH AMERICAN SPECIALTY FLOORING, INC., SPORTS SURFACING, INC., SC ANDERSON, INC., and KOSTER AMERICAN CORPORATION dba KOSTER USA, Defendants. NORTH AMERICAN SPECIALTY FLOORING, INC. and SPORTS SURFACING, INC., Counter-Claimants,
v.
EMPLOYERS MUTUAL CASUALTY COMPANY and ILLINOIS EMCASCO INSURANCE COMPANY, Counter-Defendants.
ORDER GRANTING PLAINTIFFS AND COUNTER-DEFENDANTS'
MOTION FOR SUMMARY JUDGMENT (DOC. NO. 31)
This
matter is before the court on the motion for summary judgment
brought by plaintiffs and counter-defendants Employers Mutual
Casualty Company and Illinois Emcasco Insurance Company
(collectively, “EMC”[1]). (Doc. No. 31.) A hearing
on the motion was held on December 3, 2019. Attorney Lisa
Darling-Alderton appeared telephonically on behalf of EMC,
and attorney Arthur Grebow appeared telephonically on behalf
of defendants and counter-claimants North American Specialty
Flooring and Sports Surfacing, Inc. (collectively,
“Sports Surfacing”[2]). Having considered the
parties' briefs and oral arguments, and for the reasons
set forth below, the court will grant EMC's motion for
summary judgment.
BACKGROUND
In this
declaratory relief action EMC seeks a declaration from this
court that, as a matter of law, the damages sought against
Sports Surfacing by a third-party in an underlying state
court action are not covered under the insurance policies EMC
issued to Sports Surfacing, and that EMC therefore has no
duty to defend or indemnify Sports Surfacing in that
underlying state court action. (See Doc. No. 2.)
Sports Surfacing counter-claims that EMC has a duty to defend
and indemnify it in the underlying action pursuant to the
insurance policies that EMC issued it and seeks a declaration
stating as much. (See Doc. No. 16.)
The
material facts of this case are undisputed and, as relevant
to the pending motion, are set forth below.
A.
The Relevant Parties.
Defendant
Sports Surfacing is a contractor that “install[s]
flooring and related products, including rubber sports
flooring.” (Doc. No. 31 at 7.) EMC provided insurance
coverage to Sports Surfacing under various insurance policies
(collectively, the “EMC insurance policies”).
(Doc. No. 2 (“Compl.”) at 2-3.) EMC is moving for
summary judgment against each named defendant, but only
Sports Surfacing has opposed the motion. Other named
defendants-such as defendants S.C. Anderson, Inc.
(“Anderson”) and Koster American Corporation dba
Koster USA (“Koster”)-do not oppose the pending
motion for summary judgment. Moreover, several entities who
were initially named as defendants in this action have been
dismissed after agreeing to be bound by the outcome of this
litigation. (See Doc. Nos. 23, 27.) Included amongst
that group are Roy's Flooring, Inc. and Jose Roy Garcia,
formerly dba Roy's Flooring, (collectively
“Roy's Flooring”) who were subcontracted into
the project that gave rise to the underlying lawsuit, as well
as Navigators Insurance Company (“Navigators”),
an insurance company that insured Roy's Flooring. (Compl.
at 12-13; Doc. No. 31-2, Ex. A) (Stipulation of Facts and
Evidence Admissible for Cross Motions for Summary
Judgment[3] (“UF”) at ¶¶ 22, 23;
Doc. Nos, 23, 27.)
B.
The Facts Giving Rise to the Underlying State Court
Action.
On May
15, 2017, defendant Anderson, a general contractor, entered
into a written contract with California State University,
Bakersfield (“CSU Bakersfield”) for a
construction project referred to by the parties as the
“Student Recreation Center project.” (UF at
¶ 22; see also Doc. No. 31-2 at 259.) On June
18, 2007, Anderson entered into a written subcontract with
Roy's Flooring, whereby the latter agreed to
“provide all labor, material, and equipment necessary
to furnish and install wood flooring, rubber flooring, and
sports flooring” for the Student Recreation Center
project. (UF at ¶ 23.) At some point prior to the rubber
flooring being installed in the Student Recreation
Center's fitness room, it was discovered that excessive
moisture was passing through the concrete slab upon which the
rubber flooring was to be installed, requiring the
application of a concrete sealant. (Id. at ¶
25.) On January 8, 2009, Roy's Flooring entered into a
written subcontract with defendant Sports Surfacing, whereby
Sports Surfacing agreed to obtain and apply a specific
sealant produced by defendant Koster. (Id. at ¶
24.) Roy's Flooring subcontracted with Sports Surfacing
because Roy's Flooring was not a “certified”
installer of Koster products and Sport Surfacing asserted
that it had the proper certification. (Id.; see
also Doc. No. 31-2 at 260.) On July 15, 2009, Anderson
and Roy's Flooring executed a “change order,
” whereby Roy's Flooring agreed to “provide
all labor, material, and equipment necessary to install
moisture sealer in” the fitness room and running track
at the Student Recreation Center. (UF at ¶ 23.) Sports
Surfacing installed a concrete sealant product manufactured
by Koster to the concrete slab and then installed the rubber
flooring. (Id. at ¶ 25.) The Student Recreation
Center project was completed on or about August 12, 2009.
(Id. at ¶ 26.)
In or
around February 2016, CSU Bakersfield notified defendant
Anderson that the rubber flooring in the Student Recreation
Center's fitness room had failed and needed to be removed
and replaced. (Id. at ¶ 27.) Thereafter,
representatives from CSU Bakersfield, Anderson, Roy's
Flooring, and Sports Surfacing (and possibly Koster)
scheduled and conducted a meeting “to discuss what
needed to be done to effectuate repairs or replacement of the
flooring.” (Doc. No. 31-2 at 265-66.) “It was
determined at the meeting that core samples and analysis
testing was necessary in order to ascertain the cause of the
failure, the extent of the damage[, ] and the best method for
correcting the problem.” (Id. at 266.) After
samples were taken and tests were conducted, it was revealed
that an insufficient layer of Koster sealant was applied,
causing moisture to permeate through to the floor and causing
it to fail. (Id. at 261, 266.) “The only
recommended means to remedy the condition [wa]s to remove the
floor and sealant, re-level the floor and replace the
flooring.” (Id. at 261.)
On
November 8, 2016, counsel for Anderson reached out to
Roy's Flooring, Sports Surfacing, and Koster via letters
to notify them that CSU Bakersfield “ha[d] made a final
demand on Anderson to commence the requisite corrective
action . . . and to do so during the next semester break
scheduled for December 15, 2016 through January 22,
2017.” (Id. at 261-62, 266.) Anderson in turn
demanded that Roy's Flooring and its subcontractors,
including Sports Surfacing, “confirm [their] respective
intent and ability to immediately proceed with the removal
and replacement of the defective flooring during the
suggested period noted above or to refund to Anderson all
sums previously paid to [them] . . . for the defective
flooring.” (Id. at 262.) Anderson's letter
warned Roy's Flooring and Sport Surfacing that their
failure to timely comply with its demand would result in
Anderson “undertak[ing] its own corrective action
through an alternate subcontractor and suppliers and . . .
seek[ing] to recover all expenses and damages caused by
[their] refusal to perform that corrective work . . .
.” (Id.)
Ultimately,
however, CSU Bakersfield removed and replaced the entire
flooring in the Student Recreation Center's fitness room,
and thereafter back-charged Anderson in the amount of $229,
345.71 for the costs that it incurred in doing so.
(Id. at 395.) On July 19, 2017, Anderson sent
another letter to Roy's Flooring, Sports Surfacing, and
Koster, demanding that they reimburse Anderson for the amount
that CSU Bakersfield had back-charged it. (Id.) On
October 24, 2017, Anderson informed Roy's Flooring,
Sports Surfacing, and Koster by way of another letter that it
had not received a response to its July 19, 2017
correspondence and that it planned on filing a lawsuit
against the subcontractors within the next ten days unless
payment was received by Anderson within that timeframe.
(Id. at 398.)
C.
The Underlying State Court Action and Subsequent Tenders to
EMC.
On
November 16, 2017, defendant Anderson filed suit against
Roy's Flooring, Sports Surfacing, and Koster in Kern
County Superior Court, asserting claims for breach of
contract, breaches of express and limited liability, and
negligence (the “underlying action” or
“Anderson Action”). (See Doc. No. 31-2,
Ex. 18.) The complaint in the Anderson Action alleges that
“core samples, testing and analysis of the . . .
Flooring were conducted . . . [and] [t]he results . . .
determined that an insufficient layer of the Koster sealer
was applied to the concrete floor of the . . . Fitness Room
which allowed and caused moisture to permeate through to the
floor causing the adhesive to fail to remain bonded to the
rubber flooring.” (Doc. No. 31-2 at 448.) The state
court complaint further alleges that “the primary
causes of the above-described failure were . . . [t]he Koster
sealer layer was not applied thick enough or continuous
enough to perform as an effective moisture mitigation
membrane [and] . . . the acrylic adhesive likely never cured
effectively and did not develop initial bond strength.”
(Id. at 452.) Anderson seeks compensatory damages in
the sum of $229, 345.71, an award of consequential,
incidental, and/or other appropriate damages in amounts
according to proof, and an award of costs of suit.
(Id. at 461.)
On
March 20, 2018, Sports Surfacing tendered the underlying
action to EMC for a defense and indemnification under the EMC
insurance policies, and on April 12, 2018, Navigators, as
insurer for Roy's Flooring, tendered Roy's
Flooring's defense in the Anderson Action to EMC,
contending that Roy's Flooring was an “additional
insured” under the EMC insurance policies issued to
Sports Surfacing. (Doc. Nos. 31 at 20; 31-2 at 293.) By way
of letters dated August 8 and 17, 2018, EMC declined to
defend both Sports Surfacing and Roy's Flooring in the
Anderson Action. (See Doc. No. 31-2, Exs. 19 -21.)
As relevant here, EMC argued that, “[t]o the extent
Anderson asserts any claims against [Sports Surfacing or
Roy's Flooring in the Anderson Action], those claims are
for the costs that [CSU Bakersfield] ‘back charged'
to Anderson for the purpose of correcting [Sports Surfacing
and/or Roy's Flooring's] defective flooring work or
products.” (Doc. No. 31-2 at 494, 515, 536.) EMC argued
that these costs are not for “property damage” as
that term is defined in the EMC insurance policies.
(Id.) Moreover, EMC argued that, even if the costs
incurred by CSU Bakersfield in removing and replacing the
defective flooring constituted “property damage”
as that term is defined in the EMC insurance policies, the
“Damage to Your Product” and “Damage to
Your Work” exclusions in those policies also negate
coverage. (Id. at 501-03, 516-17, 537-39.)
Accordingly, EMC requested that Sports Surfacing and
Roy's Flooring withdraw their coverage requests and
reserved all of its legal and equitable rights in connection
with the matter, including its right to initiate a
declaratory judgment action if necessary. (Id. at
507, 528, 551.)
D.
The EMC Insurance Policies.
EMC
issued commercial general liability and commercial umbrella
policies to Sports Surfacing (the “CGL policies”
and the “umbrella policies, ” respectively)
(collectively, the “EMC insurance
policies”).[4] The EMC insurance policies were first
issued in 2008 and renewed in 2009, 2010, and 2011. (UF at
¶¶ 1-16.)
1.
The CGL Policies.
The CGL
policies state in relevant part:
We will pay those sums that the insured becomes legally
obligated to pay as damages because of . . . “property
damage” to which this insurance applies. We will have
the right and duty to defend the insured against any
“suit” seeking those damages. However, we will
have no duty to defend the insured against any
“suit” seeking damages for . . . “property
damage” to which this insurance does not apply.
(Doc. No. 31-2 at 25, 89.) As relevant here, the CGL policies
define “property damage” as
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 it; or . . . 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 it.
(Id. at 39, 103.) The CGL policies, however,
explicitly “do[] not apply to”:
k. Damage To Your Product “Property
damage” to “your product” arising out of it
or any part of it.
l. Damage To Your Work “Property
damage” to “your work” arising out of it or
any part of it and included in the “products-completed
operations hazard.”
(Id. at 26-29, 90-93.) The CGL policies define
“your product, ” “your work, ” and
“products-completed operations hazard” as
follows:
21.
“Your product”:
a. Means:
(1) Any goods or products, other than real property,
manufactured, sold, handled, distributed or ...