Embed Size (px)
Citation preview
o [S ~ fnl II
IUt~ ) 0 - rlUi L bull l J
No 17-0079 RORY L PERRY n CLERK shyoi SUPREME COURT OF APPEALS
OF WEST VIRGINIA --
IN TIlE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp ASSOCIATES INC DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BITCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of Cabell County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
Counsel for Respondent Bitco General Insurance Corporation
A vrum Levieoff Esquire ALevicoffLevicoffLawcom WVa 1D 4549 Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The LevicoffLaw Firm Pe 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200 - Phone (412) 434-5203 - Facsimile
IL06957S2 I I
TABLE OF CONTENTS
Table of Contents i
Table of Authorities iii
I STATEMENT OF THE CASE 1
A INTRODUCTION 1
B STATEMENT OF FACTS 3
C PROCEDURAL HISTORy 9
II SUMMARY OF ARGUMENT 10
III STATEMENT REGARDING ORAL ARGUMENT AND DECISION 12
IV ARGUMENT 12
A STANDARD OF REVIEW 12
B THE CIRCUIT COURT CORRECTLY HELD THAT UNDER TENNESSEE LAW THE
CONTRACTUAL CLAIMS ASSERTED BY THD AGAINST JA STREET ARE NOT COVERED BY THE
BITCO POLICIES 13
C THE BUSINESS RISK EXCLUSION (M) FORECLOSES COVERAGE 31
V CROSS-ASSIGNMENTS OF ERROR 35
A THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE B ITeo CGL
POLICIES COVERAGE MAyBE IMPLICATED SINCE THE UNAMBIGUOUS TERMS OF THE
INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE
EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107706 B IN EFFECT FROM
MARCH 12001 THROUGH MARCH 12002 35
B THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF BITCOS UMBRELLA POLICIES
COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS
OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK PLACE DURING ANY POLICY
PERIOD 38
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT
CAN ApPLy 41
UJ6957S2 1 I
VII CONCLUSION 44
ii
(L06957521 I
TABLE OF AUTHORITIES
CASES
Allstate Ins Co v Wilson 856 SW2d 706 1992 TennApp LEXIS 1012 (1992) 19
Am Family Mut Ins Co v American Girl Inc 673 NW2d 65 268 Wis2d 16 (2004)
272830
Am Nat Prop and Cas Ins Co v Gray 803 SW 2d 693 (Tenn Ct App 1990) 14
American Physicians Insurance Exchange and American Physicians Service Group Inc v
Garcia 876 S W2d 842 (Texas 1994) 43
Apjalachian Ins Co v Liberty Mut Ins Co 676 F2d 56 (3d Cir Pa 1982) 39
Associated lndem Corp v Dow Chern Co 814 FSupp 613 (ED Mich 1993) 39
Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612 (2004) 43
Barnett v Wolfolk 149 WVa 246 140 SE2d 466 (1965) 15
Bayley Construction vs American Guaranty amp Liability Insurance CPO 2010 US Dist
LEXIS 110767 (WD Wash 2010) 44
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) 43
Blake Indus Inc v General Agents Ins Co of Am 2000 Tenn App LEXIS 490 (2000) 20
Blankenship v City ofCharleston 223 WVa 822 679 SE2d 654 (2009) 12
Blaylock and Brown Constr Inc v AIU Ins Co 796 S W2d 146 (Tenn Ct App 1990)
1620
Bonded Concrete Inc v Transcon Ins Co 12 AD3d 761 2004 NYAppDiv LEXIS 13020
(2004) 18
Burlington Ins Co v Oceanic Design amp Construction Inc 383 F3d 940 2004 US App
LEXIS 18932 (9th Cir 2004) 18
Canal Indem Co v Adair Homes Inc 445 Fed Appx 938 (9th Cir 2011) 32
Central Armature Works Inc v Am Motorists Ins Co 520 FSupp 283 (DDC 1980) 33
Century Sur Co v Hardscape Constr Specialties Inc 578 F3d 262 2009 US App LEXIS
25300 (5th Cir 2009) 23
111
(L069S 752 I I
Certain Underwriters at Llovds of London v Paniagill 957 FSupp2d 921 (WDTenn
2013) 35
Certain Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229
P3d 930 (WashApp 2001) 44
Champion Intl Corp v Continental Casualty Co 546_F2d 502 (2d Cir NY 1976) 39
CIM Ins Corp v Midpac Auto Ctr Inc 108 FSupp2d 1092 (DHaw2000) 23
Cincinnati Ins Co v Grand Pointe LLC 2007 US Dist LEXIS 39784 (ED Tenn 2007) 14
202627
Clark v Sputnicks LLC 368 SW3d 431 (Tenn 2012) 14
Columbia Mut Ins Co v Schauf 967 S W2d 74 (Mo 1998) 32
Copple Constr LLC v Columbia Natl Ins Co 776 NW2d 503 (Neb 2009) 32
Cox v Amick 195 WVa 608 466 SE2d 459 (1995) 12
Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270 GaApp 8 (2004) 24
Dan Ryan Builders Inc v Crystal Ridge Dey Inc 783 F3d 976 (4th Cir 2015) 22
Dey Inc y Northern Ins Co of New York 62 F3d 1089 1995 USApp LEXIS 21700 (8th Cir
1995) 24
Drexel Chemical Co v Bitco Ins Co 933 SW2d 4711996 TennApp LEXIS 356 (1996)
13 14
Erie Ins Prop amp Cas Co v Pioneer Home Improvement Inc 526 SE2d 28 206 WVa 506
(1999) 17
Ernst v Acuity 704 NW2d 869 (ND 2005) 33
Ewing Constr Co Inc v Amerisure ms Co 420 SW3d 30 (Tex 2014) 2829
General Housewares Corp v National Surety Corp 741 NE2d 408 (Ind 2000) 37
Gentry v Mangum 195 WVa 512466 SE2d 171 (1995) 15
Gibson amp Assocs Inc v Home Ins Co 966 FSupp 468 1997 US Dist LEXIS 4776 (1997) 24
Gilbert Tex Constr v Underwriters at Lloyds Londo 327 S W3d 118 (2010) 23 28 2930
Graves v Liberty Mut Fire Ins Co 745 SW2d 282 (Tenn Ct App 1987) 14
tv
L06957521 I
Great Divide Ins Co v Bitterroot Timberframes of Wyoming LLC 2006 US Dist LEXIS
94826 (2006) 19
Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) 43
Greenidge v Allstate Insurance Co 312 F2d430 (SDNY 2004) 43
GrinnellMut Reinsurance Co v Lynne 686 NW2d 118 (ND 2004) 33
Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th Cir 2000) 32
Hathaway Dev Co v lll Union Ins Co 274 Fed Appx 787 (11 th Cir 2008) 32
Headley v St Paul Fire amp Marine Ins Co 712 FSupp 745 (DSD 1989) 39
Hiraldo vs Allstate Insurance Co 8 AD3d 230 778 NYS 2d 50 (2004) 43
Hoover v Mornn 222 WVa at 119 662 SE2d at 718 15
Horace Mann Ins Co v Leeber 376 SE2d 581 180 WVa 375 (1988) 13
Hotel Roanoke Com Ctr Commn v Cincinnati Ins Co 303 FSupp2d 784 2004 US Dist
LEXIS 2539 (2004) 17
Interstate Packaging Co v Century Indem Co 2013 US Dist LEXIS 45459 (MD Tenn
2013) 14
JACO Airfield Constr Inc v National Trust Ins Co 2007 US Dist LEXIS 100295 (2007) 24
Jacob v Russo Builders 592 NW2d 271 (Wis Ct App 1999) 34
James v Burlington Northern Santa Fe Railway Co 2007 US Dist LEXIS 63282 (2007) 24
Kaiser Cement and Gypsum Corp v Insurance Co of the State of Pa 215 Cal App 4th 210
155Cal Rptr 3d283 (2013) 43
Key Custom Homes Inc v Mid-Continent Cas Co 450 FSupp2d 1311 2006 US Dist
LEXIS 60355 (2006) 18
Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) 39
Lennar Corp v Markel American Insurance Co 413 SW3d 750 (Texas 2013) 43
LISN Inc v Commercial Union Ins Cos 615 NE2d 650 (Ohio Ct App 1992) 33
L-J Inc v Bitco Fire amp Marine Ins Co 621 SE2d 33 366 SC 117 (2005) 17
Lyerla v AMCO Ins Co 536 F3d 684 2008 US App LEXIS 164 (7th Cir 2008) 17
McKimm v Bell 790 SW2d 526 (Tenn 1990) 1935
v
(t06957521 I
Monticello Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 (WDKy
Apr3 1998) 23
Murphy v Smallridge 196 WVa 35468 SE2d 167 (1996) 15
Naifeh v Valley Forge Life Ins Co 204 SW3d 758 (Tenn 2006) 1935
Nationwide Mutual Ins Co v CPB IntI Inc 562 F3d 591 2009 US App LEXIS 7795 (3d
Cir 2009) 17 23
Nesmith v Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) 43
Newark Ins Co v Acupac Packaging Inc 746 A2d 47 (NJ Super Ct App Div 2000) 34
North American Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552
(5th Cir 2008) 43
Norwalk Ready Mixed Concrete Inc v Travelers Ins Co 246 F3d 1132 2001 US App
LEXIS 7148 (8th Cir 2001) 18
Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254329 Ore 620 (2000) 18
Olympic Inc v Providence Washington Insurance Co of Alas~ 648 P2d 1008 (Alaska 1982)
30
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 (DDC 1984) 39
Painterv Peavy 192 WVa 189451 SE2d 755 (1994) 12
Paul v Natl Life 352 SE2d 552 (WVa 1986) 22
Riffe v Home Finders Associates Inc 205 WVa 216 517 SE2d 313 (1999) 13
Ryan Homes v Home Indem Co 647 A2d 939 (Pa Super 1994) 33
Safeco Insurance Company of American v Firemens Fund Insurance Co 148 Cal App 4th
620 55 Cal Rptr 3d 844 (2007) 43
Sapp v State Farm Fire amp Cas Co 486 SE2d 71 (Ga Ct App 1997) 32
Savarese v Allstate Ins Co 672 SE2d 255 260 (WVa 2008) 15
Schmehl v Helton 222 WVa 98662 SE2d 697 (2008) 15
Silk v Flat Top 453 SE2d 356 (WVa 1994) 20 22 23 25
Smith amp Nephew Inc v Fed Ins Co 113 FedAppx 99 (6th Cir 2004) 14
vi
(L069S7S21 I
Southern International Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct
App 3d Dist 1977) 39
St Paul Fire amp Marine Ins Co v Torpoco 879 SW2d 831 (Tenn 1994) 14
Standard Fire Ins Co v Chester-ODonley amp Assocs 972 SW2d 1 1998 TennApp LEXIS
65 (1998) 16 19
State Auto Ins Cos v Gordon Constr Inc 2001 TennApp LEXIS 349 (2001) 20
State Auto Mut Ins Co v Alpha Engg Serv Inc 542 SE2d 876 208 WVa 713 (2000) 13
State Farm Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 (2007) 23
State ofWVa ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) 22
Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) 43
Taylor v Travelers Ins Co 40 F3d 79 (5th Cir 1994) 31
Tenn Farmers Mut Ins Co v Brown 1990 TennApp LEXIS 812 (1990) 13
Tennant v Smallwood 211 WVa 703568 SE2d 10 (2002) 12
TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 (8th Cir1995) 2324
Thommes v Milwaukee Mut Ins Co 622 NW2d 155 (Minn Ct App 2001) 34
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 (ND Tex 1980) 39
Travelers Indemn Co of Am v Moore amp Assocsbull Inc 216 SW3d 202 (Tenn 2007) 112526
Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL 23218046 (ED Tenn Dec 12
2003) 20 27
Truk-Away Inc v Aetna Cas amp Sur Co 723 A2d 309 (RI 1999) 39
Union Ins Co v Hottenstein 83 P3d 11962003 ColoApp LEXIS 1857 (2003) 19
Union Ins Co v Williams Contr Inc 2006 US Dist LEXIS 35919 (2006) 24
United States Fire Ins Co v Milton Co 35 FSupp2d 83 1998 US Dist LEXIS 22116 (1998)
18
USFampG Corp v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476 (1989)
19
Vari Builders Inc v United States Fidelity amp Guaranty Co 523 A2d 549 (Del Super Ct
1986) 32
vii
IL0595752 I I
Vernon Williams amp Son Constr Inc v Continental Ins Co 591 SW2d 760 (Tenn 1979)
pasSIm
Weedo v Stone-E-Brick Inc 405 A2d 788 (NJ 1979) 1633
Westfield Ins Co v Sheehan Construction Co 580 FSupp2d 701 2008 US Dist LEXIS
66843 (2008) 17
STATUTES
West Virginia Declaratory Judgment Act W Va Code sect55-13-1 e seq 9
OTHER AUTHORITIES
Alan D Windt Insurance Claims and Disputes sect117 (4th Ed 2001) 17
Couch on Insurance 3d sect1291-1294 (3d Ed 2005) 16
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb 1 Rev 415441 (1971) 1631
Wielinski Patrick (4th ed) IRMI Ch 6 pp 180-185 29
viii
LC6957521 I
I ST ATEMENT OF THE CASE
A INTRoDUCTION
Bitoo General Insurance Corporation (Biteo) instituted this declaratory judgment action
seeking a declaration of no coverage and no duty to defend contract claims alleging poor
workmanship asserted against Bitcos named insured in an underlying civil action pending in the
Circuit Court of Cabell County captioned at THD Development LLC a West Virginia Limited
Liability Company and THD Investors 7 LLC a West Virginia Limited Liability Company
Plaintiffs v SamplE Inc a Corporation and JA Street amp Associates Inc a Corporation
Defendants Civil Action No 03-C-0490 (hereinafter underlying action) The threshold
question presented in this declaratory judgment action is whether Bitcos standard commercial
general liability and umbrella insurance policies afford coverage for pure ex contractu claims
asserted by THD Development (THD) against JA Street amp Associates Inc (IA Street)
At an early stage Bitco moved for summary judgment on that very narrow ground toshy
wit that all of the claims pleaded against JA Street are contract-based claims for poor
workmanship and such claims are not covered by Bitcos standard oommercialliability polices
under applicable Tennessee law Unfortunately the Circuit Court found that the issue was not
susceptible to summary judgement at that time Consequently the insurance case remained
pending and Biteo continued to defend the underlying action At a later point Biteo renewed
substantially the identical argument whereupon it was again determined to be an insufficient
basis for a summary judgment Although the Circuit Court was uncertain enough at that point
that it certified the issue for interlocutory appeal the Supreme Court declined to afford review
L0695752l
Thereafter THD and lA Street immeasurably complicated the matter They devised a
theory that the case demonstrated characteristics of ongoing progressive incessant damage
typical of the asbestos-type progressive damage cases which our system of the administration of
justice has come to know On that basis lA Street sought and obtained leave of court to add
six additional insurance companies that had written commercial liability and umbrellaexcess
liability insurance over a period of years between 2001 and the present That of course
plunged the case into a maelstrom of dispute over a multitude of new insurance issues such as
trigger of coverage the accompanying loss in progress known loss rule problems
concomitant disputes over horizontalvertical exhaustion the lively debates over stacking of
per occurrence limits over successive policy periods and of course the applicability of
multiple exclusions such as the standard impaired property and earth movement exclusions
When all was said and done the Circuit Court ultimately honored Bitcos original
argument on the very narrow core issue at hand and ruled that since all of the claims asserted
against JA Street were contract-based claims for damages sustained by THD due to faulty
workmanship the commercial liability coverage provided by the policies does not apply That
determination which could have been made in 2009 is correct since the claims plainly do not
fall within the embrace of the policies as a matter of well-settled law Should this Court affirm
the judgment none of the other issues addressed by the Circuit Court affects the substantial
rights of the parties In other words they are moot
For these reasons Biteo focuses its argument on the indefatigable conclusion that there is
no coverage under the Bitco policies or any other commercial liability policies for claims ex
2
L069S7521
I
contractu for damages for poor workmanship by a construction contractor on a commercial
construction project Bitco also briefly addresses the propriety of the trial courts finding that
exclusion (m) applicable to impaired property separately operates to bar coverage
Biteo confines its cross-assignments of error to only 2 points (1) coverage if there is
any would be confmed to only one policy period either 2001-2002 or 2002-2003 because
damage first began and was known to the insured during one or the other of those periods and
(2) only one per occurrence limit applies regardless of the number of policies that are
triggered These points should in fact be moot since the Circuit Court correctly decided there is
no coverage in the fIrst instance
B STATEMENT OF FACTS
As discussed above and hereinbelow the core issue involved in this appeal requires only
a comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies themselves l To that end the Amended Complaint filed in
the underlying action alleges as follows
THD a real estate development company2 is the developer of the Merritt Creek Farm
Commercial Shopping Development located in Barboursville West Virginia See JA217-250
Amended Complaint -rl The project consisted of several sections including an anticipated site
for a Target store [d at -r7 1HD sought to prepare a pad upon which the Target store was to
Consonant with the governing standard the universe of facts that are germane to a detennination of whether a liability insurer such as Bitco has a duty to defend its insured consist of the factual allegations of the complaint flIed against the insured In this instance that would be the Amended Complaint filed by THD in the underlying case which asserted claims against 1A Street That Amended Complaint was appended as an exhibit to Bitcos Complaint in the declaratory judgment action 2 THDs principal place of business is located in Bristol Tennessee
3
(106957521 )
be constructed whereupon THD would then convey that portion of the site to Target for further
development Id TIID in turn entered into an agreement with SampME Inc (SampME) a soils
engineering firm whereby SampME agreed to perfonn a geotechnical exploration of the site and
thereafter submit a report setting forth recommendations with respect to site preparation for the
entire development Id at 10
On June 5 2001 THD entered into a written contract with IA Street for 1A Street to
serve as the general contractor on the Merritt Creek Farm Project Id at ~13 Pursuant to the
THDJA Street written agreement IA Street agreed to perform construction tasks with regard
to the Merritt Creek Farm Project including preparing the site for construction in general
preparing the Target site for construction of the Target building and constructing various
buildings and structures on the site3 Id at [13-14
In September of 2001 1A Street was perfonning grading excavation and fill work for
the portion of the site beneath which Target would eventually erect its building Id at 17 On
September 212001 the slope at the rear of the Target store site failed causing a landslide Id
During 2002 and 2003 additional slides sloughing and land movement occurred at other
locations throughout the Merritt Creek Development Id at 19 As a result THD was required
to spend substantial sums to repair the slope and address associated consequences of the
landslide Id at 18-19 THD filed the underlying action to recover those economic damages
Id generally
3 JA Street did not contract to build the Target building The Target Corporation was to perform that construction itself
4
(L069S752 I l
THD initially brought the underlying action in 2003 solely against SampME asserting
various claims for damages incurred on the project Nearly four years later on December 11
2007 THD amended its Complaint to add JA Street as a defendant By that time the two-year
tort period of limitations had long since expired Thus THDs Amended Complaint asserted
claims against JA Street were based solely upon the construction contract between THD and
JA Street -- claims for breach of contract breach of warranty and for express and implied
contractual indemnity Id at ~71-96 Therein THD alleged that JA Street failed to
perform the work in a good and workmanlike manner failed to provide competent supervision
and failed to perform the work with a high degree of expertise and workmanship thereby
breaching its agreement with THD Id at ~16 No tort claims were alleged against JA Street
in the Amended Complaint All of the claims sounded exclusively in contract
During several policy periods from 2001 to 2007 Bitco insured JA Street under very
standard commercial general liability policies4 It is undisputed that these policies were issued
by an agent located in Tennessee to JA Street a Tennessee corporation with its principal offices
located in Tennessee See JA217-219 ~4 As suc~ the policies are governed by Tennessee law
4 Policy eLP 3 107706 B was in effect fOT policy period March 12001 to March 1 2002 See JA-4 Policy eLP 3 135489 B was in effect fOT policy period March 12002 to March 12003 See JA4-216 Subsequent one-year policies issued with coverage effective through March 1 2007 See Petitioners Brief pp 9-10 JAI066 1583-2223 It is immaterial which policy applies because the relevant provisions of all of the policies are the same
5
(L06957521 )
These policies are identical they are all written on the standard Insurance Services
Office Inc (ISO) Commercial General Liability coverage forms 5 Insofar as is relevant
instantly the policies provide
1 Insuring Agreement
a We will pay those sums that the insured becomes legally obligated to pay as damages because ofbodily injury or 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 bodily injury or property damage to which this insurance does not apply We may at our discretion investigate any occurrence and settle any claim or suit that may resuIL
b This insurance applies to bodily injury and property damage only if
(1) The bodily injury or property damage is caused by an occurrence that takes place in the coverage territory
(2) The bodily injury or property damage occurs during the policy period and
(3) Prior to the policy period no insured listed under Paragraph 1 of Section II - Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part If such a listed insured or authorized middotmiddotemployee knew prior to the policy period that the bodily injury or property damage occurred then any continuation change or resumption of such bodily injury or property damage during or after the policy period will be deemed to have been known prior to the policy period
c Bodily injury or property damage which occurs during the policy period and was not prior to the policy period known to have occurred by
5 ISO has long been the predominate publisher of commercial general liability insurance policy forms in the industry The ISO Commercial General Liability Coverage Form CGOOOI has long been the most widely used form in the United States As such the policies involved in this case are typical standardized and have frequently been the subject of interpretation by state and federal courts
6
[L0695752 1 I
any insured listed under Paragraph 1 of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim includes any continuation change or resumption of that bodily injury or property damage after the end of the policy period
d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph 1 of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim Reports all or any part of the bodily injury or property damage to us or any other insurer
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or
(2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
Id Section I ~1
Property damage is defined under the policies as
(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 it 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 causes it
Id Section V ~17
Occurrence is defined as
[A]n accident including continuous or repeated exposure to substantially the same general hannful conditions
Id Section V ~13
Consonant with the well-recognized fact that commercial liability insurance covers tort
claims and not contract claims in subparagraph 6 of the Exclusions section the policies
7
(L069S7S21 I
contain a Contractual Liability exclusion The language of this familiar exclusion makes clear
that the insurance does not apply to bodily injury or property damage for which the insured
is obligated to pay damages by reason of the assumption of liability in a contract or
agreement 6 The policies also contain exclusion (m) which states that the coverage does not
apply to
m Damage to impaired property or property not physically damaged Property damage to impaired property arising out of (1) a defect deficiency inadequacy or dangerous condition in your
product or your work or (2) a delay or failure by you or anyone acting on your behalf to
perform a contract or agreement in accordance with its terms 7
In addition to the commercial liability policies Bitco also insured 1A Street under
commercial umbrella policies from March 2003 through March 2007 each of which contained
materially identical provisions as set forth above except that the insuring agreement also
included the following language We will pay on behalf of the insured the ultimate net loss in
excess of the retained limit because of property damage caused by an occurrence which
takes place during the policy period 8 Paragraph 5 of the Limits of Insurance provision
addresses the limits of property damage coverage under Coverage A The language therein
states succinctly as follows
Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of
6 The exceptions are where the liability is one ( 1) That the insured would have in the absence of the contract or agreement [or] (2) Assumed in the contract or agreement that is an insured contract As discussed fully below neither of these exceptions to the Contractual Liability exclusion apply in this case 7 The policies also each have a Limits of Liability section discussed more fully below in Biteos CrossshyAssignments ofError 8 See JA3004-3312
8
(L069S7S2 I )
(a) Damages under Coverage A (b) Because of all bodily injury and property damage arising out of any one occurrence
Bitco extended a defense to lA Street in the underlying action but did so under
reservation ofright to deny coverage
C PROCEDURAL HISTORY
As stated the insurance issues herein relate to an Amended Complaint filed in the
underlying action on December 11 2007 joining and asserting claims against JA Street See
JA-2I7 On July 14 2008 Biteo filed the instant action for declaratory judgment pursuant to
the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the
Circuit Court detennine that the previously described commercial general liability insurance
policies afford no coverage and Bitco owes no duty to defend JA Street for the claims asserted
in the Amended Complaint in the underlying action See JA-19
By Order dated February 172015 the Circuit Court invited summary judgment motions
on all grounds argued by all parties subject to waiver should any available ground not be raised
9 On August 13 2009 Biteo fIled a Motion for Summary Judgment requesting that the Circuit Court declare as a matter of law that Bitco owes no coverage andor duty to defend lA Street with respect to the claims asserted against JA Street in the underlying action See JA-263 IA Street filed a CrossshyMotion for Partial Summary Judgment on that issue Following oral argument the Circuit Court denied Biteos Motion and granted IA Streets Cross-Motion rmding that Biteo owes JA Street a duty to defend the underlying action until such time as the Plaintiff meets its burden of proof that no duty to defend exists See Order JA-I005 The Circuit Court concluded that it cannot definitively say at this time that under Tennessee law the plaintiff would not have a duty to defend Id On March 13 2014 1A Street filed a Third-Party Complaint pursuant to the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the Circuit Court determine that Biteo along with five (5) other insurers owe coverage to IA Street for the claims asserted against it by TlID and that no exclusions or other policy language excludes limits or defeats coverage See IA-I051 As discussed in Petitioners Brief extensive motion practice ensued regarding a host of intricate insurance issues
9
[L06957521
Accordingly on March 12 2015 Bitco filed a Second Amended Cross-Motion for Summary
Judgment arguing that there was no coverage nor any duty to defend under any of its policies
because contract claims for damages brought against construction contractors based upon defects
or deficiencies in the work do not constitute property damage caused by an occurrence are
not VIIithin the scope of the standard commercial liability or umbrella policy and are in any event
excluded See IA-8614 After briefing and argument on December 302016 the Circuit Court
entered an Order agreeing with Bitco and granting summary judgment in Bitcos favor along
with a declaration that Bitco owes no duty to defend nor any coverage of the claims asserted
against IA Street in the underlying action See Opinion JA-I0SS2 JA Street took an appeal
to this Court and filed its principal Brief on May 122017 Bitco now responds
II SUMMARY OF ARGUMENT
This Court should affirm the lower courts declaration that Bitco owes no coverage and
no duty to defend JA Street under its commercial general liability (CGL) and umbrella
insurance policies with respect to the claims asserted in the underlying action The claims
asserted by THD against JA Street in the underlying action are for breach of contract breach of
warranty and indemnity All of these claims are ex contractu they all arise out of a written
agreement between DID and 1A Street under which 1A Street agreed to construct the Merritt
Creek Shopping Center All claims in the underlying action relate to alleged breach of the
express or implied obligations of the aforesaid contract due to alleged deficiencies in
construction work that JA Street contracted to perform thereunder Pursuant to well-settled
law those claims are not covered by liability insurance policies
10
L0695752 I
All damages alleged in the underlying Amended Complaint are first-party claims alleging
economic damages directly relating to the work JA Street contracted to perform The fact that
the only claims pled are for breach of contract -- and not tort -- is dispositive to the insurance
coverage issues Well-established Tennessee authority and the decisions of a majority of other
jurisdictions across the country have explicitly recognized that contract claims precisely like
those asserted against lA Street are not within the embrace of the insuring agreement of the
standard commercial liability policy The Travelers Indemn Co of Am v Moore amp Assocs
Inc IO decision upon which the Petitioners principally rely is inapposite since it does not address
whether pure contract claims are covered The Tennessee Supreme Courts decision in Vernon
Williams amp Son Constr Inc v Continental Ins Co II which is still the law in Tennessee today
and which the Petitioners entirely ignore clearly holds that any contract-based claims for faulty
workmanship are not covered under a commercial liability policy Consequently the claims
asserted against lA Street in the underlying action are not covered under the clear and
unambiguous terms of the applicable policies initial grant of coverage because the claims
alleged are only for the recovery of economic damages based upon breach of contract In
addition the Circuit Court correctly noted the applicability of exclusion (m) relative to impaired
property Because it is clear that the policies do not afford coverage for the claims asserted in
the underlying action Bitco does not owe a duty to defend lA Street Therefore the Circuit
Courts determination that lA Street is not entitled to coverage and a defense under the Bitco
policies was entirely correct
10 216 SW3d 202 (Tenn 2007) 11 591 SW2d 760 (Tenn 1979)
11
L069S7S21 J
Finally though the issue is moot since Bitco owes no coverage at all Bitco cross-assigns
error in the Circuit Courts determinations that more than one policy and per occurrence limit
could apply under any circumstances The unambiguous policy language restricts any coverage
to only one policy period and only one applicable limit This Court should not need to reach
those issues however since there is no coverage at all
UI STATEMENT REGARDING ORAL ARGUMENT AND DECISION
Bitco does not believe the narrow issues necessary to affirm the judgment below are
particularly difficult or complex However if the Court is interested in entertaining oral
argument Bitcos counsel would of course happily oblige
IV ARGUMENT
A STANDARD OF REVIEW
Inasmuch as the summary judgment was entered with regard to a declaratory judgment
action [a] circuit courts entry of a declaratory judgment is reviewed de novo Id
(quoting Syl Pt 3 Cox v Amick 195 WVa 608 466 SE2d 459 (1995raquo See also
Blankenship v City of Charleston 223 WVa 822 824 679 SE2d 654 656 (2009) (quoting
Syi Pt 1 Painter v Peavy 192 WVa 189 451 SE2d 755 (1994raquo Moreover
[d]etermination of the proper coverage of an insurance contract when the facts are not in
dispute is a question of law Id at 825 (quoting Syi Pt 1 Tennant v Smallwood 211 WVa
703 568 SE2d 10 (2002raquo) As [t]he interpretation of an insurance contract including the
question of whether the contract is ambiguous is a legal determination like a lower courts
grant of summary judgment [it] shall be reviewed de novo on appeal Id (quoting SyI Pt 2
12
(L06957521 )
Riffe v Home Finders Associates Inc 205 WVa 216 517 SE2d 313 (1999)) Importantly as
discussed in detail immediately below since the core issue in this case merely requires a
comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies this case presents a pure matter of law that is uniquely
suitable for decision at the summary judgment stage
B THE CIRCUIT COURT CORRECTLY HELD THAT UNDER TENNESSEE LAW THE CONTRACTUAL CLAIMS ASSERTED BY THD AGAINST JA STREET ARE NOT COVERED
BY THE BITCO POLICIES
In this State a liability insurer has no duty to defend an action asserted against the
insured where it is clear from the allegations of the Complaint against the insured that there is no
coverage afforded under the relevant insurance policy See Horace Mann Ins Co v Leeber 376
SE2d 581 584 180 WVa 375 (1988) State Auto Mut Ins Co v Alpha Engg Servbull Inc
542 SE2d 876 879 208 WVa 713 (2000) (If the causes of action alleged in the plaintiffs
complaint are entirely foreign to the risks covered by the insurance policy then the insurance
company is relieved of its duties under the policy) Tennesseel2 follows exactly the same rule
See Drexel Chemical Co v Bitco Ins Co 933 SW2d 471480 1996 TennApp LEXIS 356
(1996) (holding that the insurer did not have a duty to defend where an exclusion applied to
foreclose coverage) Tenn Farmers Mut Ins Co v Brown 1990 TennApp LEXIS 812 (1990)
(The general rule in Tennessee is that an insurer is not obligated to undertake the defense of a
suit against its insured unless the allegations of the complaint show a claim for damages that
would be covered by the policy) Cincinnati Ins Co v Grand Pointe LLC 2007 US Dist
12 All parties concede that Tennessee law governs construction of the insurance policies
13
(L069S7S21 )
LEXIS 39784 (ED Tenn 2007) (If it is plain from the face of the underlying complaint the
allegations fail to state facts that bring the case within or potentially within the policy no duty to
defend exists) Am Nat Prop and Cas Ins Co v Gray 803 SW 2d 693 695-96 (Tenn Ct
App 1990) Graves v Liberty Mut Fire Ins Co 745 SW2d 282283 (Tenn Ct App 1987)
In ascertaining whether there is a duty to defend under a liability insurance policy
Tennessee adheres to a strict four comers approach See Interstate Packaging Co v Century
Indem Co bull 2013 US Dist LEXIS 45459 (MDTenn 2013) citing St Paul Fire amp Marine Ins
Co v Torpoco 879 SW2d 831 835 (Tenn 1994) Clark v Sputnicks LLC 368 SW3d 431
439 (Tenn 2012) (An insurers duty to defend is determined solely by an examination of the
allegations of the underlying complaint) Thus under Tennessee law the court must limit its
inquiry to the claims and allegations presented in the complaint against the insured [I]f the
allegations contained in the complaintare within the risk insured against and there is a
potential basis for recovery then [the insurer] must defend St Paul v Torpoco supra 879
SW2d at 835 Conversely if the claims alleged in the complaint are clearly not within the
scope of coverage then there is no duty to defend Drexel Chemical Co v Bitco Ins Co 933
SW2d 471 480 (Tenn 1996) As the United States Court of Appeals for the Sixth Circuit
stated it applying Tennessee law in Smith amp Nephew Inc v Fed Ins Co 113 FedAppx 99
(6th Cir 2004) in detennining an insurers duty to defend courts typically begin and end
their analysis with the four comers of the complaint Id at 102 Petitioner argues that there
are significant issues of material fact that exist given that there has been no final resolution of the
14
(LD09S752 I
underlying action13 but in fact clear-cut law dictates that all the Court must do is contrast the
averments of the Amended Complaint with the terms of the policies
The instant inquiry must therefore begin with the unique circumstances that the TIID
Amended Complaint against lA Street pleads only contract-based claims and not tort claims
Although the Circuit Court based its finding of no coverage solely on the Contractual Liability
exclusion as discussed in detail below courts in Tennessee and elsewhere have concluded that
there is no coverage for breach of contact claims and the damages that typically flow from such
claims on broader grounds While the Circuit Court did not subscribe to that broad view
our cases have made clear that it is permissible for us to affirm the granting of [dismissal] on bases difference or grounds other than those relief upon by the circuit court Hoover v Moran 222 WVa at 119 662 SE2d at 718 quoting Gently v Mangum 195 WVa 512519466 SE2d 171178 (1995) See also Schmehl v Helton 222 WVa 98 662 SE2d 697 705 n7 (2008) (this Court may in any event affirm the circuit court on any proper basis whether relied upon by the circuit court or not) Murphy v Smallridge 196 WVa 35 36-7 468 SE2d 167168-9 (1996) (An appellate court is not limited to the legal grounds relied upon by the circuit court but it may affirm or reverse a decision on any independently sufficient ground that has adequate support) Syl pt 3 Barnett v Wolfolk 149 WVa 246 140 SE2d 466 (1965) (This Court may on appeal affirm the judgment of the lower court when it appears that such judgment is correct on any legal ground disclosed by the record regardless of the ground reason or theory assigned by the lower court as the basis for its judgment)
Savarese v Allstate Ins Co 672 SE2d 255260 (WVa 2008)
One of the more elemental and uniformly embraced principles of corrunercial insurance
law is that the typical commercial liability insurance policy affords coverage for tort claims not
claims for breach of contract The authorities supporting that proposition are legion Dean
Henderson in his renowned and widely cited law review article makes the point emphatically
13 Petitioners Brief pp 25-27 15
(L0695752 1 J
[t]he risk intended to be insured is the possibility that the goods products or work of the insured once relinquished or completed will cause bodily injury or damage to property other than to the product or completed work itself and for which the insured may be found liable The insured as a source of goods or services may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable because it is lacking in some capacity This may even extend to an obligation to completely replace or rebuild the deficient product or work This liability however is not what the coverages in question are designed to protect against The coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb L Rev 415441 (1971)14
The overwhelming majority of courts and commentators that have addressed this issue
have held that breach of contract claims asserted against the insured are not covered under a
standard CGL policy See eg Couch on Insurance 3d sect1291-1294 (3d Ed 2005) (a
commercial general liability insurance policy is generally designed to provide coverage for tort
liability for physical damages to others and not for contractual liability of the insured for
economic loss the majority of jurisdictions have held that breach of contract is not an
14 The Henderson article has been widely relied upon by courts and commentators for over 40 years Noticeably it has been frequently cited with approval in Tennessee See Vernon (relying upon the Henderson article the Tennessee Court held that the standard comprehensive general liability policy does not provide coverage to an insured-contractor for a breach of contract action grounded upon faulty workmanship or materials where the damages claimed are the cost of correcting the work itself) Blaylock amp Brown Constr Inc v AIU Ins Co 796 SW2d 146 1990 TennApp LEXIS 338 (1990) (relying upon Henderson the Court holds bull that the language of the policy excludes liability coverage for the plaintiffs for damage to the property constructed pursuant to the contract) Standard Fire Ins Co v Chester-ODonley amp Assocs 972 SW2d 1 1998 TennApp LEXIS 65 (1998) (citing the Henderson article for the proposition that CGL policies are not intended to cover the insureds contractual liability for economic loss because its work was not that for which the damaged person bargained) Weedo v Stone-E-Brick Inc bull 81 NJ 233 405 A2d 788 (1979) (relying heavily upon the Henderson article the Court holds that a CGL policy does not provide coverage for a breach of contract action for faulty workmanship where the damages claimed are the cost ofcorrecting the work itself)
16
IL069S7S2 I
occurrencea [CGL] policy is not intended to provide coverage for the insureds contractual
liability which merely causes economic losses) Alan D Windt Insurance Claims and
Disputes sect117 (4th Ed 2001) (Finally there is the question as to whether a breach of
contract claim involves damages caused by an occurrence The answer should in general be
no) Erie Ins Prop amp Cas Co v Pioneer Home Improvement Inc 526 SE2d 28 33 206
WVa 506 513 (1999) (The coverage [under a COL policy] is for tort liability for physical
damages to others and not for contractual liability of the insured for economic loss because the
product or completed work is not that for which the damaged person bargained) Nationwide
Mutual Ins Co v CPB Intl Inc 562 F3d 591 598 2009 US App LEXIS 7795 14 (3d Cir
2009) (holding that under Pennsylvania law a CGL policy does not provide coverage for
claims in an underlying action that arise out of and relate to the contract between the parties)
Lyerla v AMCO Ins Co 536 F3d 684691-922008 US App LEXIS 164 78 (7th Cir 2008)
(applying Illinois law) (holding that underlying allegations that insured contractor did not satisfy
his contractual obligations is not property damage caused by an occurrence) L-J Inc v
Biteo Fire amp Marine Ins Co 621 SE2d 33 35 366 SC 117 (2005) (any liability that is
incurred because of faulty workmanship is part of the insureds contractual liability not an
insurable event under a CGL policy) Hotel Roanoke Conf Ctr Commn v Cincinnati Ins Co
303 FSupp2d 784 7882004 US Dist LEXIS 2539 (2004) (applying Virginia law) (damages
limited to the insureds work or product and resulting from the insureds defective perfonnance
of a contract are not covered losses under a [CGL] policy) Westfield Ins Co v Sheehan
Construction Co 580 FSupp2d 701 710 2008 US Dist LEXIS 66843 (2008) (applying
17
(L06957521
Indiana law) (a CGL policy serves to limit contractors tort liability for damage to property
caused by their work) Key Custom Homes Inc v Mid-Continent Cas Co 450 FSupp2d
1311 1317-182006 US Dist LEXIS 60355 (2006) (applying Florida law) (it is equally clear
that breach of contract claims for the recovery of money are not covered by general liability
insurance policies) Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254 1257329
Ore 620 (2000) (there can be no accident within the meaning of a commercial liability policy
when the resulting damage is merely a breach of contract) Bonded Concrete Inc v Transcon
Ins Co 12 AD3d 761 2004 NYAppDiv LEXIS 13020 (2004) (the purpose of a
commercial general liability policy is to provide coverage for tort liability for physical damage
to others and not for contractual liability of the insured for economic loss because the
product is not what the damaged [party] bargained for) United States Fire Ins Co v Milton
Co 35 FSupp2d 8386 1998 US Dist LEXIS 22116 (1998) (applying Maryland law) (there
is no occurrence under a comprehensive general liability insurance policy where and to the
extent that a contractors use of defective materials and substandard workmanship results in
economic losses that would normally be recoverable in a breach of contract action) Burlington
Ins Co v Oceanic Design amp Construction Inc 383 F3d 940 2004 US App LEXIS 18932
(9th Cir 2004) (applying Hawaii law) (holding that claims for breach of contract and negligent
breach of contract are not covered under a CGL policy) Norwalk Ready Mixed Concrete Inc v
Travelers Ins Co 246 F3d 1132 2001 US App LEXIS 7148 (8th Cir 2001) (applying Iowa
law) (holding that breach of contract and breach of warranty claims are not covered under a CGL
policy) USFampG Com v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476
18
(L06957521 l
(1989) (holding that a breach of contract claim asserted against an insured contractor is not
covered under a COL policy) Oreat Divide Ins Co v Bitterroot Timberfiames of Wyoming
LLC 2006 US Dist LEXIS 94826 (2006) (applying Wyoming law) (the allegations
demonstrate losses resulting from breach of contract and therefore cannot constitute an
accident for purposes of determining coverage) Union Ins Co v Hottenstein 83 P3d 1196
12022003 ColoApp LEXIS 1857 (2003) (poor workmanship constituting a breach of contract
is not a covered occurrence)
Tennessee lawl5 is in accord with these authorities The Tennessee Supreme Court has
defInitively held that breach of contract claims due to the insureds faulty workmanship such as
those asserted here by THD against IA Street in the underlying Amended Complaint are simply
not covered under the grant of coverage contained in a commercial liability policy See Vernon
supra Chester-ODonley supra at 6-7 (General liability policies are not all-risk policies and
only cover damages up to the policy limits for which the insured becomes liable as a result of
tort liability to a third party) (emphasis added) In Vernon the Supreme Court of Tennessee
expressly held that a standard COL policy only covers tort claims and such a policy does not
15 Under applicable Tennessee law contracts of insurance are subject to the same rules of interpretation and construction as other contracts McKimm v Bell 790 SW2d 526 527 1990 Tenn LEXIS 161 (1990) Thus [a]n insurance policy must be interpreted fairly and reasonably giving the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204 SW3d 758 2006 Tenn LEXIS 755 (2006) In the absence of fraud or mistake a contract must be interpreted and enforced as written even though it contains terms which may be thought harsh and unjust Allstate Ins Co v Wilson 856 SW2d 706 1992 TennApp LEXIS 1012 (1992) As a result the analysis of JA Streets right to coverage for the claims asserted in the underlying action are dictated by the terms of the policy The essential components of a general liability insurance policy include (1) the declarations (2) the insuring agreements and definitions (3) the exclusions (4) the conditions and (5) the endorsements See ChestershyODonley supra The insuring agreement sets the outer limits of an insurers contractual liability If coverage cannot be found in the insuring agreement it will not be found elsewhere in the policy Id 1998 TennApp LEXIS at 13-14
19
L069S7S21
afford coverage to an insured contractor for breach of contract claims Vernon 591 SW 2d at
765 Chester-ODonley supra at 6-7 Petitioner complains that the Circuit Court focused on
West Virginia cases such as Silk v Flat TOp6 but in fact the lower court expressly relied
upon a wealth of Tennessee authority17 including Vernon Cincinnati Ins Co v Grand Pointe
LLc18 and Trinity Univ Ins Co v Turner Funeral Home Inc 19 More recently Tennessee
courts have reaffirmed the rationale and holding of Vernon See State Auto Ins Cos v Gordon
Constr Inc 2001 TennApp LEXIS 349 (2001) (following Vernon and holding that the
insuring agreement of a CGL policy does not afford coverage for underlying breach of contract
and breach of warranty claims asserted against the insured contractor) Blake Indus Inc v
General Agents Ins Co of Am 2000 Tenn App LEXIS 490 (2000) (applying Vernon and
holding that claims asserted against the insured that were grounded in contract are not covered
under a CGL policy) Blaylock and Brown Constr Inc v AID Ins Co 796 SW2d 146 152shy
153 (Tenn Ct App 1990)
As the Circuit Court correctly recognized the express tenus of the insurance contract
clearly exclude contractual liability from coverage Exclusions help define and shape the scope
of coverage but they must be read in terms of the insuring agreement to which they apply
Exclusions can only decrease coverage they cannot increase it Chester-ODonley 972 SW2d
at 7-8 Moreover [e]ach exclusion reduces coverage and operates independently with reference
16 Petitioners Brief p 30 (citing 453 SE2d 356 (Wva 1994raquo 17 See See Opinion JA-I0552 ~27
18 2007 US Dist LEXIS 39784 (ED Tenn 2007) 19 2003 WL 23218046 (ED Tenn Dec 122003)
20
IL069S7S2 I I
to the insuring agreement Id at 8 The Contractual Liability exclusion specifically provides
that the insurance coverage does not apply to
Contractual liability
Bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement This exclusion does not apply to liability for damages
(1) That the insured would have in the absence of the contract or agreement or
(2) Assumed in a contract or agreement that is an insured contract provided the bodily injury or property damage occurs subsequent to the execution of the contract or agreement Solely for the purposes of liability assumed in a insured contract reasonable attorneys fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of bodily injury or property damage provided
(a) Liability to such party for or for the cost of that partys defense has also been assumed in the same insured contract and
(b) Such attorneys fees and litigation expenses are for defense of that party against the civil or alternative dispute resolution proceeding in which damages to which the insurance applies are alleged
See JA-62 Section I C[2
Even a cursory examination ofTHDs Amended Complaint reveals that all claims alleged
against JA Street were contractual There simply was no tort claim alleged In fact the claims
against JA Street were necessarily founded in contract for two reasons First the two-year
statute of limitations applicable to any tort claims elapsed long before THD first asserted its
claims against JA Street Tort claims were not pleaded and could not have been Second the
substantive law of West Virginia applies to the underlying claims asserted by THD against lA
21
(L069S7S21 I
Street20 and applicable West Virginia law plainly holds that even if THD had asserted tort
claims against JA Street the claims would still sound in contract under these circumstances for
purposes of the instant analysis since the gist of claims asserted against a contractor for deficient
work is necessarily ex contractu See Silk supra at 360 Dan Ryan Builders Inc v Crystal
Ridge Dev Inc 783 F3d 976 (4th Cir 2015) Unlike in both Silk and Dan Ryan THO did not
even assert any tort claims here Nor could it have Relevant to the precise policy language at
issue there simply was no liability for damages that [JA Street] would have in the absence of
the contract or agreement It simply cannot be contested that the claims alleged in the Amended
Complaint are and indeed necessarily were contractual in nature Given that alone the clear
holding of the Tennessee Court in Vernon mandated the Circuit Courts correct grant of
summary judgment in Biteos favor
A great majority of courts and commentators across the country that have addressed the
issue have held that the explicit unambiguous express Contractual Liability exclusion forecloses
coverage for all contract liability including breach of contract claims asserted against the
insured except where the insured has assumed the liability of another in an insured contract
See eg Silk v Flat Top Constr Inc 453 SE2d 356 359 192 WVa 522 (1994) (holding that
the contract exclusion applies to foreclose coverage for all contractual liability of the insured
except for liability assumed in an insured contract-a contract under which the insured
assumes the tort liability of another party) Gilbert Tex Constr v Underwriters at Lloyds
20 West Virginia applies the choice-of-law principle of lex loci delicti and there is no question here that the offending conduct and the loss all occurred in West Virginia such that JA Streets liability to THD would be governed by West Virginia law See State of Wva ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) (citing Syl Pt 1 Paul v Natl Life 352 SE2d 552 (WVa 1986raquo
22
(L069S7521 I
Londo 327 SW3d 118 (2010) (citing inter alia Nationwide Mut Ins Co v CPB Int Inc
No 306-CV-0363 2007 WL 4198173 at 8 (MDPa Nov26 2007) (Exclusion (b) is simply
further clarification in the policy that contract-based claims are not covered) ClM Ins Corp v
Midpac Auto Crr Inc 108 FSupp2d 1092 1099-1100 (DHaw2000) (clause in policy stating
that policy does not apply to liability assumed under any contract or agreement means that any
claim that is dependent on the existence of an underlying contract is not covered) Monticello
Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 at 2 (WDKy
Apr 3 1998) (exclusion for liability assumed by the insured under any contract or agreement
does not arise only when a party assumes the liability for another party rather the plain meaning
of the policy excludes a breach of contract claim from coverage) Silk supra (exclusion removed
coverage for breach of contract) TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 1091-92
(8th Cir1995) (exclusion for which the insured has assumed liability in a contract or agreement
plainly excluded coverage for contractual claims and not just hold-harmless or indemnity
agreements) Nationwide Mutual Ins Co v CPB Intl Inc 562 F3d 591 5992009 US App
LEXIS 7795 (3d Cir 2009) (applying Pa law) (holding that a breach of contract claim is excluded
under the Contractual Liability exclusion) Century Sur Co v Hardscape Constr Specialties Inc
578 F3d 262 2009 US App LEXIS 25300 (5th Cir 2009) (applying Texas law) (holding that the
Contractual Liability exclusion operates to exclude claims grounded primarily in breach of contract
and that no tort claims were asserted that triggered the insured contract exception) State Farm
Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 12 (2007) (applying Hawaii
law) (holding that claims arising from the insureds obligations under a contract are barred from
23
L0695152 I I
coverage under the Contractual Liability exclusion) JACO Airfield Constr Inc v National Trust
Ins Co 2007 US Dist LEXIS 100295 10 (2007) (applying Georgia law) (holding that the
Contractual Liability exclusion applies to foreclose coverage for the contractual based claims
asserted against the insured and that the insured contract exception to the Contractual Liability
exclusion does not apply because the insured did not assume the tort liability of another) Union Ins
Co v Williams Contr Inc 2006 US Dist LEXIS 35919 4-5 (2006) (holding that the
Contractual Liability exclusion precludes coverage for claims against the insured for breach of a
construction contract) Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270
GaApp 8 (2004) (affirming trial comts finding that the Contractual Liability exclusion barred
coverage for breach of contract and breach of implied warranty claims against the insured) Gibson
amp Assocs Inc v Home Ins Co 966 FSupp 468476-77 1997 US Dist LEXIS 4776 (1997)
(applying Texas law) (recognizing that the Contractual Liability exclusion precludes coverage for
breach of contract claims asserted against the insmed and that the policy only covers contractual
liability for indemnification actions ie an insured contract) James v Burlington Northern Santa
Fe Railway Co 2007 US Dist LEXIS 63282 4-5 (2007) (applying Arizona law) (holding that
the insured contract exception to the Contractual Liability exclusion does not bring ordinary
breach-of-contract claims within the scope of CGL coverage) TGA Dev Inc v Northern Ins Co
of New York 62 F3d 1089 1091-92 1995 USApp LEXIS 21700 (8th Cir 1995) (applying
Minnesota law) (holding that the Contractual Liability exclusion plainly excludes coverage for
contractual claims made for [the insmeds] failure to provide [the property owner] with a
condominium unit free from defects)
24
(lO6957521 )
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
TABLE OF CONTENTS
Table of Contents i
Table of Authorities iii
I STATEMENT OF THE CASE 1
A INTRODUCTION 1
B STATEMENT OF FACTS 3
C PROCEDURAL HISTORy 9
II SUMMARY OF ARGUMENT 10
III STATEMENT REGARDING ORAL ARGUMENT AND DECISION 12
IV ARGUMENT 12
A STANDARD OF REVIEW 12
B THE CIRCUIT COURT CORRECTLY HELD THAT UNDER TENNESSEE LAW THE
CONTRACTUAL CLAIMS ASSERTED BY THD AGAINST JA STREET ARE NOT COVERED BY THE
BITCO POLICIES 13
C THE BUSINESS RISK EXCLUSION (M) FORECLOSES COVERAGE 31
V CROSS-ASSIGNMENTS OF ERROR 35
A THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE B ITeo CGL
POLICIES COVERAGE MAyBE IMPLICATED SINCE THE UNAMBIGUOUS TERMS OF THE
INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE
EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107706 B IN EFFECT FROM
MARCH 12001 THROUGH MARCH 12002 35
B THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF BITCOS UMBRELLA POLICIES
COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS
OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK PLACE DURING ANY POLICY
PERIOD 38
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT
CAN ApPLy 41
UJ6957S2 1 I
VII CONCLUSION 44
ii
(L06957521 I
TABLE OF AUTHORITIES
CASES
Allstate Ins Co v Wilson 856 SW2d 706 1992 TennApp LEXIS 1012 (1992) 19
Am Family Mut Ins Co v American Girl Inc 673 NW2d 65 268 Wis2d 16 (2004)
272830
Am Nat Prop and Cas Ins Co v Gray 803 SW 2d 693 (Tenn Ct App 1990) 14
American Physicians Insurance Exchange and American Physicians Service Group Inc v
Garcia 876 S W2d 842 (Texas 1994) 43
Apjalachian Ins Co v Liberty Mut Ins Co 676 F2d 56 (3d Cir Pa 1982) 39
Associated lndem Corp v Dow Chern Co 814 FSupp 613 (ED Mich 1993) 39
Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612 (2004) 43
Barnett v Wolfolk 149 WVa 246 140 SE2d 466 (1965) 15
Bayley Construction vs American Guaranty amp Liability Insurance CPO 2010 US Dist
LEXIS 110767 (WD Wash 2010) 44
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) 43
Blake Indus Inc v General Agents Ins Co of Am 2000 Tenn App LEXIS 490 (2000) 20
Blankenship v City ofCharleston 223 WVa 822 679 SE2d 654 (2009) 12
Blaylock and Brown Constr Inc v AIU Ins Co 796 S W2d 146 (Tenn Ct App 1990)
1620
Bonded Concrete Inc v Transcon Ins Co 12 AD3d 761 2004 NYAppDiv LEXIS 13020
(2004) 18
Burlington Ins Co v Oceanic Design amp Construction Inc 383 F3d 940 2004 US App
LEXIS 18932 (9th Cir 2004) 18
Canal Indem Co v Adair Homes Inc 445 Fed Appx 938 (9th Cir 2011) 32
Central Armature Works Inc v Am Motorists Ins Co 520 FSupp 283 (DDC 1980) 33
Century Sur Co v Hardscape Constr Specialties Inc 578 F3d 262 2009 US App LEXIS
25300 (5th Cir 2009) 23
111
(L069S 752 I I
Certain Underwriters at Llovds of London v Paniagill 957 FSupp2d 921 (WDTenn
2013) 35
Certain Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229
P3d 930 (WashApp 2001) 44
Champion Intl Corp v Continental Casualty Co 546_F2d 502 (2d Cir NY 1976) 39
CIM Ins Corp v Midpac Auto Ctr Inc 108 FSupp2d 1092 (DHaw2000) 23
Cincinnati Ins Co v Grand Pointe LLC 2007 US Dist LEXIS 39784 (ED Tenn 2007) 14
202627
Clark v Sputnicks LLC 368 SW3d 431 (Tenn 2012) 14
Columbia Mut Ins Co v Schauf 967 S W2d 74 (Mo 1998) 32
Copple Constr LLC v Columbia Natl Ins Co 776 NW2d 503 (Neb 2009) 32
Cox v Amick 195 WVa 608 466 SE2d 459 (1995) 12
Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270 GaApp 8 (2004) 24
Dan Ryan Builders Inc v Crystal Ridge Dey Inc 783 F3d 976 (4th Cir 2015) 22
Dey Inc y Northern Ins Co of New York 62 F3d 1089 1995 USApp LEXIS 21700 (8th Cir
1995) 24
Drexel Chemical Co v Bitco Ins Co 933 SW2d 4711996 TennApp LEXIS 356 (1996)
13 14
Erie Ins Prop amp Cas Co v Pioneer Home Improvement Inc 526 SE2d 28 206 WVa 506
(1999) 17
Ernst v Acuity 704 NW2d 869 (ND 2005) 33
Ewing Constr Co Inc v Amerisure ms Co 420 SW3d 30 (Tex 2014) 2829
General Housewares Corp v National Surety Corp 741 NE2d 408 (Ind 2000) 37
Gentry v Mangum 195 WVa 512466 SE2d 171 (1995) 15
Gibson amp Assocs Inc v Home Ins Co 966 FSupp 468 1997 US Dist LEXIS 4776 (1997) 24
Gilbert Tex Constr v Underwriters at Lloyds Londo 327 S W3d 118 (2010) 23 28 2930
Graves v Liberty Mut Fire Ins Co 745 SW2d 282 (Tenn Ct App 1987) 14
tv
L06957521 I
Great Divide Ins Co v Bitterroot Timberframes of Wyoming LLC 2006 US Dist LEXIS
94826 (2006) 19
Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) 43
Greenidge v Allstate Insurance Co 312 F2d430 (SDNY 2004) 43
GrinnellMut Reinsurance Co v Lynne 686 NW2d 118 (ND 2004) 33
Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th Cir 2000) 32
Hathaway Dev Co v lll Union Ins Co 274 Fed Appx 787 (11 th Cir 2008) 32
Headley v St Paul Fire amp Marine Ins Co 712 FSupp 745 (DSD 1989) 39
Hiraldo vs Allstate Insurance Co 8 AD3d 230 778 NYS 2d 50 (2004) 43
Hoover v Mornn 222 WVa at 119 662 SE2d at 718 15
Horace Mann Ins Co v Leeber 376 SE2d 581 180 WVa 375 (1988) 13
Hotel Roanoke Com Ctr Commn v Cincinnati Ins Co 303 FSupp2d 784 2004 US Dist
LEXIS 2539 (2004) 17
Interstate Packaging Co v Century Indem Co 2013 US Dist LEXIS 45459 (MD Tenn
2013) 14
JACO Airfield Constr Inc v National Trust Ins Co 2007 US Dist LEXIS 100295 (2007) 24
Jacob v Russo Builders 592 NW2d 271 (Wis Ct App 1999) 34
James v Burlington Northern Santa Fe Railway Co 2007 US Dist LEXIS 63282 (2007) 24
Kaiser Cement and Gypsum Corp v Insurance Co of the State of Pa 215 Cal App 4th 210
155Cal Rptr 3d283 (2013) 43
Key Custom Homes Inc v Mid-Continent Cas Co 450 FSupp2d 1311 2006 US Dist
LEXIS 60355 (2006) 18
Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) 39
Lennar Corp v Markel American Insurance Co 413 SW3d 750 (Texas 2013) 43
LISN Inc v Commercial Union Ins Cos 615 NE2d 650 (Ohio Ct App 1992) 33
L-J Inc v Bitco Fire amp Marine Ins Co 621 SE2d 33 366 SC 117 (2005) 17
Lyerla v AMCO Ins Co 536 F3d 684 2008 US App LEXIS 164 (7th Cir 2008) 17
McKimm v Bell 790 SW2d 526 (Tenn 1990) 1935
v
(t06957521 I
Monticello Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 (WDKy
Apr3 1998) 23
Murphy v Smallridge 196 WVa 35468 SE2d 167 (1996) 15
Naifeh v Valley Forge Life Ins Co 204 SW3d 758 (Tenn 2006) 1935
Nationwide Mutual Ins Co v CPB IntI Inc 562 F3d 591 2009 US App LEXIS 7795 (3d
Cir 2009) 17 23
Nesmith v Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) 43
Newark Ins Co v Acupac Packaging Inc 746 A2d 47 (NJ Super Ct App Div 2000) 34
North American Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552
(5th Cir 2008) 43
Norwalk Ready Mixed Concrete Inc v Travelers Ins Co 246 F3d 1132 2001 US App
LEXIS 7148 (8th Cir 2001) 18
Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254329 Ore 620 (2000) 18
Olympic Inc v Providence Washington Insurance Co of Alas~ 648 P2d 1008 (Alaska 1982)
30
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 (DDC 1984) 39
Painterv Peavy 192 WVa 189451 SE2d 755 (1994) 12
Paul v Natl Life 352 SE2d 552 (WVa 1986) 22
Riffe v Home Finders Associates Inc 205 WVa 216 517 SE2d 313 (1999) 13
Ryan Homes v Home Indem Co 647 A2d 939 (Pa Super 1994) 33
Safeco Insurance Company of American v Firemens Fund Insurance Co 148 Cal App 4th
620 55 Cal Rptr 3d 844 (2007) 43
Sapp v State Farm Fire amp Cas Co 486 SE2d 71 (Ga Ct App 1997) 32
Savarese v Allstate Ins Co 672 SE2d 255 260 (WVa 2008) 15
Schmehl v Helton 222 WVa 98662 SE2d 697 (2008) 15
Silk v Flat Top 453 SE2d 356 (WVa 1994) 20 22 23 25
Smith amp Nephew Inc v Fed Ins Co 113 FedAppx 99 (6th Cir 2004) 14
vi
(L069S7S21 I
Southern International Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct
App 3d Dist 1977) 39
St Paul Fire amp Marine Ins Co v Torpoco 879 SW2d 831 (Tenn 1994) 14
Standard Fire Ins Co v Chester-ODonley amp Assocs 972 SW2d 1 1998 TennApp LEXIS
65 (1998) 16 19
State Auto Ins Cos v Gordon Constr Inc 2001 TennApp LEXIS 349 (2001) 20
State Auto Mut Ins Co v Alpha Engg Serv Inc 542 SE2d 876 208 WVa 713 (2000) 13
State Farm Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 (2007) 23
State ofWVa ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) 22
Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) 43
Taylor v Travelers Ins Co 40 F3d 79 (5th Cir 1994) 31
Tenn Farmers Mut Ins Co v Brown 1990 TennApp LEXIS 812 (1990) 13
Tennant v Smallwood 211 WVa 703568 SE2d 10 (2002) 12
TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 (8th Cir1995) 2324
Thommes v Milwaukee Mut Ins Co 622 NW2d 155 (Minn Ct App 2001) 34
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 (ND Tex 1980) 39
Travelers Indemn Co of Am v Moore amp Assocsbull Inc 216 SW3d 202 (Tenn 2007) 112526
Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL 23218046 (ED Tenn Dec 12
2003) 20 27
Truk-Away Inc v Aetna Cas amp Sur Co 723 A2d 309 (RI 1999) 39
Union Ins Co v Hottenstein 83 P3d 11962003 ColoApp LEXIS 1857 (2003) 19
Union Ins Co v Williams Contr Inc 2006 US Dist LEXIS 35919 (2006) 24
United States Fire Ins Co v Milton Co 35 FSupp2d 83 1998 US Dist LEXIS 22116 (1998)
18
USFampG Corp v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476 (1989)
19
Vari Builders Inc v United States Fidelity amp Guaranty Co 523 A2d 549 (Del Super Ct
1986) 32
vii
IL0595752 I I
Vernon Williams amp Son Constr Inc v Continental Ins Co 591 SW2d 760 (Tenn 1979)
pasSIm
Weedo v Stone-E-Brick Inc 405 A2d 788 (NJ 1979) 1633
Westfield Ins Co v Sheehan Construction Co 580 FSupp2d 701 2008 US Dist LEXIS
66843 (2008) 17
STATUTES
West Virginia Declaratory Judgment Act W Va Code sect55-13-1 e seq 9
OTHER AUTHORITIES
Alan D Windt Insurance Claims and Disputes sect117 (4th Ed 2001) 17
Couch on Insurance 3d sect1291-1294 (3d Ed 2005) 16
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb 1 Rev 415441 (1971) 1631
Wielinski Patrick (4th ed) IRMI Ch 6 pp 180-185 29
viii
LC6957521 I
I ST ATEMENT OF THE CASE
A INTRoDUCTION
Bitoo General Insurance Corporation (Biteo) instituted this declaratory judgment action
seeking a declaration of no coverage and no duty to defend contract claims alleging poor
workmanship asserted against Bitcos named insured in an underlying civil action pending in the
Circuit Court of Cabell County captioned at THD Development LLC a West Virginia Limited
Liability Company and THD Investors 7 LLC a West Virginia Limited Liability Company
Plaintiffs v SamplE Inc a Corporation and JA Street amp Associates Inc a Corporation
Defendants Civil Action No 03-C-0490 (hereinafter underlying action) The threshold
question presented in this declaratory judgment action is whether Bitcos standard commercial
general liability and umbrella insurance policies afford coverage for pure ex contractu claims
asserted by THD Development (THD) against JA Street amp Associates Inc (IA Street)
At an early stage Bitco moved for summary judgment on that very narrow ground toshy
wit that all of the claims pleaded against JA Street are contract-based claims for poor
workmanship and such claims are not covered by Bitcos standard oommercialliability polices
under applicable Tennessee law Unfortunately the Circuit Court found that the issue was not
susceptible to summary judgement at that time Consequently the insurance case remained
pending and Biteo continued to defend the underlying action At a later point Biteo renewed
substantially the identical argument whereupon it was again determined to be an insufficient
basis for a summary judgment Although the Circuit Court was uncertain enough at that point
that it certified the issue for interlocutory appeal the Supreme Court declined to afford review
L0695752l
Thereafter THD and lA Street immeasurably complicated the matter They devised a
theory that the case demonstrated characteristics of ongoing progressive incessant damage
typical of the asbestos-type progressive damage cases which our system of the administration of
justice has come to know On that basis lA Street sought and obtained leave of court to add
six additional insurance companies that had written commercial liability and umbrellaexcess
liability insurance over a period of years between 2001 and the present That of course
plunged the case into a maelstrom of dispute over a multitude of new insurance issues such as
trigger of coverage the accompanying loss in progress known loss rule problems
concomitant disputes over horizontalvertical exhaustion the lively debates over stacking of
per occurrence limits over successive policy periods and of course the applicability of
multiple exclusions such as the standard impaired property and earth movement exclusions
When all was said and done the Circuit Court ultimately honored Bitcos original
argument on the very narrow core issue at hand and ruled that since all of the claims asserted
against JA Street were contract-based claims for damages sustained by THD due to faulty
workmanship the commercial liability coverage provided by the policies does not apply That
determination which could have been made in 2009 is correct since the claims plainly do not
fall within the embrace of the policies as a matter of well-settled law Should this Court affirm
the judgment none of the other issues addressed by the Circuit Court affects the substantial
rights of the parties In other words they are moot
For these reasons Biteo focuses its argument on the indefatigable conclusion that there is
no coverage under the Bitco policies or any other commercial liability policies for claims ex
2
L069S7521
I
contractu for damages for poor workmanship by a construction contractor on a commercial
construction project Bitco also briefly addresses the propriety of the trial courts finding that
exclusion (m) applicable to impaired property separately operates to bar coverage
Biteo confines its cross-assignments of error to only 2 points (1) coverage if there is
any would be confmed to only one policy period either 2001-2002 or 2002-2003 because
damage first began and was known to the insured during one or the other of those periods and
(2) only one per occurrence limit applies regardless of the number of policies that are
triggered These points should in fact be moot since the Circuit Court correctly decided there is
no coverage in the fIrst instance
B STATEMENT OF FACTS
As discussed above and hereinbelow the core issue involved in this appeal requires only
a comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies themselves l To that end the Amended Complaint filed in
the underlying action alleges as follows
THD a real estate development company2 is the developer of the Merritt Creek Farm
Commercial Shopping Development located in Barboursville West Virginia See JA217-250
Amended Complaint -rl The project consisted of several sections including an anticipated site
for a Target store [d at -r7 1HD sought to prepare a pad upon which the Target store was to
Consonant with the governing standard the universe of facts that are germane to a detennination of whether a liability insurer such as Bitco has a duty to defend its insured consist of the factual allegations of the complaint flIed against the insured In this instance that would be the Amended Complaint filed by THD in the underlying case which asserted claims against 1A Street That Amended Complaint was appended as an exhibit to Bitcos Complaint in the declaratory judgment action 2 THDs principal place of business is located in Bristol Tennessee
3
(106957521 )
be constructed whereupon THD would then convey that portion of the site to Target for further
development Id TIID in turn entered into an agreement with SampME Inc (SampME) a soils
engineering firm whereby SampME agreed to perfonn a geotechnical exploration of the site and
thereafter submit a report setting forth recommendations with respect to site preparation for the
entire development Id at 10
On June 5 2001 THD entered into a written contract with IA Street for 1A Street to
serve as the general contractor on the Merritt Creek Farm Project Id at ~13 Pursuant to the
THDJA Street written agreement IA Street agreed to perform construction tasks with regard
to the Merritt Creek Farm Project including preparing the site for construction in general
preparing the Target site for construction of the Target building and constructing various
buildings and structures on the site3 Id at [13-14
In September of 2001 1A Street was perfonning grading excavation and fill work for
the portion of the site beneath which Target would eventually erect its building Id at 17 On
September 212001 the slope at the rear of the Target store site failed causing a landslide Id
During 2002 and 2003 additional slides sloughing and land movement occurred at other
locations throughout the Merritt Creek Development Id at 19 As a result THD was required
to spend substantial sums to repair the slope and address associated consequences of the
landslide Id at 18-19 THD filed the underlying action to recover those economic damages
Id generally
3 JA Street did not contract to build the Target building The Target Corporation was to perform that construction itself
4
(L069S752 I l
THD initially brought the underlying action in 2003 solely against SampME asserting
various claims for damages incurred on the project Nearly four years later on December 11
2007 THD amended its Complaint to add JA Street as a defendant By that time the two-year
tort period of limitations had long since expired Thus THDs Amended Complaint asserted
claims against JA Street were based solely upon the construction contract between THD and
JA Street -- claims for breach of contract breach of warranty and for express and implied
contractual indemnity Id at ~71-96 Therein THD alleged that JA Street failed to
perform the work in a good and workmanlike manner failed to provide competent supervision
and failed to perform the work with a high degree of expertise and workmanship thereby
breaching its agreement with THD Id at ~16 No tort claims were alleged against JA Street
in the Amended Complaint All of the claims sounded exclusively in contract
During several policy periods from 2001 to 2007 Bitco insured JA Street under very
standard commercial general liability policies4 It is undisputed that these policies were issued
by an agent located in Tennessee to JA Street a Tennessee corporation with its principal offices
located in Tennessee See JA217-219 ~4 As suc~ the policies are governed by Tennessee law
4 Policy eLP 3 107706 B was in effect fOT policy period March 12001 to March 1 2002 See JA-4 Policy eLP 3 135489 B was in effect fOT policy period March 12002 to March 12003 See JA4-216 Subsequent one-year policies issued with coverage effective through March 1 2007 See Petitioners Brief pp 9-10 JAI066 1583-2223 It is immaterial which policy applies because the relevant provisions of all of the policies are the same
5
(L06957521 )
These policies are identical they are all written on the standard Insurance Services
Office Inc (ISO) Commercial General Liability coverage forms 5 Insofar as is relevant
instantly the policies provide
1 Insuring Agreement
a We will pay those sums that the insured becomes legally obligated to pay as damages because ofbodily injury or 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 bodily injury or property damage to which this insurance does not apply We may at our discretion investigate any occurrence and settle any claim or suit that may resuIL
b This insurance applies to bodily injury and property damage only if
(1) The bodily injury or property damage is caused by an occurrence that takes place in the coverage territory
(2) The bodily injury or property damage occurs during the policy period and
(3) Prior to the policy period no insured listed under Paragraph 1 of Section II - Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part If such a listed insured or authorized middotmiddotemployee knew prior to the policy period that the bodily injury or property damage occurred then any continuation change or resumption of such bodily injury or property damage during or after the policy period will be deemed to have been known prior to the policy period
c Bodily injury or property damage which occurs during the policy period and was not prior to the policy period known to have occurred by
5 ISO has long been the predominate publisher of commercial general liability insurance policy forms in the industry The ISO Commercial General Liability Coverage Form CGOOOI has long been the most widely used form in the United States As such the policies involved in this case are typical standardized and have frequently been the subject of interpretation by state and federal courts
6
[L0695752 1 I
any insured listed under Paragraph 1 of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim includes any continuation change or resumption of that bodily injury or property damage after the end of the policy period
d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph 1 of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim Reports all or any part of the bodily injury or property damage to us or any other insurer
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or
(2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
Id Section I ~1
Property damage is defined under the policies as
(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 it 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 causes it
Id Section V ~17
Occurrence is defined as
[A]n accident including continuous or repeated exposure to substantially the same general hannful conditions
Id Section V ~13
Consonant with the well-recognized fact that commercial liability insurance covers tort
claims and not contract claims in subparagraph 6 of the Exclusions section the policies
7
(L069S7S21 I
contain a Contractual Liability exclusion The language of this familiar exclusion makes clear
that the insurance does not apply to bodily injury or property damage for which the insured
is obligated to pay damages by reason of the assumption of liability in a contract or
agreement 6 The policies also contain exclusion (m) which states that the coverage does not
apply to
m Damage to impaired property or property not physically damaged Property damage to impaired property arising out of (1) a defect deficiency inadequacy or dangerous condition in your
product or your work or (2) a delay or failure by you or anyone acting on your behalf to
perform a contract or agreement in accordance with its terms 7
In addition to the commercial liability policies Bitco also insured 1A Street under
commercial umbrella policies from March 2003 through March 2007 each of which contained
materially identical provisions as set forth above except that the insuring agreement also
included the following language We will pay on behalf of the insured the ultimate net loss in
excess of the retained limit because of property damage caused by an occurrence which
takes place during the policy period 8 Paragraph 5 of the Limits of Insurance provision
addresses the limits of property damage coverage under Coverage A The language therein
states succinctly as follows
Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of
6 The exceptions are where the liability is one ( 1) That the insured would have in the absence of the contract or agreement [or] (2) Assumed in the contract or agreement that is an insured contract As discussed fully below neither of these exceptions to the Contractual Liability exclusion apply in this case 7 The policies also each have a Limits of Liability section discussed more fully below in Biteos CrossshyAssignments ofError 8 See JA3004-3312
8
(L069S7S2 I )
(a) Damages under Coverage A (b) Because of all bodily injury and property damage arising out of any one occurrence
Bitco extended a defense to lA Street in the underlying action but did so under
reservation ofright to deny coverage
C PROCEDURAL HISTORY
As stated the insurance issues herein relate to an Amended Complaint filed in the
underlying action on December 11 2007 joining and asserting claims against JA Street See
JA-2I7 On July 14 2008 Biteo filed the instant action for declaratory judgment pursuant to
the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the
Circuit Court detennine that the previously described commercial general liability insurance
policies afford no coverage and Bitco owes no duty to defend JA Street for the claims asserted
in the Amended Complaint in the underlying action See JA-19
By Order dated February 172015 the Circuit Court invited summary judgment motions
on all grounds argued by all parties subject to waiver should any available ground not be raised
9 On August 13 2009 Biteo fIled a Motion for Summary Judgment requesting that the Circuit Court declare as a matter of law that Bitco owes no coverage andor duty to defend lA Street with respect to the claims asserted against JA Street in the underlying action See JA-263 IA Street filed a CrossshyMotion for Partial Summary Judgment on that issue Following oral argument the Circuit Court denied Biteos Motion and granted IA Streets Cross-Motion rmding that Biteo owes JA Street a duty to defend the underlying action until such time as the Plaintiff meets its burden of proof that no duty to defend exists See Order JA-I005 The Circuit Court concluded that it cannot definitively say at this time that under Tennessee law the plaintiff would not have a duty to defend Id On March 13 2014 1A Street filed a Third-Party Complaint pursuant to the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the Circuit Court determine that Biteo along with five (5) other insurers owe coverage to IA Street for the claims asserted against it by TlID and that no exclusions or other policy language excludes limits or defeats coverage See IA-I051 As discussed in Petitioners Brief extensive motion practice ensued regarding a host of intricate insurance issues
9
[L06957521
Accordingly on March 12 2015 Bitco filed a Second Amended Cross-Motion for Summary
Judgment arguing that there was no coverage nor any duty to defend under any of its policies
because contract claims for damages brought against construction contractors based upon defects
or deficiencies in the work do not constitute property damage caused by an occurrence are
not VIIithin the scope of the standard commercial liability or umbrella policy and are in any event
excluded See IA-8614 After briefing and argument on December 302016 the Circuit Court
entered an Order agreeing with Bitco and granting summary judgment in Bitcos favor along
with a declaration that Bitco owes no duty to defend nor any coverage of the claims asserted
against IA Street in the underlying action See Opinion JA-I0SS2 JA Street took an appeal
to this Court and filed its principal Brief on May 122017 Bitco now responds
II SUMMARY OF ARGUMENT
This Court should affirm the lower courts declaration that Bitco owes no coverage and
no duty to defend JA Street under its commercial general liability (CGL) and umbrella
insurance policies with respect to the claims asserted in the underlying action The claims
asserted by THD against JA Street in the underlying action are for breach of contract breach of
warranty and indemnity All of these claims are ex contractu they all arise out of a written
agreement between DID and 1A Street under which 1A Street agreed to construct the Merritt
Creek Shopping Center All claims in the underlying action relate to alleged breach of the
express or implied obligations of the aforesaid contract due to alleged deficiencies in
construction work that JA Street contracted to perform thereunder Pursuant to well-settled
law those claims are not covered by liability insurance policies
10
L0695752 I
All damages alleged in the underlying Amended Complaint are first-party claims alleging
economic damages directly relating to the work JA Street contracted to perform The fact that
the only claims pled are for breach of contract -- and not tort -- is dispositive to the insurance
coverage issues Well-established Tennessee authority and the decisions of a majority of other
jurisdictions across the country have explicitly recognized that contract claims precisely like
those asserted against lA Street are not within the embrace of the insuring agreement of the
standard commercial liability policy The Travelers Indemn Co of Am v Moore amp Assocs
Inc IO decision upon which the Petitioners principally rely is inapposite since it does not address
whether pure contract claims are covered The Tennessee Supreme Courts decision in Vernon
Williams amp Son Constr Inc v Continental Ins Co II which is still the law in Tennessee today
and which the Petitioners entirely ignore clearly holds that any contract-based claims for faulty
workmanship are not covered under a commercial liability policy Consequently the claims
asserted against lA Street in the underlying action are not covered under the clear and
unambiguous terms of the applicable policies initial grant of coverage because the claims
alleged are only for the recovery of economic damages based upon breach of contract In
addition the Circuit Court correctly noted the applicability of exclusion (m) relative to impaired
property Because it is clear that the policies do not afford coverage for the claims asserted in
the underlying action Bitco does not owe a duty to defend lA Street Therefore the Circuit
Courts determination that lA Street is not entitled to coverage and a defense under the Bitco
policies was entirely correct
10 216 SW3d 202 (Tenn 2007) 11 591 SW2d 760 (Tenn 1979)
11
L069S7S21 J
Finally though the issue is moot since Bitco owes no coverage at all Bitco cross-assigns
error in the Circuit Courts determinations that more than one policy and per occurrence limit
could apply under any circumstances The unambiguous policy language restricts any coverage
to only one policy period and only one applicable limit This Court should not need to reach
those issues however since there is no coverage at all
UI STATEMENT REGARDING ORAL ARGUMENT AND DECISION
Bitco does not believe the narrow issues necessary to affirm the judgment below are
particularly difficult or complex However if the Court is interested in entertaining oral
argument Bitcos counsel would of course happily oblige
IV ARGUMENT
A STANDARD OF REVIEW
Inasmuch as the summary judgment was entered with regard to a declaratory judgment
action [a] circuit courts entry of a declaratory judgment is reviewed de novo Id
(quoting Syl Pt 3 Cox v Amick 195 WVa 608 466 SE2d 459 (1995raquo See also
Blankenship v City of Charleston 223 WVa 822 824 679 SE2d 654 656 (2009) (quoting
Syi Pt 1 Painter v Peavy 192 WVa 189 451 SE2d 755 (1994raquo Moreover
[d]etermination of the proper coverage of an insurance contract when the facts are not in
dispute is a question of law Id at 825 (quoting Syi Pt 1 Tennant v Smallwood 211 WVa
703 568 SE2d 10 (2002raquo) As [t]he interpretation of an insurance contract including the
question of whether the contract is ambiguous is a legal determination like a lower courts
grant of summary judgment [it] shall be reviewed de novo on appeal Id (quoting SyI Pt 2
12
(L06957521 )
Riffe v Home Finders Associates Inc 205 WVa 216 517 SE2d 313 (1999)) Importantly as
discussed in detail immediately below since the core issue in this case merely requires a
comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies this case presents a pure matter of law that is uniquely
suitable for decision at the summary judgment stage
B THE CIRCUIT COURT CORRECTLY HELD THAT UNDER TENNESSEE LAW THE CONTRACTUAL CLAIMS ASSERTED BY THD AGAINST JA STREET ARE NOT COVERED
BY THE BITCO POLICIES
In this State a liability insurer has no duty to defend an action asserted against the
insured where it is clear from the allegations of the Complaint against the insured that there is no
coverage afforded under the relevant insurance policy See Horace Mann Ins Co v Leeber 376
SE2d 581 584 180 WVa 375 (1988) State Auto Mut Ins Co v Alpha Engg Servbull Inc
542 SE2d 876 879 208 WVa 713 (2000) (If the causes of action alleged in the plaintiffs
complaint are entirely foreign to the risks covered by the insurance policy then the insurance
company is relieved of its duties under the policy) Tennesseel2 follows exactly the same rule
See Drexel Chemical Co v Bitco Ins Co 933 SW2d 471480 1996 TennApp LEXIS 356
(1996) (holding that the insurer did not have a duty to defend where an exclusion applied to
foreclose coverage) Tenn Farmers Mut Ins Co v Brown 1990 TennApp LEXIS 812 (1990)
(The general rule in Tennessee is that an insurer is not obligated to undertake the defense of a
suit against its insured unless the allegations of the complaint show a claim for damages that
would be covered by the policy) Cincinnati Ins Co v Grand Pointe LLC 2007 US Dist
12 All parties concede that Tennessee law governs construction of the insurance policies
13
(L069S7S21 )
LEXIS 39784 (ED Tenn 2007) (If it is plain from the face of the underlying complaint the
allegations fail to state facts that bring the case within or potentially within the policy no duty to
defend exists) Am Nat Prop and Cas Ins Co v Gray 803 SW 2d 693 695-96 (Tenn Ct
App 1990) Graves v Liberty Mut Fire Ins Co 745 SW2d 282283 (Tenn Ct App 1987)
In ascertaining whether there is a duty to defend under a liability insurance policy
Tennessee adheres to a strict four comers approach See Interstate Packaging Co v Century
Indem Co bull 2013 US Dist LEXIS 45459 (MDTenn 2013) citing St Paul Fire amp Marine Ins
Co v Torpoco 879 SW2d 831 835 (Tenn 1994) Clark v Sputnicks LLC 368 SW3d 431
439 (Tenn 2012) (An insurers duty to defend is determined solely by an examination of the
allegations of the underlying complaint) Thus under Tennessee law the court must limit its
inquiry to the claims and allegations presented in the complaint against the insured [I]f the
allegations contained in the complaintare within the risk insured against and there is a
potential basis for recovery then [the insurer] must defend St Paul v Torpoco supra 879
SW2d at 835 Conversely if the claims alleged in the complaint are clearly not within the
scope of coverage then there is no duty to defend Drexel Chemical Co v Bitco Ins Co 933
SW2d 471 480 (Tenn 1996) As the United States Court of Appeals for the Sixth Circuit
stated it applying Tennessee law in Smith amp Nephew Inc v Fed Ins Co 113 FedAppx 99
(6th Cir 2004) in detennining an insurers duty to defend courts typically begin and end
their analysis with the four comers of the complaint Id at 102 Petitioner argues that there
are significant issues of material fact that exist given that there has been no final resolution of the
14
(LD09S752 I
underlying action13 but in fact clear-cut law dictates that all the Court must do is contrast the
averments of the Amended Complaint with the terms of the policies
The instant inquiry must therefore begin with the unique circumstances that the TIID
Amended Complaint against lA Street pleads only contract-based claims and not tort claims
Although the Circuit Court based its finding of no coverage solely on the Contractual Liability
exclusion as discussed in detail below courts in Tennessee and elsewhere have concluded that
there is no coverage for breach of contact claims and the damages that typically flow from such
claims on broader grounds While the Circuit Court did not subscribe to that broad view
our cases have made clear that it is permissible for us to affirm the granting of [dismissal] on bases difference or grounds other than those relief upon by the circuit court Hoover v Moran 222 WVa at 119 662 SE2d at 718 quoting Gently v Mangum 195 WVa 512519466 SE2d 171178 (1995) See also Schmehl v Helton 222 WVa 98 662 SE2d 697 705 n7 (2008) (this Court may in any event affirm the circuit court on any proper basis whether relied upon by the circuit court or not) Murphy v Smallridge 196 WVa 35 36-7 468 SE2d 167168-9 (1996) (An appellate court is not limited to the legal grounds relied upon by the circuit court but it may affirm or reverse a decision on any independently sufficient ground that has adequate support) Syl pt 3 Barnett v Wolfolk 149 WVa 246 140 SE2d 466 (1965) (This Court may on appeal affirm the judgment of the lower court when it appears that such judgment is correct on any legal ground disclosed by the record regardless of the ground reason or theory assigned by the lower court as the basis for its judgment)
Savarese v Allstate Ins Co 672 SE2d 255260 (WVa 2008)
One of the more elemental and uniformly embraced principles of corrunercial insurance
law is that the typical commercial liability insurance policy affords coverage for tort claims not
claims for breach of contract The authorities supporting that proposition are legion Dean
Henderson in his renowned and widely cited law review article makes the point emphatically
13 Petitioners Brief pp 25-27 15
(L0695752 1 J
[t]he risk intended to be insured is the possibility that the goods products or work of the insured once relinquished or completed will cause bodily injury or damage to property other than to the product or completed work itself and for which the insured may be found liable The insured as a source of goods or services may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable because it is lacking in some capacity This may even extend to an obligation to completely replace or rebuild the deficient product or work This liability however is not what the coverages in question are designed to protect against The coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb L Rev 415441 (1971)14
The overwhelming majority of courts and commentators that have addressed this issue
have held that breach of contract claims asserted against the insured are not covered under a
standard CGL policy See eg Couch on Insurance 3d sect1291-1294 (3d Ed 2005) (a
commercial general liability insurance policy is generally designed to provide coverage for tort
liability for physical damages to others and not for contractual liability of the insured for
economic loss the majority of jurisdictions have held that breach of contract is not an
14 The Henderson article has been widely relied upon by courts and commentators for over 40 years Noticeably it has been frequently cited with approval in Tennessee See Vernon (relying upon the Henderson article the Tennessee Court held that the standard comprehensive general liability policy does not provide coverage to an insured-contractor for a breach of contract action grounded upon faulty workmanship or materials where the damages claimed are the cost of correcting the work itself) Blaylock amp Brown Constr Inc v AIU Ins Co 796 SW2d 146 1990 TennApp LEXIS 338 (1990) (relying upon Henderson the Court holds bull that the language of the policy excludes liability coverage for the plaintiffs for damage to the property constructed pursuant to the contract) Standard Fire Ins Co v Chester-ODonley amp Assocs 972 SW2d 1 1998 TennApp LEXIS 65 (1998) (citing the Henderson article for the proposition that CGL policies are not intended to cover the insureds contractual liability for economic loss because its work was not that for which the damaged person bargained) Weedo v Stone-E-Brick Inc bull 81 NJ 233 405 A2d 788 (1979) (relying heavily upon the Henderson article the Court holds that a CGL policy does not provide coverage for a breach of contract action for faulty workmanship where the damages claimed are the cost ofcorrecting the work itself)
16
IL069S7S2 I
occurrencea [CGL] policy is not intended to provide coverage for the insureds contractual
liability which merely causes economic losses) Alan D Windt Insurance Claims and
Disputes sect117 (4th Ed 2001) (Finally there is the question as to whether a breach of
contract claim involves damages caused by an occurrence The answer should in general be
no) Erie Ins Prop amp Cas Co v Pioneer Home Improvement Inc 526 SE2d 28 33 206
WVa 506 513 (1999) (The coverage [under a COL policy] is for tort liability for physical
damages to others and not for contractual liability of the insured for economic loss because the
product or completed work is not that for which the damaged person bargained) Nationwide
Mutual Ins Co v CPB Intl Inc 562 F3d 591 598 2009 US App LEXIS 7795 14 (3d Cir
2009) (holding that under Pennsylvania law a CGL policy does not provide coverage for
claims in an underlying action that arise out of and relate to the contract between the parties)
Lyerla v AMCO Ins Co 536 F3d 684691-922008 US App LEXIS 164 78 (7th Cir 2008)
(applying Illinois law) (holding that underlying allegations that insured contractor did not satisfy
his contractual obligations is not property damage caused by an occurrence) L-J Inc v
Biteo Fire amp Marine Ins Co 621 SE2d 33 35 366 SC 117 (2005) (any liability that is
incurred because of faulty workmanship is part of the insureds contractual liability not an
insurable event under a CGL policy) Hotel Roanoke Conf Ctr Commn v Cincinnati Ins Co
303 FSupp2d 784 7882004 US Dist LEXIS 2539 (2004) (applying Virginia law) (damages
limited to the insureds work or product and resulting from the insureds defective perfonnance
of a contract are not covered losses under a [CGL] policy) Westfield Ins Co v Sheehan
Construction Co 580 FSupp2d 701 710 2008 US Dist LEXIS 66843 (2008) (applying
17
(L06957521
Indiana law) (a CGL policy serves to limit contractors tort liability for damage to property
caused by their work) Key Custom Homes Inc v Mid-Continent Cas Co 450 FSupp2d
1311 1317-182006 US Dist LEXIS 60355 (2006) (applying Florida law) (it is equally clear
that breach of contract claims for the recovery of money are not covered by general liability
insurance policies) Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254 1257329
Ore 620 (2000) (there can be no accident within the meaning of a commercial liability policy
when the resulting damage is merely a breach of contract) Bonded Concrete Inc v Transcon
Ins Co 12 AD3d 761 2004 NYAppDiv LEXIS 13020 (2004) (the purpose of a
commercial general liability policy is to provide coverage for tort liability for physical damage
to others and not for contractual liability of the insured for economic loss because the
product is not what the damaged [party] bargained for) United States Fire Ins Co v Milton
Co 35 FSupp2d 8386 1998 US Dist LEXIS 22116 (1998) (applying Maryland law) (there
is no occurrence under a comprehensive general liability insurance policy where and to the
extent that a contractors use of defective materials and substandard workmanship results in
economic losses that would normally be recoverable in a breach of contract action) Burlington
Ins Co v Oceanic Design amp Construction Inc 383 F3d 940 2004 US App LEXIS 18932
(9th Cir 2004) (applying Hawaii law) (holding that claims for breach of contract and negligent
breach of contract are not covered under a CGL policy) Norwalk Ready Mixed Concrete Inc v
Travelers Ins Co 246 F3d 1132 2001 US App LEXIS 7148 (8th Cir 2001) (applying Iowa
law) (holding that breach of contract and breach of warranty claims are not covered under a CGL
policy) USFampG Com v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476
18
(L06957521 l
(1989) (holding that a breach of contract claim asserted against an insured contractor is not
covered under a COL policy) Oreat Divide Ins Co v Bitterroot Timberfiames of Wyoming
LLC 2006 US Dist LEXIS 94826 (2006) (applying Wyoming law) (the allegations
demonstrate losses resulting from breach of contract and therefore cannot constitute an
accident for purposes of determining coverage) Union Ins Co v Hottenstein 83 P3d 1196
12022003 ColoApp LEXIS 1857 (2003) (poor workmanship constituting a breach of contract
is not a covered occurrence)
Tennessee lawl5 is in accord with these authorities The Tennessee Supreme Court has
defInitively held that breach of contract claims due to the insureds faulty workmanship such as
those asserted here by THD against IA Street in the underlying Amended Complaint are simply
not covered under the grant of coverage contained in a commercial liability policy See Vernon
supra Chester-ODonley supra at 6-7 (General liability policies are not all-risk policies and
only cover damages up to the policy limits for which the insured becomes liable as a result of
tort liability to a third party) (emphasis added) In Vernon the Supreme Court of Tennessee
expressly held that a standard COL policy only covers tort claims and such a policy does not
15 Under applicable Tennessee law contracts of insurance are subject to the same rules of interpretation and construction as other contracts McKimm v Bell 790 SW2d 526 527 1990 Tenn LEXIS 161 (1990) Thus [a]n insurance policy must be interpreted fairly and reasonably giving the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204 SW3d 758 2006 Tenn LEXIS 755 (2006) In the absence of fraud or mistake a contract must be interpreted and enforced as written even though it contains terms which may be thought harsh and unjust Allstate Ins Co v Wilson 856 SW2d 706 1992 TennApp LEXIS 1012 (1992) As a result the analysis of JA Streets right to coverage for the claims asserted in the underlying action are dictated by the terms of the policy The essential components of a general liability insurance policy include (1) the declarations (2) the insuring agreements and definitions (3) the exclusions (4) the conditions and (5) the endorsements See ChestershyODonley supra The insuring agreement sets the outer limits of an insurers contractual liability If coverage cannot be found in the insuring agreement it will not be found elsewhere in the policy Id 1998 TennApp LEXIS at 13-14
19
L069S7S21
afford coverage to an insured contractor for breach of contract claims Vernon 591 SW 2d at
765 Chester-ODonley supra at 6-7 Petitioner complains that the Circuit Court focused on
West Virginia cases such as Silk v Flat TOp6 but in fact the lower court expressly relied
upon a wealth of Tennessee authority17 including Vernon Cincinnati Ins Co v Grand Pointe
LLc18 and Trinity Univ Ins Co v Turner Funeral Home Inc 19 More recently Tennessee
courts have reaffirmed the rationale and holding of Vernon See State Auto Ins Cos v Gordon
Constr Inc 2001 TennApp LEXIS 349 (2001) (following Vernon and holding that the
insuring agreement of a CGL policy does not afford coverage for underlying breach of contract
and breach of warranty claims asserted against the insured contractor) Blake Indus Inc v
General Agents Ins Co of Am 2000 Tenn App LEXIS 490 (2000) (applying Vernon and
holding that claims asserted against the insured that were grounded in contract are not covered
under a CGL policy) Blaylock and Brown Constr Inc v AID Ins Co 796 SW2d 146 152shy
153 (Tenn Ct App 1990)
As the Circuit Court correctly recognized the express tenus of the insurance contract
clearly exclude contractual liability from coverage Exclusions help define and shape the scope
of coverage but they must be read in terms of the insuring agreement to which they apply
Exclusions can only decrease coverage they cannot increase it Chester-ODonley 972 SW2d
at 7-8 Moreover [e]ach exclusion reduces coverage and operates independently with reference
16 Petitioners Brief p 30 (citing 453 SE2d 356 (Wva 1994raquo 17 See See Opinion JA-I0552 ~27
18 2007 US Dist LEXIS 39784 (ED Tenn 2007) 19 2003 WL 23218046 (ED Tenn Dec 122003)
20
IL069S7S2 I I
to the insuring agreement Id at 8 The Contractual Liability exclusion specifically provides
that the insurance coverage does not apply to
Contractual liability
Bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement This exclusion does not apply to liability for damages
(1) That the insured would have in the absence of the contract or agreement or
(2) Assumed in a contract or agreement that is an insured contract provided the bodily injury or property damage occurs subsequent to the execution of the contract or agreement Solely for the purposes of liability assumed in a insured contract reasonable attorneys fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of bodily injury or property damage provided
(a) Liability to such party for or for the cost of that partys defense has also been assumed in the same insured contract and
(b) Such attorneys fees and litigation expenses are for defense of that party against the civil or alternative dispute resolution proceeding in which damages to which the insurance applies are alleged
See JA-62 Section I C[2
Even a cursory examination ofTHDs Amended Complaint reveals that all claims alleged
against JA Street were contractual There simply was no tort claim alleged In fact the claims
against JA Street were necessarily founded in contract for two reasons First the two-year
statute of limitations applicable to any tort claims elapsed long before THD first asserted its
claims against JA Street Tort claims were not pleaded and could not have been Second the
substantive law of West Virginia applies to the underlying claims asserted by THD against lA
21
(L069S7S21 I
Street20 and applicable West Virginia law plainly holds that even if THD had asserted tort
claims against JA Street the claims would still sound in contract under these circumstances for
purposes of the instant analysis since the gist of claims asserted against a contractor for deficient
work is necessarily ex contractu See Silk supra at 360 Dan Ryan Builders Inc v Crystal
Ridge Dev Inc 783 F3d 976 (4th Cir 2015) Unlike in both Silk and Dan Ryan THO did not
even assert any tort claims here Nor could it have Relevant to the precise policy language at
issue there simply was no liability for damages that [JA Street] would have in the absence of
the contract or agreement It simply cannot be contested that the claims alleged in the Amended
Complaint are and indeed necessarily were contractual in nature Given that alone the clear
holding of the Tennessee Court in Vernon mandated the Circuit Courts correct grant of
summary judgment in Biteos favor
A great majority of courts and commentators across the country that have addressed the
issue have held that the explicit unambiguous express Contractual Liability exclusion forecloses
coverage for all contract liability including breach of contract claims asserted against the
insured except where the insured has assumed the liability of another in an insured contract
See eg Silk v Flat Top Constr Inc 453 SE2d 356 359 192 WVa 522 (1994) (holding that
the contract exclusion applies to foreclose coverage for all contractual liability of the insured
except for liability assumed in an insured contract-a contract under which the insured
assumes the tort liability of another party) Gilbert Tex Constr v Underwriters at Lloyds
20 West Virginia applies the choice-of-law principle of lex loci delicti and there is no question here that the offending conduct and the loss all occurred in West Virginia such that JA Streets liability to THD would be governed by West Virginia law See State of Wva ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) (citing Syl Pt 1 Paul v Natl Life 352 SE2d 552 (WVa 1986raquo
22
(L069S7521 I
Londo 327 SW3d 118 (2010) (citing inter alia Nationwide Mut Ins Co v CPB Int Inc
No 306-CV-0363 2007 WL 4198173 at 8 (MDPa Nov26 2007) (Exclusion (b) is simply
further clarification in the policy that contract-based claims are not covered) ClM Ins Corp v
Midpac Auto Crr Inc 108 FSupp2d 1092 1099-1100 (DHaw2000) (clause in policy stating
that policy does not apply to liability assumed under any contract or agreement means that any
claim that is dependent on the existence of an underlying contract is not covered) Monticello
Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 at 2 (WDKy
Apr 3 1998) (exclusion for liability assumed by the insured under any contract or agreement
does not arise only when a party assumes the liability for another party rather the plain meaning
of the policy excludes a breach of contract claim from coverage) Silk supra (exclusion removed
coverage for breach of contract) TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 1091-92
(8th Cir1995) (exclusion for which the insured has assumed liability in a contract or agreement
plainly excluded coverage for contractual claims and not just hold-harmless or indemnity
agreements) Nationwide Mutual Ins Co v CPB Intl Inc 562 F3d 591 5992009 US App
LEXIS 7795 (3d Cir 2009) (applying Pa law) (holding that a breach of contract claim is excluded
under the Contractual Liability exclusion) Century Sur Co v Hardscape Constr Specialties Inc
578 F3d 262 2009 US App LEXIS 25300 (5th Cir 2009) (applying Texas law) (holding that the
Contractual Liability exclusion operates to exclude claims grounded primarily in breach of contract
and that no tort claims were asserted that triggered the insured contract exception) State Farm
Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 12 (2007) (applying Hawaii
law) (holding that claims arising from the insureds obligations under a contract are barred from
23
L0695152 I I
coverage under the Contractual Liability exclusion) JACO Airfield Constr Inc v National Trust
Ins Co 2007 US Dist LEXIS 100295 10 (2007) (applying Georgia law) (holding that the
Contractual Liability exclusion applies to foreclose coverage for the contractual based claims
asserted against the insured and that the insured contract exception to the Contractual Liability
exclusion does not apply because the insured did not assume the tort liability of another) Union Ins
Co v Williams Contr Inc 2006 US Dist LEXIS 35919 4-5 (2006) (holding that the
Contractual Liability exclusion precludes coverage for claims against the insured for breach of a
construction contract) Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270
GaApp 8 (2004) (affirming trial comts finding that the Contractual Liability exclusion barred
coverage for breach of contract and breach of implied warranty claims against the insured) Gibson
amp Assocs Inc v Home Ins Co 966 FSupp 468476-77 1997 US Dist LEXIS 4776 (1997)
(applying Texas law) (recognizing that the Contractual Liability exclusion precludes coverage for
breach of contract claims asserted against the insmed and that the policy only covers contractual
liability for indemnification actions ie an insured contract) James v Burlington Northern Santa
Fe Railway Co 2007 US Dist LEXIS 63282 4-5 (2007) (applying Arizona law) (holding that
the insured contract exception to the Contractual Liability exclusion does not bring ordinary
breach-of-contract claims within the scope of CGL coverage) TGA Dev Inc v Northern Ins Co
of New York 62 F3d 1089 1091-92 1995 USApp LEXIS 21700 (8th Cir 1995) (applying
Minnesota law) (holding that the Contractual Liability exclusion plainly excludes coverage for
contractual claims made for [the insmeds] failure to provide [the property owner] with a
condominium unit free from defects)
24
(lO6957521 )
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
VII CONCLUSION 44
ii
(L06957521 I
TABLE OF AUTHORITIES
CASES
Allstate Ins Co v Wilson 856 SW2d 706 1992 TennApp LEXIS 1012 (1992) 19
Am Family Mut Ins Co v American Girl Inc 673 NW2d 65 268 Wis2d 16 (2004)
272830
Am Nat Prop and Cas Ins Co v Gray 803 SW 2d 693 (Tenn Ct App 1990) 14
American Physicians Insurance Exchange and American Physicians Service Group Inc v
Garcia 876 S W2d 842 (Texas 1994) 43
Apjalachian Ins Co v Liberty Mut Ins Co 676 F2d 56 (3d Cir Pa 1982) 39
Associated lndem Corp v Dow Chern Co 814 FSupp 613 (ED Mich 1993) 39
Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612 (2004) 43
Barnett v Wolfolk 149 WVa 246 140 SE2d 466 (1965) 15
Bayley Construction vs American Guaranty amp Liability Insurance CPO 2010 US Dist
LEXIS 110767 (WD Wash 2010) 44
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) 43
Blake Indus Inc v General Agents Ins Co of Am 2000 Tenn App LEXIS 490 (2000) 20
Blankenship v City ofCharleston 223 WVa 822 679 SE2d 654 (2009) 12
Blaylock and Brown Constr Inc v AIU Ins Co 796 S W2d 146 (Tenn Ct App 1990)
1620
Bonded Concrete Inc v Transcon Ins Co 12 AD3d 761 2004 NYAppDiv LEXIS 13020
(2004) 18
Burlington Ins Co v Oceanic Design amp Construction Inc 383 F3d 940 2004 US App
LEXIS 18932 (9th Cir 2004) 18
Canal Indem Co v Adair Homes Inc 445 Fed Appx 938 (9th Cir 2011) 32
Central Armature Works Inc v Am Motorists Ins Co 520 FSupp 283 (DDC 1980) 33
Century Sur Co v Hardscape Constr Specialties Inc 578 F3d 262 2009 US App LEXIS
25300 (5th Cir 2009) 23
111
(L069S 752 I I
Certain Underwriters at Llovds of London v Paniagill 957 FSupp2d 921 (WDTenn
2013) 35
Certain Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229
P3d 930 (WashApp 2001) 44
Champion Intl Corp v Continental Casualty Co 546_F2d 502 (2d Cir NY 1976) 39
CIM Ins Corp v Midpac Auto Ctr Inc 108 FSupp2d 1092 (DHaw2000) 23
Cincinnati Ins Co v Grand Pointe LLC 2007 US Dist LEXIS 39784 (ED Tenn 2007) 14
202627
Clark v Sputnicks LLC 368 SW3d 431 (Tenn 2012) 14
Columbia Mut Ins Co v Schauf 967 S W2d 74 (Mo 1998) 32
Copple Constr LLC v Columbia Natl Ins Co 776 NW2d 503 (Neb 2009) 32
Cox v Amick 195 WVa 608 466 SE2d 459 (1995) 12
Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270 GaApp 8 (2004) 24
Dan Ryan Builders Inc v Crystal Ridge Dey Inc 783 F3d 976 (4th Cir 2015) 22
Dey Inc y Northern Ins Co of New York 62 F3d 1089 1995 USApp LEXIS 21700 (8th Cir
1995) 24
Drexel Chemical Co v Bitco Ins Co 933 SW2d 4711996 TennApp LEXIS 356 (1996)
13 14
Erie Ins Prop amp Cas Co v Pioneer Home Improvement Inc 526 SE2d 28 206 WVa 506
(1999) 17
Ernst v Acuity 704 NW2d 869 (ND 2005) 33
Ewing Constr Co Inc v Amerisure ms Co 420 SW3d 30 (Tex 2014) 2829
General Housewares Corp v National Surety Corp 741 NE2d 408 (Ind 2000) 37
Gentry v Mangum 195 WVa 512466 SE2d 171 (1995) 15
Gibson amp Assocs Inc v Home Ins Co 966 FSupp 468 1997 US Dist LEXIS 4776 (1997) 24
Gilbert Tex Constr v Underwriters at Lloyds Londo 327 S W3d 118 (2010) 23 28 2930
Graves v Liberty Mut Fire Ins Co 745 SW2d 282 (Tenn Ct App 1987) 14
tv
L06957521 I
Great Divide Ins Co v Bitterroot Timberframes of Wyoming LLC 2006 US Dist LEXIS
94826 (2006) 19
Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) 43
Greenidge v Allstate Insurance Co 312 F2d430 (SDNY 2004) 43
GrinnellMut Reinsurance Co v Lynne 686 NW2d 118 (ND 2004) 33
Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th Cir 2000) 32
Hathaway Dev Co v lll Union Ins Co 274 Fed Appx 787 (11 th Cir 2008) 32
Headley v St Paul Fire amp Marine Ins Co 712 FSupp 745 (DSD 1989) 39
Hiraldo vs Allstate Insurance Co 8 AD3d 230 778 NYS 2d 50 (2004) 43
Hoover v Mornn 222 WVa at 119 662 SE2d at 718 15
Horace Mann Ins Co v Leeber 376 SE2d 581 180 WVa 375 (1988) 13
Hotel Roanoke Com Ctr Commn v Cincinnati Ins Co 303 FSupp2d 784 2004 US Dist
LEXIS 2539 (2004) 17
Interstate Packaging Co v Century Indem Co 2013 US Dist LEXIS 45459 (MD Tenn
2013) 14
JACO Airfield Constr Inc v National Trust Ins Co 2007 US Dist LEXIS 100295 (2007) 24
Jacob v Russo Builders 592 NW2d 271 (Wis Ct App 1999) 34
James v Burlington Northern Santa Fe Railway Co 2007 US Dist LEXIS 63282 (2007) 24
Kaiser Cement and Gypsum Corp v Insurance Co of the State of Pa 215 Cal App 4th 210
155Cal Rptr 3d283 (2013) 43
Key Custom Homes Inc v Mid-Continent Cas Co 450 FSupp2d 1311 2006 US Dist
LEXIS 60355 (2006) 18
Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) 39
Lennar Corp v Markel American Insurance Co 413 SW3d 750 (Texas 2013) 43
LISN Inc v Commercial Union Ins Cos 615 NE2d 650 (Ohio Ct App 1992) 33
L-J Inc v Bitco Fire amp Marine Ins Co 621 SE2d 33 366 SC 117 (2005) 17
Lyerla v AMCO Ins Co 536 F3d 684 2008 US App LEXIS 164 (7th Cir 2008) 17
McKimm v Bell 790 SW2d 526 (Tenn 1990) 1935
v
(t06957521 I
Monticello Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 (WDKy
Apr3 1998) 23
Murphy v Smallridge 196 WVa 35468 SE2d 167 (1996) 15
Naifeh v Valley Forge Life Ins Co 204 SW3d 758 (Tenn 2006) 1935
Nationwide Mutual Ins Co v CPB IntI Inc 562 F3d 591 2009 US App LEXIS 7795 (3d
Cir 2009) 17 23
Nesmith v Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) 43
Newark Ins Co v Acupac Packaging Inc 746 A2d 47 (NJ Super Ct App Div 2000) 34
North American Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552
(5th Cir 2008) 43
Norwalk Ready Mixed Concrete Inc v Travelers Ins Co 246 F3d 1132 2001 US App
LEXIS 7148 (8th Cir 2001) 18
Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254329 Ore 620 (2000) 18
Olympic Inc v Providence Washington Insurance Co of Alas~ 648 P2d 1008 (Alaska 1982)
30
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 (DDC 1984) 39
Painterv Peavy 192 WVa 189451 SE2d 755 (1994) 12
Paul v Natl Life 352 SE2d 552 (WVa 1986) 22
Riffe v Home Finders Associates Inc 205 WVa 216 517 SE2d 313 (1999) 13
Ryan Homes v Home Indem Co 647 A2d 939 (Pa Super 1994) 33
Safeco Insurance Company of American v Firemens Fund Insurance Co 148 Cal App 4th
620 55 Cal Rptr 3d 844 (2007) 43
Sapp v State Farm Fire amp Cas Co 486 SE2d 71 (Ga Ct App 1997) 32
Savarese v Allstate Ins Co 672 SE2d 255 260 (WVa 2008) 15
Schmehl v Helton 222 WVa 98662 SE2d 697 (2008) 15
Silk v Flat Top 453 SE2d 356 (WVa 1994) 20 22 23 25
Smith amp Nephew Inc v Fed Ins Co 113 FedAppx 99 (6th Cir 2004) 14
vi
(L069S7S21 I
Southern International Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct
App 3d Dist 1977) 39
St Paul Fire amp Marine Ins Co v Torpoco 879 SW2d 831 (Tenn 1994) 14
Standard Fire Ins Co v Chester-ODonley amp Assocs 972 SW2d 1 1998 TennApp LEXIS
65 (1998) 16 19
State Auto Ins Cos v Gordon Constr Inc 2001 TennApp LEXIS 349 (2001) 20
State Auto Mut Ins Co v Alpha Engg Serv Inc 542 SE2d 876 208 WVa 713 (2000) 13
State Farm Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 (2007) 23
State ofWVa ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) 22
Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) 43
Taylor v Travelers Ins Co 40 F3d 79 (5th Cir 1994) 31
Tenn Farmers Mut Ins Co v Brown 1990 TennApp LEXIS 812 (1990) 13
Tennant v Smallwood 211 WVa 703568 SE2d 10 (2002) 12
TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 (8th Cir1995) 2324
Thommes v Milwaukee Mut Ins Co 622 NW2d 155 (Minn Ct App 2001) 34
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 (ND Tex 1980) 39
Travelers Indemn Co of Am v Moore amp Assocsbull Inc 216 SW3d 202 (Tenn 2007) 112526
Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL 23218046 (ED Tenn Dec 12
2003) 20 27
Truk-Away Inc v Aetna Cas amp Sur Co 723 A2d 309 (RI 1999) 39
Union Ins Co v Hottenstein 83 P3d 11962003 ColoApp LEXIS 1857 (2003) 19
Union Ins Co v Williams Contr Inc 2006 US Dist LEXIS 35919 (2006) 24
United States Fire Ins Co v Milton Co 35 FSupp2d 83 1998 US Dist LEXIS 22116 (1998)
18
USFampG Corp v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476 (1989)
19
Vari Builders Inc v United States Fidelity amp Guaranty Co 523 A2d 549 (Del Super Ct
1986) 32
vii
IL0595752 I I
Vernon Williams amp Son Constr Inc v Continental Ins Co 591 SW2d 760 (Tenn 1979)
pasSIm
Weedo v Stone-E-Brick Inc 405 A2d 788 (NJ 1979) 1633
Westfield Ins Co v Sheehan Construction Co 580 FSupp2d 701 2008 US Dist LEXIS
66843 (2008) 17
STATUTES
West Virginia Declaratory Judgment Act W Va Code sect55-13-1 e seq 9
OTHER AUTHORITIES
Alan D Windt Insurance Claims and Disputes sect117 (4th Ed 2001) 17
Couch on Insurance 3d sect1291-1294 (3d Ed 2005) 16
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb 1 Rev 415441 (1971) 1631
Wielinski Patrick (4th ed) IRMI Ch 6 pp 180-185 29
viii
LC6957521 I
I ST ATEMENT OF THE CASE
A INTRoDUCTION
Bitoo General Insurance Corporation (Biteo) instituted this declaratory judgment action
seeking a declaration of no coverage and no duty to defend contract claims alleging poor
workmanship asserted against Bitcos named insured in an underlying civil action pending in the
Circuit Court of Cabell County captioned at THD Development LLC a West Virginia Limited
Liability Company and THD Investors 7 LLC a West Virginia Limited Liability Company
Plaintiffs v SamplE Inc a Corporation and JA Street amp Associates Inc a Corporation
Defendants Civil Action No 03-C-0490 (hereinafter underlying action) The threshold
question presented in this declaratory judgment action is whether Bitcos standard commercial
general liability and umbrella insurance policies afford coverage for pure ex contractu claims
asserted by THD Development (THD) against JA Street amp Associates Inc (IA Street)
At an early stage Bitco moved for summary judgment on that very narrow ground toshy
wit that all of the claims pleaded against JA Street are contract-based claims for poor
workmanship and such claims are not covered by Bitcos standard oommercialliability polices
under applicable Tennessee law Unfortunately the Circuit Court found that the issue was not
susceptible to summary judgement at that time Consequently the insurance case remained
pending and Biteo continued to defend the underlying action At a later point Biteo renewed
substantially the identical argument whereupon it was again determined to be an insufficient
basis for a summary judgment Although the Circuit Court was uncertain enough at that point
that it certified the issue for interlocutory appeal the Supreme Court declined to afford review
L0695752l
Thereafter THD and lA Street immeasurably complicated the matter They devised a
theory that the case demonstrated characteristics of ongoing progressive incessant damage
typical of the asbestos-type progressive damage cases which our system of the administration of
justice has come to know On that basis lA Street sought and obtained leave of court to add
six additional insurance companies that had written commercial liability and umbrellaexcess
liability insurance over a period of years between 2001 and the present That of course
plunged the case into a maelstrom of dispute over a multitude of new insurance issues such as
trigger of coverage the accompanying loss in progress known loss rule problems
concomitant disputes over horizontalvertical exhaustion the lively debates over stacking of
per occurrence limits over successive policy periods and of course the applicability of
multiple exclusions such as the standard impaired property and earth movement exclusions
When all was said and done the Circuit Court ultimately honored Bitcos original
argument on the very narrow core issue at hand and ruled that since all of the claims asserted
against JA Street were contract-based claims for damages sustained by THD due to faulty
workmanship the commercial liability coverage provided by the policies does not apply That
determination which could have been made in 2009 is correct since the claims plainly do not
fall within the embrace of the policies as a matter of well-settled law Should this Court affirm
the judgment none of the other issues addressed by the Circuit Court affects the substantial
rights of the parties In other words they are moot
For these reasons Biteo focuses its argument on the indefatigable conclusion that there is
no coverage under the Bitco policies or any other commercial liability policies for claims ex
2
L069S7521
I
contractu for damages for poor workmanship by a construction contractor on a commercial
construction project Bitco also briefly addresses the propriety of the trial courts finding that
exclusion (m) applicable to impaired property separately operates to bar coverage
Biteo confines its cross-assignments of error to only 2 points (1) coverage if there is
any would be confmed to only one policy period either 2001-2002 or 2002-2003 because
damage first began and was known to the insured during one or the other of those periods and
(2) only one per occurrence limit applies regardless of the number of policies that are
triggered These points should in fact be moot since the Circuit Court correctly decided there is
no coverage in the fIrst instance
B STATEMENT OF FACTS
As discussed above and hereinbelow the core issue involved in this appeal requires only
a comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies themselves l To that end the Amended Complaint filed in
the underlying action alleges as follows
THD a real estate development company2 is the developer of the Merritt Creek Farm
Commercial Shopping Development located in Barboursville West Virginia See JA217-250
Amended Complaint -rl The project consisted of several sections including an anticipated site
for a Target store [d at -r7 1HD sought to prepare a pad upon which the Target store was to
Consonant with the governing standard the universe of facts that are germane to a detennination of whether a liability insurer such as Bitco has a duty to defend its insured consist of the factual allegations of the complaint flIed against the insured In this instance that would be the Amended Complaint filed by THD in the underlying case which asserted claims against 1A Street That Amended Complaint was appended as an exhibit to Bitcos Complaint in the declaratory judgment action 2 THDs principal place of business is located in Bristol Tennessee
3
(106957521 )
be constructed whereupon THD would then convey that portion of the site to Target for further
development Id TIID in turn entered into an agreement with SampME Inc (SampME) a soils
engineering firm whereby SampME agreed to perfonn a geotechnical exploration of the site and
thereafter submit a report setting forth recommendations with respect to site preparation for the
entire development Id at 10
On June 5 2001 THD entered into a written contract with IA Street for 1A Street to
serve as the general contractor on the Merritt Creek Farm Project Id at ~13 Pursuant to the
THDJA Street written agreement IA Street agreed to perform construction tasks with regard
to the Merritt Creek Farm Project including preparing the site for construction in general
preparing the Target site for construction of the Target building and constructing various
buildings and structures on the site3 Id at [13-14
In September of 2001 1A Street was perfonning grading excavation and fill work for
the portion of the site beneath which Target would eventually erect its building Id at 17 On
September 212001 the slope at the rear of the Target store site failed causing a landslide Id
During 2002 and 2003 additional slides sloughing and land movement occurred at other
locations throughout the Merritt Creek Development Id at 19 As a result THD was required
to spend substantial sums to repair the slope and address associated consequences of the
landslide Id at 18-19 THD filed the underlying action to recover those economic damages
Id generally
3 JA Street did not contract to build the Target building The Target Corporation was to perform that construction itself
4
(L069S752 I l
THD initially brought the underlying action in 2003 solely against SampME asserting
various claims for damages incurred on the project Nearly four years later on December 11
2007 THD amended its Complaint to add JA Street as a defendant By that time the two-year
tort period of limitations had long since expired Thus THDs Amended Complaint asserted
claims against JA Street were based solely upon the construction contract between THD and
JA Street -- claims for breach of contract breach of warranty and for express and implied
contractual indemnity Id at ~71-96 Therein THD alleged that JA Street failed to
perform the work in a good and workmanlike manner failed to provide competent supervision
and failed to perform the work with a high degree of expertise and workmanship thereby
breaching its agreement with THD Id at ~16 No tort claims were alleged against JA Street
in the Amended Complaint All of the claims sounded exclusively in contract
During several policy periods from 2001 to 2007 Bitco insured JA Street under very
standard commercial general liability policies4 It is undisputed that these policies were issued
by an agent located in Tennessee to JA Street a Tennessee corporation with its principal offices
located in Tennessee See JA217-219 ~4 As suc~ the policies are governed by Tennessee law
4 Policy eLP 3 107706 B was in effect fOT policy period March 12001 to March 1 2002 See JA-4 Policy eLP 3 135489 B was in effect fOT policy period March 12002 to March 12003 See JA4-216 Subsequent one-year policies issued with coverage effective through March 1 2007 See Petitioners Brief pp 9-10 JAI066 1583-2223 It is immaterial which policy applies because the relevant provisions of all of the policies are the same
5
(L06957521 )
These policies are identical they are all written on the standard Insurance Services
Office Inc (ISO) Commercial General Liability coverage forms 5 Insofar as is relevant
instantly the policies provide
1 Insuring Agreement
a We will pay those sums that the insured becomes legally obligated to pay as damages because ofbodily injury or 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 bodily injury or property damage to which this insurance does not apply We may at our discretion investigate any occurrence and settle any claim or suit that may resuIL
b This insurance applies to bodily injury and property damage only if
(1) The bodily injury or property damage is caused by an occurrence that takes place in the coverage territory
(2) The bodily injury or property damage occurs during the policy period and
(3) Prior to the policy period no insured listed under Paragraph 1 of Section II - Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part If such a listed insured or authorized middotmiddotemployee knew prior to the policy period that the bodily injury or property damage occurred then any continuation change or resumption of such bodily injury or property damage during or after the policy period will be deemed to have been known prior to the policy period
c Bodily injury or property damage which occurs during the policy period and was not prior to the policy period known to have occurred by
5 ISO has long been the predominate publisher of commercial general liability insurance policy forms in the industry The ISO Commercial General Liability Coverage Form CGOOOI has long been the most widely used form in the United States As such the policies involved in this case are typical standardized and have frequently been the subject of interpretation by state and federal courts
6
[L0695752 1 I
any insured listed under Paragraph 1 of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim includes any continuation change or resumption of that bodily injury or property damage after the end of the policy period
d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph 1 of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim Reports all or any part of the bodily injury or property damage to us or any other insurer
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or
(2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
Id Section I ~1
Property damage is defined under the policies as
(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 it 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 causes it
Id Section V ~17
Occurrence is defined as
[A]n accident including continuous or repeated exposure to substantially the same general hannful conditions
Id Section V ~13
Consonant with the well-recognized fact that commercial liability insurance covers tort
claims and not contract claims in subparagraph 6 of the Exclusions section the policies
7
(L069S7S21 I
contain a Contractual Liability exclusion The language of this familiar exclusion makes clear
that the insurance does not apply to bodily injury or property damage for which the insured
is obligated to pay damages by reason of the assumption of liability in a contract or
agreement 6 The policies also contain exclusion (m) which states that the coverage does not
apply to
m Damage to impaired property or property not physically damaged Property damage to impaired property arising out of (1) a defect deficiency inadequacy or dangerous condition in your
product or your work or (2) a delay or failure by you or anyone acting on your behalf to
perform a contract or agreement in accordance with its terms 7
In addition to the commercial liability policies Bitco also insured 1A Street under
commercial umbrella policies from March 2003 through March 2007 each of which contained
materially identical provisions as set forth above except that the insuring agreement also
included the following language We will pay on behalf of the insured the ultimate net loss in
excess of the retained limit because of property damage caused by an occurrence which
takes place during the policy period 8 Paragraph 5 of the Limits of Insurance provision
addresses the limits of property damage coverage under Coverage A The language therein
states succinctly as follows
Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of
6 The exceptions are where the liability is one ( 1) That the insured would have in the absence of the contract or agreement [or] (2) Assumed in the contract or agreement that is an insured contract As discussed fully below neither of these exceptions to the Contractual Liability exclusion apply in this case 7 The policies also each have a Limits of Liability section discussed more fully below in Biteos CrossshyAssignments ofError 8 See JA3004-3312
8
(L069S7S2 I )
(a) Damages under Coverage A (b) Because of all bodily injury and property damage arising out of any one occurrence
Bitco extended a defense to lA Street in the underlying action but did so under
reservation ofright to deny coverage
C PROCEDURAL HISTORY
As stated the insurance issues herein relate to an Amended Complaint filed in the
underlying action on December 11 2007 joining and asserting claims against JA Street See
JA-2I7 On July 14 2008 Biteo filed the instant action for declaratory judgment pursuant to
the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the
Circuit Court detennine that the previously described commercial general liability insurance
policies afford no coverage and Bitco owes no duty to defend JA Street for the claims asserted
in the Amended Complaint in the underlying action See JA-19
By Order dated February 172015 the Circuit Court invited summary judgment motions
on all grounds argued by all parties subject to waiver should any available ground not be raised
9 On August 13 2009 Biteo fIled a Motion for Summary Judgment requesting that the Circuit Court declare as a matter of law that Bitco owes no coverage andor duty to defend lA Street with respect to the claims asserted against JA Street in the underlying action See JA-263 IA Street filed a CrossshyMotion for Partial Summary Judgment on that issue Following oral argument the Circuit Court denied Biteos Motion and granted IA Streets Cross-Motion rmding that Biteo owes JA Street a duty to defend the underlying action until such time as the Plaintiff meets its burden of proof that no duty to defend exists See Order JA-I005 The Circuit Court concluded that it cannot definitively say at this time that under Tennessee law the plaintiff would not have a duty to defend Id On March 13 2014 1A Street filed a Third-Party Complaint pursuant to the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the Circuit Court determine that Biteo along with five (5) other insurers owe coverage to IA Street for the claims asserted against it by TlID and that no exclusions or other policy language excludes limits or defeats coverage See IA-I051 As discussed in Petitioners Brief extensive motion practice ensued regarding a host of intricate insurance issues
9
[L06957521
Accordingly on March 12 2015 Bitco filed a Second Amended Cross-Motion for Summary
Judgment arguing that there was no coverage nor any duty to defend under any of its policies
because contract claims for damages brought against construction contractors based upon defects
or deficiencies in the work do not constitute property damage caused by an occurrence are
not VIIithin the scope of the standard commercial liability or umbrella policy and are in any event
excluded See IA-8614 After briefing and argument on December 302016 the Circuit Court
entered an Order agreeing with Bitco and granting summary judgment in Bitcos favor along
with a declaration that Bitco owes no duty to defend nor any coverage of the claims asserted
against IA Street in the underlying action See Opinion JA-I0SS2 JA Street took an appeal
to this Court and filed its principal Brief on May 122017 Bitco now responds
II SUMMARY OF ARGUMENT
This Court should affirm the lower courts declaration that Bitco owes no coverage and
no duty to defend JA Street under its commercial general liability (CGL) and umbrella
insurance policies with respect to the claims asserted in the underlying action The claims
asserted by THD against JA Street in the underlying action are for breach of contract breach of
warranty and indemnity All of these claims are ex contractu they all arise out of a written
agreement between DID and 1A Street under which 1A Street agreed to construct the Merritt
Creek Shopping Center All claims in the underlying action relate to alleged breach of the
express or implied obligations of the aforesaid contract due to alleged deficiencies in
construction work that JA Street contracted to perform thereunder Pursuant to well-settled
law those claims are not covered by liability insurance policies
10
L0695752 I
All damages alleged in the underlying Amended Complaint are first-party claims alleging
economic damages directly relating to the work JA Street contracted to perform The fact that
the only claims pled are for breach of contract -- and not tort -- is dispositive to the insurance
coverage issues Well-established Tennessee authority and the decisions of a majority of other
jurisdictions across the country have explicitly recognized that contract claims precisely like
those asserted against lA Street are not within the embrace of the insuring agreement of the
standard commercial liability policy The Travelers Indemn Co of Am v Moore amp Assocs
Inc IO decision upon which the Petitioners principally rely is inapposite since it does not address
whether pure contract claims are covered The Tennessee Supreme Courts decision in Vernon
Williams amp Son Constr Inc v Continental Ins Co II which is still the law in Tennessee today
and which the Petitioners entirely ignore clearly holds that any contract-based claims for faulty
workmanship are not covered under a commercial liability policy Consequently the claims
asserted against lA Street in the underlying action are not covered under the clear and
unambiguous terms of the applicable policies initial grant of coverage because the claims
alleged are only for the recovery of economic damages based upon breach of contract In
addition the Circuit Court correctly noted the applicability of exclusion (m) relative to impaired
property Because it is clear that the policies do not afford coverage for the claims asserted in
the underlying action Bitco does not owe a duty to defend lA Street Therefore the Circuit
Courts determination that lA Street is not entitled to coverage and a defense under the Bitco
policies was entirely correct
10 216 SW3d 202 (Tenn 2007) 11 591 SW2d 760 (Tenn 1979)
11
L069S7S21 J
Finally though the issue is moot since Bitco owes no coverage at all Bitco cross-assigns
error in the Circuit Courts determinations that more than one policy and per occurrence limit
could apply under any circumstances The unambiguous policy language restricts any coverage
to only one policy period and only one applicable limit This Court should not need to reach
those issues however since there is no coverage at all
UI STATEMENT REGARDING ORAL ARGUMENT AND DECISION
Bitco does not believe the narrow issues necessary to affirm the judgment below are
particularly difficult or complex However if the Court is interested in entertaining oral
argument Bitcos counsel would of course happily oblige
IV ARGUMENT
A STANDARD OF REVIEW
Inasmuch as the summary judgment was entered with regard to a declaratory judgment
action [a] circuit courts entry of a declaratory judgment is reviewed de novo Id
(quoting Syl Pt 3 Cox v Amick 195 WVa 608 466 SE2d 459 (1995raquo See also
Blankenship v City of Charleston 223 WVa 822 824 679 SE2d 654 656 (2009) (quoting
Syi Pt 1 Painter v Peavy 192 WVa 189 451 SE2d 755 (1994raquo Moreover
[d]etermination of the proper coverage of an insurance contract when the facts are not in
dispute is a question of law Id at 825 (quoting Syi Pt 1 Tennant v Smallwood 211 WVa
703 568 SE2d 10 (2002raquo) As [t]he interpretation of an insurance contract including the
question of whether the contract is ambiguous is a legal determination like a lower courts
grant of summary judgment [it] shall be reviewed de novo on appeal Id (quoting SyI Pt 2
12
(L06957521 )
Riffe v Home Finders Associates Inc 205 WVa 216 517 SE2d 313 (1999)) Importantly as
discussed in detail immediately below since the core issue in this case merely requires a
comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies this case presents a pure matter of law that is uniquely
suitable for decision at the summary judgment stage
B THE CIRCUIT COURT CORRECTLY HELD THAT UNDER TENNESSEE LAW THE CONTRACTUAL CLAIMS ASSERTED BY THD AGAINST JA STREET ARE NOT COVERED
BY THE BITCO POLICIES
In this State a liability insurer has no duty to defend an action asserted against the
insured where it is clear from the allegations of the Complaint against the insured that there is no
coverage afforded under the relevant insurance policy See Horace Mann Ins Co v Leeber 376
SE2d 581 584 180 WVa 375 (1988) State Auto Mut Ins Co v Alpha Engg Servbull Inc
542 SE2d 876 879 208 WVa 713 (2000) (If the causes of action alleged in the plaintiffs
complaint are entirely foreign to the risks covered by the insurance policy then the insurance
company is relieved of its duties under the policy) Tennesseel2 follows exactly the same rule
See Drexel Chemical Co v Bitco Ins Co 933 SW2d 471480 1996 TennApp LEXIS 356
(1996) (holding that the insurer did not have a duty to defend where an exclusion applied to
foreclose coverage) Tenn Farmers Mut Ins Co v Brown 1990 TennApp LEXIS 812 (1990)
(The general rule in Tennessee is that an insurer is not obligated to undertake the defense of a
suit against its insured unless the allegations of the complaint show a claim for damages that
would be covered by the policy) Cincinnati Ins Co v Grand Pointe LLC 2007 US Dist
12 All parties concede that Tennessee law governs construction of the insurance policies
13
(L069S7S21 )
LEXIS 39784 (ED Tenn 2007) (If it is plain from the face of the underlying complaint the
allegations fail to state facts that bring the case within or potentially within the policy no duty to
defend exists) Am Nat Prop and Cas Ins Co v Gray 803 SW 2d 693 695-96 (Tenn Ct
App 1990) Graves v Liberty Mut Fire Ins Co 745 SW2d 282283 (Tenn Ct App 1987)
In ascertaining whether there is a duty to defend under a liability insurance policy
Tennessee adheres to a strict four comers approach See Interstate Packaging Co v Century
Indem Co bull 2013 US Dist LEXIS 45459 (MDTenn 2013) citing St Paul Fire amp Marine Ins
Co v Torpoco 879 SW2d 831 835 (Tenn 1994) Clark v Sputnicks LLC 368 SW3d 431
439 (Tenn 2012) (An insurers duty to defend is determined solely by an examination of the
allegations of the underlying complaint) Thus under Tennessee law the court must limit its
inquiry to the claims and allegations presented in the complaint against the insured [I]f the
allegations contained in the complaintare within the risk insured against and there is a
potential basis for recovery then [the insurer] must defend St Paul v Torpoco supra 879
SW2d at 835 Conversely if the claims alleged in the complaint are clearly not within the
scope of coverage then there is no duty to defend Drexel Chemical Co v Bitco Ins Co 933
SW2d 471 480 (Tenn 1996) As the United States Court of Appeals for the Sixth Circuit
stated it applying Tennessee law in Smith amp Nephew Inc v Fed Ins Co 113 FedAppx 99
(6th Cir 2004) in detennining an insurers duty to defend courts typically begin and end
their analysis with the four comers of the complaint Id at 102 Petitioner argues that there
are significant issues of material fact that exist given that there has been no final resolution of the
14
(LD09S752 I
underlying action13 but in fact clear-cut law dictates that all the Court must do is contrast the
averments of the Amended Complaint with the terms of the policies
The instant inquiry must therefore begin with the unique circumstances that the TIID
Amended Complaint against lA Street pleads only contract-based claims and not tort claims
Although the Circuit Court based its finding of no coverage solely on the Contractual Liability
exclusion as discussed in detail below courts in Tennessee and elsewhere have concluded that
there is no coverage for breach of contact claims and the damages that typically flow from such
claims on broader grounds While the Circuit Court did not subscribe to that broad view
our cases have made clear that it is permissible for us to affirm the granting of [dismissal] on bases difference or grounds other than those relief upon by the circuit court Hoover v Moran 222 WVa at 119 662 SE2d at 718 quoting Gently v Mangum 195 WVa 512519466 SE2d 171178 (1995) See also Schmehl v Helton 222 WVa 98 662 SE2d 697 705 n7 (2008) (this Court may in any event affirm the circuit court on any proper basis whether relied upon by the circuit court or not) Murphy v Smallridge 196 WVa 35 36-7 468 SE2d 167168-9 (1996) (An appellate court is not limited to the legal grounds relied upon by the circuit court but it may affirm or reverse a decision on any independently sufficient ground that has adequate support) Syl pt 3 Barnett v Wolfolk 149 WVa 246 140 SE2d 466 (1965) (This Court may on appeal affirm the judgment of the lower court when it appears that such judgment is correct on any legal ground disclosed by the record regardless of the ground reason or theory assigned by the lower court as the basis for its judgment)
Savarese v Allstate Ins Co 672 SE2d 255260 (WVa 2008)
One of the more elemental and uniformly embraced principles of corrunercial insurance
law is that the typical commercial liability insurance policy affords coverage for tort claims not
claims for breach of contract The authorities supporting that proposition are legion Dean
Henderson in his renowned and widely cited law review article makes the point emphatically
13 Petitioners Brief pp 25-27 15
(L0695752 1 J
[t]he risk intended to be insured is the possibility that the goods products or work of the insured once relinquished or completed will cause bodily injury or damage to property other than to the product or completed work itself and for which the insured may be found liable The insured as a source of goods or services may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable because it is lacking in some capacity This may even extend to an obligation to completely replace or rebuild the deficient product or work This liability however is not what the coverages in question are designed to protect against The coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb L Rev 415441 (1971)14
The overwhelming majority of courts and commentators that have addressed this issue
have held that breach of contract claims asserted against the insured are not covered under a
standard CGL policy See eg Couch on Insurance 3d sect1291-1294 (3d Ed 2005) (a
commercial general liability insurance policy is generally designed to provide coverage for tort
liability for physical damages to others and not for contractual liability of the insured for
economic loss the majority of jurisdictions have held that breach of contract is not an
14 The Henderson article has been widely relied upon by courts and commentators for over 40 years Noticeably it has been frequently cited with approval in Tennessee See Vernon (relying upon the Henderson article the Tennessee Court held that the standard comprehensive general liability policy does not provide coverage to an insured-contractor for a breach of contract action grounded upon faulty workmanship or materials where the damages claimed are the cost of correcting the work itself) Blaylock amp Brown Constr Inc v AIU Ins Co 796 SW2d 146 1990 TennApp LEXIS 338 (1990) (relying upon Henderson the Court holds bull that the language of the policy excludes liability coverage for the plaintiffs for damage to the property constructed pursuant to the contract) Standard Fire Ins Co v Chester-ODonley amp Assocs 972 SW2d 1 1998 TennApp LEXIS 65 (1998) (citing the Henderson article for the proposition that CGL policies are not intended to cover the insureds contractual liability for economic loss because its work was not that for which the damaged person bargained) Weedo v Stone-E-Brick Inc bull 81 NJ 233 405 A2d 788 (1979) (relying heavily upon the Henderson article the Court holds that a CGL policy does not provide coverage for a breach of contract action for faulty workmanship where the damages claimed are the cost ofcorrecting the work itself)
16
IL069S7S2 I
occurrencea [CGL] policy is not intended to provide coverage for the insureds contractual
liability which merely causes economic losses) Alan D Windt Insurance Claims and
Disputes sect117 (4th Ed 2001) (Finally there is the question as to whether a breach of
contract claim involves damages caused by an occurrence The answer should in general be
no) Erie Ins Prop amp Cas Co v Pioneer Home Improvement Inc 526 SE2d 28 33 206
WVa 506 513 (1999) (The coverage [under a COL policy] is for tort liability for physical
damages to others and not for contractual liability of the insured for economic loss because the
product or completed work is not that for which the damaged person bargained) Nationwide
Mutual Ins Co v CPB Intl Inc 562 F3d 591 598 2009 US App LEXIS 7795 14 (3d Cir
2009) (holding that under Pennsylvania law a CGL policy does not provide coverage for
claims in an underlying action that arise out of and relate to the contract between the parties)
Lyerla v AMCO Ins Co 536 F3d 684691-922008 US App LEXIS 164 78 (7th Cir 2008)
(applying Illinois law) (holding that underlying allegations that insured contractor did not satisfy
his contractual obligations is not property damage caused by an occurrence) L-J Inc v
Biteo Fire amp Marine Ins Co 621 SE2d 33 35 366 SC 117 (2005) (any liability that is
incurred because of faulty workmanship is part of the insureds contractual liability not an
insurable event under a CGL policy) Hotel Roanoke Conf Ctr Commn v Cincinnati Ins Co
303 FSupp2d 784 7882004 US Dist LEXIS 2539 (2004) (applying Virginia law) (damages
limited to the insureds work or product and resulting from the insureds defective perfonnance
of a contract are not covered losses under a [CGL] policy) Westfield Ins Co v Sheehan
Construction Co 580 FSupp2d 701 710 2008 US Dist LEXIS 66843 (2008) (applying
17
(L06957521
Indiana law) (a CGL policy serves to limit contractors tort liability for damage to property
caused by their work) Key Custom Homes Inc v Mid-Continent Cas Co 450 FSupp2d
1311 1317-182006 US Dist LEXIS 60355 (2006) (applying Florida law) (it is equally clear
that breach of contract claims for the recovery of money are not covered by general liability
insurance policies) Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254 1257329
Ore 620 (2000) (there can be no accident within the meaning of a commercial liability policy
when the resulting damage is merely a breach of contract) Bonded Concrete Inc v Transcon
Ins Co 12 AD3d 761 2004 NYAppDiv LEXIS 13020 (2004) (the purpose of a
commercial general liability policy is to provide coverage for tort liability for physical damage
to others and not for contractual liability of the insured for economic loss because the
product is not what the damaged [party] bargained for) United States Fire Ins Co v Milton
Co 35 FSupp2d 8386 1998 US Dist LEXIS 22116 (1998) (applying Maryland law) (there
is no occurrence under a comprehensive general liability insurance policy where and to the
extent that a contractors use of defective materials and substandard workmanship results in
economic losses that would normally be recoverable in a breach of contract action) Burlington
Ins Co v Oceanic Design amp Construction Inc 383 F3d 940 2004 US App LEXIS 18932
(9th Cir 2004) (applying Hawaii law) (holding that claims for breach of contract and negligent
breach of contract are not covered under a CGL policy) Norwalk Ready Mixed Concrete Inc v
Travelers Ins Co 246 F3d 1132 2001 US App LEXIS 7148 (8th Cir 2001) (applying Iowa
law) (holding that breach of contract and breach of warranty claims are not covered under a CGL
policy) USFampG Com v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476
18
(L06957521 l
(1989) (holding that a breach of contract claim asserted against an insured contractor is not
covered under a COL policy) Oreat Divide Ins Co v Bitterroot Timberfiames of Wyoming
LLC 2006 US Dist LEXIS 94826 (2006) (applying Wyoming law) (the allegations
demonstrate losses resulting from breach of contract and therefore cannot constitute an
accident for purposes of determining coverage) Union Ins Co v Hottenstein 83 P3d 1196
12022003 ColoApp LEXIS 1857 (2003) (poor workmanship constituting a breach of contract
is not a covered occurrence)
Tennessee lawl5 is in accord with these authorities The Tennessee Supreme Court has
defInitively held that breach of contract claims due to the insureds faulty workmanship such as
those asserted here by THD against IA Street in the underlying Amended Complaint are simply
not covered under the grant of coverage contained in a commercial liability policy See Vernon
supra Chester-ODonley supra at 6-7 (General liability policies are not all-risk policies and
only cover damages up to the policy limits for which the insured becomes liable as a result of
tort liability to a third party) (emphasis added) In Vernon the Supreme Court of Tennessee
expressly held that a standard COL policy only covers tort claims and such a policy does not
15 Under applicable Tennessee law contracts of insurance are subject to the same rules of interpretation and construction as other contracts McKimm v Bell 790 SW2d 526 527 1990 Tenn LEXIS 161 (1990) Thus [a]n insurance policy must be interpreted fairly and reasonably giving the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204 SW3d 758 2006 Tenn LEXIS 755 (2006) In the absence of fraud or mistake a contract must be interpreted and enforced as written even though it contains terms which may be thought harsh and unjust Allstate Ins Co v Wilson 856 SW2d 706 1992 TennApp LEXIS 1012 (1992) As a result the analysis of JA Streets right to coverage for the claims asserted in the underlying action are dictated by the terms of the policy The essential components of a general liability insurance policy include (1) the declarations (2) the insuring agreements and definitions (3) the exclusions (4) the conditions and (5) the endorsements See ChestershyODonley supra The insuring agreement sets the outer limits of an insurers contractual liability If coverage cannot be found in the insuring agreement it will not be found elsewhere in the policy Id 1998 TennApp LEXIS at 13-14
19
L069S7S21
afford coverage to an insured contractor for breach of contract claims Vernon 591 SW 2d at
765 Chester-ODonley supra at 6-7 Petitioner complains that the Circuit Court focused on
West Virginia cases such as Silk v Flat TOp6 but in fact the lower court expressly relied
upon a wealth of Tennessee authority17 including Vernon Cincinnati Ins Co v Grand Pointe
LLc18 and Trinity Univ Ins Co v Turner Funeral Home Inc 19 More recently Tennessee
courts have reaffirmed the rationale and holding of Vernon See State Auto Ins Cos v Gordon
Constr Inc 2001 TennApp LEXIS 349 (2001) (following Vernon and holding that the
insuring agreement of a CGL policy does not afford coverage for underlying breach of contract
and breach of warranty claims asserted against the insured contractor) Blake Indus Inc v
General Agents Ins Co of Am 2000 Tenn App LEXIS 490 (2000) (applying Vernon and
holding that claims asserted against the insured that were grounded in contract are not covered
under a CGL policy) Blaylock and Brown Constr Inc v AID Ins Co 796 SW2d 146 152shy
153 (Tenn Ct App 1990)
As the Circuit Court correctly recognized the express tenus of the insurance contract
clearly exclude contractual liability from coverage Exclusions help define and shape the scope
of coverage but they must be read in terms of the insuring agreement to which they apply
Exclusions can only decrease coverage they cannot increase it Chester-ODonley 972 SW2d
at 7-8 Moreover [e]ach exclusion reduces coverage and operates independently with reference
16 Petitioners Brief p 30 (citing 453 SE2d 356 (Wva 1994raquo 17 See See Opinion JA-I0552 ~27
18 2007 US Dist LEXIS 39784 (ED Tenn 2007) 19 2003 WL 23218046 (ED Tenn Dec 122003)
20
IL069S7S2 I I
to the insuring agreement Id at 8 The Contractual Liability exclusion specifically provides
that the insurance coverage does not apply to
Contractual liability
Bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement This exclusion does not apply to liability for damages
(1) That the insured would have in the absence of the contract or agreement or
(2) Assumed in a contract or agreement that is an insured contract provided the bodily injury or property damage occurs subsequent to the execution of the contract or agreement Solely for the purposes of liability assumed in a insured contract reasonable attorneys fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of bodily injury or property damage provided
(a) Liability to such party for or for the cost of that partys defense has also been assumed in the same insured contract and
(b) Such attorneys fees and litigation expenses are for defense of that party against the civil or alternative dispute resolution proceeding in which damages to which the insurance applies are alleged
See JA-62 Section I C[2
Even a cursory examination ofTHDs Amended Complaint reveals that all claims alleged
against JA Street were contractual There simply was no tort claim alleged In fact the claims
against JA Street were necessarily founded in contract for two reasons First the two-year
statute of limitations applicable to any tort claims elapsed long before THD first asserted its
claims against JA Street Tort claims were not pleaded and could not have been Second the
substantive law of West Virginia applies to the underlying claims asserted by THD against lA
21
(L069S7S21 I
Street20 and applicable West Virginia law plainly holds that even if THD had asserted tort
claims against JA Street the claims would still sound in contract under these circumstances for
purposes of the instant analysis since the gist of claims asserted against a contractor for deficient
work is necessarily ex contractu See Silk supra at 360 Dan Ryan Builders Inc v Crystal
Ridge Dev Inc 783 F3d 976 (4th Cir 2015) Unlike in both Silk and Dan Ryan THO did not
even assert any tort claims here Nor could it have Relevant to the precise policy language at
issue there simply was no liability for damages that [JA Street] would have in the absence of
the contract or agreement It simply cannot be contested that the claims alleged in the Amended
Complaint are and indeed necessarily were contractual in nature Given that alone the clear
holding of the Tennessee Court in Vernon mandated the Circuit Courts correct grant of
summary judgment in Biteos favor
A great majority of courts and commentators across the country that have addressed the
issue have held that the explicit unambiguous express Contractual Liability exclusion forecloses
coverage for all contract liability including breach of contract claims asserted against the
insured except where the insured has assumed the liability of another in an insured contract
See eg Silk v Flat Top Constr Inc 453 SE2d 356 359 192 WVa 522 (1994) (holding that
the contract exclusion applies to foreclose coverage for all contractual liability of the insured
except for liability assumed in an insured contract-a contract under which the insured
assumes the tort liability of another party) Gilbert Tex Constr v Underwriters at Lloyds
20 West Virginia applies the choice-of-law principle of lex loci delicti and there is no question here that the offending conduct and the loss all occurred in West Virginia such that JA Streets liability to THD would be governed by West Virginia law See State of Wva ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) (citing Syl Pt 1 Paul v Natl Life 352 SE2d 552 (WVa 1986raquo
22
(L069S7521 I
Londo 327 SW3d 118 (2010) (citing inter alia Nationwide Mut Ins Co v CPB Int Inc
No 306-CV-0363 2007 WL 4198173 at 8 (MDPa Nov26 2007) (Exclusion (b) is simply
further clarification in the policy that contract-based claims are not covered) ClM Ins Corp v
Midpac Auto Crr Inc 108 FSupp2d 1092 1099-1100 (DHaw2000) (clause in policy stating
that policy does not apply to liability assumed under any contract or agreement means that any
claim that is dependent on the existence of an underlying contract is not covered) Monticello
Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 at 2 (WDKy
Apr 3 1998) (exclusion for liability assumed by the insured under any contract or agreement
does not arise only when a party assumes the liability for another party rather the plain meaning
of the policy excludes a breach of contract claim from coverage) Silk supra (exclusion removed
coverage for breach of contract) TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 1091-92
(8th Cir1995) (exclusion for which the insured has assumed liability in a contract or agreement
plainly excluded coverage for contractual claims and not just hold-harmless or indemnity
agreements) Nationwide Mutual Ins Co v CPB Intl Inc 562 F3d 591 5992009 US App
LEXIS 7795 (3d Cir 2009) (applying Pa law) (holding that a breach of contract claim is excluded
under the Contractual Liability exclusion) Century Sur Co v Hardscape Constr Specialties Inc
578 F3d 262 2009 US App LEXIS 25300 (5th Cir 2009) (applying Texas law) (holding that the
Contractual Liability exclusion operates to exclude claims grounded primarily in breach of contract
and that no tort claims were asserted that triggered the insured contract exception) State Farm
Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 12 (2007) (applying Hawaii
law) (holding that claims arising from the insureds obligations under a contract are barred from
23
L0695152 I I
coverage under the Contractual Liability exclusion) JACO Airfield Constr Inc v National Trust
Ins Co 2007 US Dist LEXIS 100295 10 (2007) (applying Georgia law) (holding that the
Contractual Liability exclusion applies to foreclose coverage for the contractual based claims
asserted against the insured and that the insured contract exception to the Contractual Liability
exclusion does not apply because the insured did not assume the tort liability of another) Union Ins
Co v Williams Contr Inc 2006 US Dist LEXIS 35919 4-5 (2006) (holding that the
Contractual Liability exclusion precludes coverage for claims against the insured for breach of a
construction contract) Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270
GaApp 8 (2004) (affirming trial comts finding that the Contractual Liability exclusion barred
coverage for breach of contract and breach of implied warranty claims against the insured) Gibson
amp Assocs Inc v Home Ins Co 966 FSupp 468476-77 1997 US Dist LEXIS 4776 (1997)
(applying Texas law) (recognizing that the Contractual Liability exclusion precludes coverage for
breach of contract claims asserted against the insmed and that the policy only covers contractual
liability for indemnification actions ie an insured contract) James v Burlington Northern Santa
Fe Railway Co 2007 US Dist LEXIS 63282 4-5 (2007) (applying Arizona law) (holding that
the insured contract exception to the Contractual Liability exclusion does not bring ordinary
breach-of-contract claims within the scope of CGL coverage) TGA Dev Inc v Northern Ins Co
of New York 62 F3d 1089 1091-92 1995 USApp LEXIS 21700 (8th Cir 1995) (applying
Minnesota law) (holding that the Contractual Liability exclusion plainly excludes coverage for
contractual claims made for [the insmeds] failure to provide [the property owner] with a
condominium unit free from defects)
24
(lO6957521 )
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
TABLE OF AUTHORITIES
CASES
Allstate Ins Co v Wilson 856 SW2d 706 1992 TennApp LEXIS 1012 (1992) 19
Am Family Mut Ins Co v American Girl Inc 673 NW2d 65 268 Wis2d 16 (2004)
272830
Am Nat Prop and Cas Ins Co v Gray 803 SW 2d 693 (Tenn Ct App 1990) 14
American Physicians Insurance Exchange and American Physicians Service Group Inc v
Garcia 876 S W2d 842 (Texas 1994) 43
Apjalachian Ins Co v Liberty Mut Ins Co 676 F2d 56 (3d Cir Pa 1982) 39
Associated lndem Corp v Dow Chern Co 814 FSupp 613 (ED Mich 1993) 39
Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612 (2004) 43
Barnett v Wolfolk 149 WVa 246 140 SE2d 466 (1965) 15
Bayley Construction vs American Guaranty amp Liability Insurance CPO 2010 US Dist
LEXIS 110767 (WD Wash 2010) 44
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) 43
Blake Indus Inc v General Agents Ins Co of Am 2000 Tenn App LEXIS 490 (2000) 20
Blankenship v City ofCharleston 223 WVa 822 679 SE2d 654 (2009) 12
Blaylock and Brown Constr Inc v AIU Ins Co 796 S W2d 146 (Tenn Ct App 1990)
1620
Bonded Concrete Inc v Transcon Ins Co 12 AD3d 761 2004 NYAppDiv LEXIS 13020
(2004) 18
Burlington Ins Co v Oceanic Design amp Construction Inc 383 F3d 940 2004 US App
LEXIS 18932 (9th Cir 2004) 18
Canal Indem Co v Adair Homes Inc 445 Fed Appx 938 (9th Cir 2011) 32
Central Armature Works Inc v Am Motorists Ins Co 520 FSupp 283 (DDC 1980) 33
Century Sur Co v Hardscape Constr Specialties Inc 578 F3d 262 2009 US App LEXIS
25300 (5th Cir 2009) 23
111
(L069S 752 I I
Certain Underwriters at Llovds of London v Paniagill 957 FSupp2d 921 (WDTenn
2013) 35
Certain Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229
P3d 930 (WashApp 2001) 44
Champion Intl Corp v Continental Casualty Co 546_F2d 502 (2d Cir NY 1976) 39
CIM Ins Corp v Midpac Auto Ctr Inc 108 FSupp2d 1092 (DHaw2000) 23
Cincinnati Ins Co v Grand Pointe LLC 2007 US Dist LEXIS 39784 (ED Tenn 2007) 14
202627
Clark v Sputnicks LLC 368 SW3d 431 (Tenn 2012) 14
Columbia Mut Ins Co v Schauf 967 S W2d 74 (Mo 1998) 32
Copple Constr LLC v Columbia Natl Ins Co 776 NW2d 503 (Neb 2009) 32
Cox v Amick 195 WVa 608 466 SE2d 459 (1995) 12
Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270 GaApp 8 (2004) 24
Dan Ryan Builders Inc v Crystal Ridge Dey Inc 783 F3d 976 (4th Cir 2015) 22
Dey Inc y Northern Ins Co of New York 62 F3d 1089 1995 USApp LEXIS 21700 (8th Cir
1995) 24
Drexel Chemical Co v Bitco Ins Co 933 SW2d 4711996 TennApp LEXIS 356 (1996)
13 14
Erie Ins Prop amp Cas Co v Pioneer Home Improvement Inc 526 SE2d 28 206 WVa 506
(1999) 17
Ernst v Acuity 704 NW2d 869 (ND 2005) 33
Ewing Constr Co Inc v Amerisure ms Co 420 SW3d 30 (Tex 2014) 2829
General Housewares Corp v National Surety Corp 741 NE2d 408 (Ind 2000) 37
Gentry v Mangum 195 WVa 512466 SE2d 171 (1995) 15
Gibson amp Assocs Inc v Home Ins Co 966 FSupp 468 1997 US Dist LEXIS 4776 (1997) 24
Gilbert Tex Constr v Underwriters at Lloyds Londo 327 S W3d 118 (2010) 23 28 2930
Graves v Liberty Mut Fire Ins Co 745 SW2d 282 (Tenn Ct App 1987) 14
tv
L06957521 I
Great Divide Ins Co v Bitterroot Timberframes of Wyoming LLC 2006 US Dist LEXIS
94826 (2006) 19
Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) 43
Greenidge v Allstate Insurance Co 312 F2d430 (SDNY 2004) 43
GrinnellMut Reinsurance Co v Lynne 686 NW2d 118 (ND 2004) 33
Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th Cir 2000) 32
Hathaway Dev Co v lll Union Ins Co 274 Fed Appx 787 (11 th Cir 2008) 32
Headley v St Paul Fire amp Marine Ins Co 712 FSupp 745 (DSD 1989) 39
Hiraldo vs Allstate Insurance Co 8 AD3d 230 778 NYS 2d 50 (2004) 43
Hoover v Mornn 222 WVa at 119 662 SE2d at 718 15
Horace Mann Ins Co v Leeber 376 SE2d 581 180 WVa 375 (1988) 13
Hotel Roanoke Com Ctr Commn v Cincinnati Ins Co 303 FSupp2d 784 2004 US Dist
LEXIS 2539 (2004) 17
Interstate Packaging Co v Century Indem Co 2013 US Dist LEXIS 45459 (MD Tenn
2013) 14
JACO Airfield Constr Inc v National Trust Ins Co 2007 US Dist LEXIS 100295 (2007) 24
Jacob v Russo Builders 592 NW2d 271 (Wis Ct App 1999) 34
James v Burlington Northern Santa Fe Railway Co 2007 US Dist LEXIS 63282 (2007) 24
Kaiser Cement and Gypsum Corp v Insurance Co of the State of Pa 215 Cal App 4th 210
155Cal Rptr 3d283 (2013) 43
Key Custom Homes Inc v Mid-Continent Cas Co 450 FSupp2d 1311 2006 US Dist
LEXIS 60355 (2006) 18
Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) 39
Lennar Corp v Markel American Insurance Co 413 SW3d 750 (Texas 2013) 43
LISN Inc v Commercial Union Ins Cos 615 NE2d 650 (Ohio Ct App 1992) 33
L-J Inc v Bitco Fire amp Marine Ins Co 621 SE2d 33 366 SC 117 (2005) 17
Lyerla v AMCO Ins Co 536 F3d 684 2008 US App LEXIS 164 (7th Cir 2008) 17
McKimm v Bell 790 SW2d 526 (Tenn 1990) 1935
v
(t06957521 I
Monticello Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 (WDKy
Apr3 1998) 23
Murphy v Smallridge 196 WVa 35468 SE2d 167 (1996) 15
Naifeh v Valley Forge Life Ins Co 204 SW3d 758 (Tenn 2006) 1935
Nationwide Mutual Ins Co v CPB IntI Inc 562 F3d 591 2009 US App LEXIS 7795 (3d
Cir 2009) 17 23
Nesmith v Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) 43
Newark Ins Co v Acupac Packaging Inc 746 A2d 47 (NJ Super Ct App Div 2000) 34
North American Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552
(5th Cir 2008) 43
Norwalk Ready Mixed Concrete Inc v Travelers Ins Co 246 F3d 1132 2001 US App
LEXIS 7148 (8th Cir 2001) 18
Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254329 Ore 620 (2000) 18
Olympic Inc v Providence Washington Insurance Co of Alas~ 648 P2d 1008 (Alaska 1982)
30
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 (DDC 1984) 39
Painterv Peavy 192 WVa 189451 SE2d 755 (1994) 12
Paul v Natl Life 352 SE2d 552 (WVa 1986) 22
Riffe v Home Finders Associates Inc 205 WVa 216 517 SE2d 313 (1999) 13
Ryan Homes v Home Indem Co 647 A2d 939 (Pa Super 1994) 33
Safeco Insurance Company of American v Firemens Fund Insurance Co 148 Cal App 4th
620 55 Cal Rptr 3d 844 (2007) 43
Sapp v State Farm Fire amp Cas Co 486 SE2d 71 (Ga Ct App 1997) 32
Savarese v Allstate Ins Co 672 SE2d 255 260 (WVa 2008) 15
Schmehl v Helton 222 WVa 98662 SE2d 697 (2008) 15
Silk v Flat Top 453 SE2d 356 (WVa 1994) 20 22 23 25
Smith amp Nephew Inc v Fed Ins Co 113 FedAppx 99 (6th Cir 2004) 14
vi
(L069S7S21 I
Southern International Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct
App 3d Dist 1977) 39
St Paul Fire amp Marine Ins Co v Torpoco 879 SW2d 831 (Tenn 1994) 14
Standard Fire Ins Co v Chester-ODonley amp Assocs 972 SW2d 1 1998 TennApp LEXIS
65 (1998) 16 19
State Auto Ins Cos v Gordon Constr Inc 2001 TennApp LEXIS 349 (2001) 20
State Auto Mut Ins Co v Alpha Engg Serv Inc 542 SE2d 876 208 WVa 713 (2000) 13
State Farm Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 (2007) 23
State ofWVa ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) 22
Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) 43
Taylor v Travelers Ins Co 40 F3d 79 (5th Cir 1994) 31
Tenn Farmers Mut Ins Co v Brown 1990 TennApp LEXIS 812 (1990) 13
Tennant v Smallwood 211 WVa 703568 SE2d 10 (2002) 12
TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 (8th Cir1995) 2324
Thommes v Milwaukee Mut Ins Co 622 NW2d 155 (Minn Ct App 2001) 34
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 (ND Tex 1980) 39
Travelers Indemn Co of Am v Moore amp Assocsbull Inc 216 SW3d 202 (Tenn 2007) 112526
Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL 23218046 (ED Tenn Dec 12
2003) 20 27
Truk-Away Inc v Aetna Cas amp Sur Co 723 A2d 309 (RI 1999) 39
Union Ins Co v Hottenstein 83 P3d 11962003 ColoApp LEXIS 1857 (2003) 19
Union Ins Co v Williams Contr Inc 2006 US Dist LEXIS 35919 (2006) 24
United States Fire Ins Co v Milton Co 35 FSupp2d 83 1998 US Dist LEXIS 22116 (1998)
18
USFampG Corp v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476 (1989)
19
Vari Builders Inc v United States Fidelity amp Guaranty Co 523 A2d 549 (Del Super Ct
1986) 32
vii
IL0595752 I I
Vernon Williams amp Son Constr Inc v Continental Ins Co 591 SW2d 760 (Tenn 1979)
pasSIm
Weedo v Stone-E-Brick Inc 405 A2d 788 (NJ 1979) 1633
Westfield Ins Co v Sheehan Construction Co 580 FSupp2d 701 2008 US Dist LEXIS
66843 (2008) 17
STATUTES
West Virginia Declaratory Judgment Act W Va Code sect55-13-1 e seq 9
OTHER AUTHORITIES
Alan D Windt Insurance Claims and Disputes sect117 (4th Ed 2001) 17
Couch on Insurance 3d sect1291-1294 (3d Ed 2005) 16
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb 1 Rev 415441 (1971) 1631
Wielinski Patrick (4th ed) IRMI Ch 6 pp 180-185 29
viii
LC6957521 I
I ST ATEMENT OF THE CASE
A INTRoDUCTION
Bitoo General Insurance Corporation (Biteo) instituted this declaratory judgment action
seeking a declaration of no coverage and no duty to defend contract claims alleging poor
workmanship asserted against Bitcos named insured in an underlying civil action pending in the
Circuit Court of Cabell County captioned at THD Development LLC a West Virginia Limited
Liability Company and THD Investors 7 LLC a West Virginia Limited Liability Company
Plaintiffs v SamplE Inc a Corporation and JA Street amp Associates Inc a Corporation
Defendants Civil Action No 03-C-0490 (hereinafter underlying action) The threshold
question presented in this declaratory judgment action is whether Bitcos standard commercial
general liability and umbrella insurance policies afford coverage for pure ex contractu claims
asserted by THD Development (THD) against JA Street amp Associates Inc (IA Street)
At an early stage Bitco moved for summary judgment on that very narrow ground toshy
wit that all of the claims pleaded against JA Street are contract-based claims for poor
workmanship and such claims are not covered by Bitcos standard oommercialliability polices
under applicable Tennessee law Unfortunately the Circuit Court found that the issue was not
susceptible to summary judgement at that time Consequently the insurance case remained
pending and Biteo continued to defend the underlying action At a later point Biteo renewed
substantially the identical argument whereupon it was again determined to be an insufficient
basis for a summary judgment Although the Circuit Court was uncertain enough at that point
that it certified the issue for interlocutory appeal the Supreme Court declined to afford review
L0695752l
Thereafter THD and lA Street immeasurably complicated the matter They devised a
theory that the case demonstrated characteristics of ongoing progressive incessant damage
typical of the asbestos-type progressive damage cases which our system of the administration of
justice has come to know On that basis lA Street sought and obtained leave of court to add
six additional insurance companies that had written commercial liability and umbrellaexcess
liability insurance over a period of years between 2001 and the present That of course
plunged the case into a maelstrom of dispute over a multitude of new insurance issues such as
trigger of coverage the accompanying loss in progress known loss rule problems
concomitant disputes over horizontalvertical exhaustion the lively debates over stacking of
per occurrence limits over successive policy periods and of course the applicability of
multiple exclusions such as the standard impaired property and earth movement exclusions
When all was said and done the Circuit Court ultimately honored Bitcos original
argument on the very narrow core issue at hand and ruled that since all of the claims asserted
against JA Street were contract-based claims for damages sustained by THD due to faulty
workmanship the commercial liability coverage provided by the policies does not apply That
determination which could have been made in 2009 is correct since the claims plainly do not
fall within the embrace of the policies as a matter of well-settled law Should this Court affirm
the judgment none of the other issues addressed by the Circuit Court affects the substantial
rights of the parties In other words they are moot
For these reasons Biteo focuses its argument on the indefatigable conclusion that there is
no coverage under the Bitco policies or any other commercial liability policies for claims ex
2
L069S7521
I
contractu for damages for poor workmanship by a construction contractor on a commercial
construction project Bitco also briefly addresses the propriety of the trial courts finding that
exclusion (m) applicable to impaired property separately operates to bar coverage
Biteo confines its cross-assignments of error to only 2 points (1) coverage if there is
any would be confmed to only one policy period either 2001-2002 or 2002-2003 because
damage first began and was known to the insured during one or the other of those periods and
(2) only one per occurrence limit applies regardless of the number of policies that are
triggered These points should in fact be moot since the Circuit Court correctly decided there is
no coverage in the fIrst instance
B STATEMENT OF FACTS
As discussed above and hereinbelow the core issue involved in this appeal requires only
a comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies themselves l To that end the Amended Complaint filed in
the underlying action alleges as follows
THD a real estate development company2 is the developer of the Merritt Creek Farm
Commercial Shopping Development located in Barboursville West Virginia See JA217-250
Amended Complaint -rl The project consisted of several sections including an anticipated site
for a Target store [d at -r7 1HD sought to prepare a pad upon which the Target store was to
Consonant with the governing standard the universe of facts that are germane to a detennination of whether a liability insurer such as Bitco has a duty to defend its insured consist of the factual allegations of the complaint flIed against the insured In this instance that would be the Amended Complaint filed by THD in the underlying case which asserted claims against 1A Street That Amended Complaint was appended as an exhibit to Bitcos Complaint in the declaratory judgment action 2 THDs principal place of business is located in Bristol Tennessee
3
(106957521 )
be constructed whereupon THD would then convey that portion of the site to Target for further
development Id TIID in turn entered into an agreement with SampME Inc (SampME) a soils
engineering firm whereby SampME agreed to perfonn a geotechnical exploration of the site and
thereafter submit a report setting forth recommendations with respect to site preparation for the
entire development Id at 10
On June 5 2001 THD entered into a written contract with IA Street for 1A Street to
serve as the general contractor on the Merritt Creek Farm Project Id at ~13 Pursuant to the
THDJA Street written agreement IA Street agreed to perform construction tasks with regard
to the Merritt Creek Farm Project including preparing the site for construction in general
preparing the Target site for construction of the Target building and constructing various
buildings and structures on the site3 Id at [13-14
In September of 2001 1A Street was perfonning grading excavation and fill work for
the portion of the site beneath which Target would eventually erect its building Id at 17 On
September 212001 the slope at the rear of the Target store site failed causing a landslide Id
During 2002 and 2003 additional slides sloughing and land movement occurred at other
locations throughout the Merritt Creek Development Id at 19 As a result THD was required
to spend substantial sums to repair the slope and address associated consequences of the
landslide Id at 18-19 THD filed the underlying action to recover those economic damages
Id generally
3 JA Street did not contract to build the Target building The Target Corporation was to perform that construction itself
4
(L069S752 I l
THD initially brought the underlying action in 2003 solely against SampME asserting
various claims for damages incurred on the project Nearly four years later on December 11
2007 THD amended its Complaint to add JA Street as a defendant By that time the two-year
tort period of limitations had long since expired Thus THDs Amended Complaint asserted
claims against JA Street were based solely upon the construction contract between THD and
JA Street -- claims for breach of contract breach of warranty and for express and implied
contractual indemnity Id at ~71-96 Therein THD alleged that JA Street failed to
perform the work in a good and workmanlike manner failed to provide competent supervision
and failed to perform the work with a high degree of expertise and workmanship thereby
breaching its agreement with THD Id at ~16 No tort claims were alleged against JA Street
in the Amended Complaint All of the claims sounded exclusively in contract
During several policy periods from 2001 to 2007 Bitco insured JA Street under very
standard commercial general liability policies4 It is undisputed that these policies were issued
by an agent located in Tennessee to JA Street a Tennessee corporation with its principal offices
located in Tennessee See JA217-219 ~4 As suc~ the policies are governed by Tennessee law
4 Policy eLP 3 107706 B was in effect fOT policy period March 12001 to March 1 2002 See JA-4 Policy eLP 3 135489 B was in effect fOT policy period March 12002 to March 12003 See JA4-216 Subsequent one-year policies issued with coverage effective through March 1 2007 See Petitioners Brief pp 9-10 JAI066 1583-2223 It is immaterial which policy applies because the relevant provisions of all of the policies are the same
5
(L06957521 )
These policies are identical they are all written on the standard Insurance Services
Office Inc (ISO) Commercial General Liability coverage forms 5 Insofar as is relevant
instantly the policies provide
1 Insuring Agreement
a We will pay those sums that the insured becomes legally obligated to pay as damages because ofbodily injury or 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 bodily injury or property damage to which this insurance does not apply We may at our discretion investigate any occurrence and settle any claim or suit that may resuIL
b This insurance applies to bodily injury and property damage only if
(1) The bodily injury or property damage is caused by an occurrence that takes place in the coverage territory
(2) The bodily injury or property damage occurs during the policy period and
(3) Prior to the policy period no insured listed under Paragraph 1 of Section II - Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part If such a listed insured or authorized middotmiddotemployee knew prior to the policy period that the bodily injury or property damage occurred then any continuation change or resumption of such bodily injury or property damage during or after the policy period will be deemed to have been known prior to the policy period
c Bodily injury or property damage which occurs during the policy period and was not prior to the policy period known to have occurred by
5 ISO has long been the predominate publisher of commercial general liability insurance policy forms in the industry The ISO Commercial General Liability Coverage Form CGOOOI has long been the most widely used form in the United States As such the policies involved in this case are typical standardized and have frequently been the subject of interpretation by state and federal courts
6
[L0695752 1 I
any insured listed under Paragraph 1 of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim includes any continuation change or resumption of that bodily injury or property damage after the end of the policy period
d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph 1 of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim Reports all or any part of the bodily injury or property damage to us or any other insurer
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or
(2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
Id Section I ~1
Property damage is defined under the policies as
(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 it 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 causes it
Id Section V ~17
Occurrence is defined as
[A]n accident including continuous or repeated exposure to substantially the same general hannful conditions
Id Section V ~13
Consonant with the well-recognized fact that commercial liability insurance covers tort
claims and not contract claims in subparagraph 6 of the Exclusions section the policies
7
(L069S7S21 I
contain a Contractual Liability exclusion The language of this familiar exclusion makes clear
that the insurance does not apply to bodily injury or property damage for which the insured
is obligated to pay damages by reason of the assumption of liability in a contract or
agreement 6 The policies also contain exclusion (m) which states that the coverage does not
apply to
m Damage to impaired property or property not physically damaged Property damage to impaired property arising out of (1) a defect deficiency inadequacy or dangerous condition in your
product or your work or (2) a delay or failure by you or anyone acting on your behalf to
perform a contract or agreement in accordance with its terms 7
In addition to the commercial liability policies Bitco also insured 1A Street under
commercial umbrella policies from March 2003 through March 2007 each of which contained
materially identical provisions as set forth above except that the insuring agreement also
included the following language We will pay on behalf of the insured the ultimate net loss in
excess of the retained limit because of property damage caused by an occurrence which
takes place during the policy period 8 Paragraph 5 of the Limits of Insurance provision
addresses the limits of property damage coverage under Coverage A The language therein
states succinctly as follows
Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of
6 The exceptions are where the liability is one ( 1) That the insured would have in the absence of the contract or agreement [or] (2) Assumed in the contract or agreement that is an insured contract As discussed fully below neither of these exceptions to the Contractual Liability exclusion apply in this case 7 The policies also each have a Limits of Liability section discussed more fully below in Biteos CrossshyAssignments ofError 8 See JA3004-3312
8
(L069S7S2 I )
(a) Damages under Coverage A (b) Because of all bodily injury and property damage arising out of any one occurrence
Bitco extended a defense to lA Street in the underlying action but did so under
reservation ofright to deny coverage
C PROCEDURAL HISTORY
As stated the insurance issues herein relate to an Amended Complaint filed in the
underlying action on December 11 2007 joining and asserting claims against JA Street See
JA-2I7 On July 14 2008 Biteo filed the instant action for declaratory judgment pursuant to
the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the
Circuit Court detennine that the previously described commercial general liability insurance
policies afford no coverage and Bitco owes no duty to defend JA Street for the claims asserted
in the Amended Complaint in the underlying action See JA-19
By Order dated February 172015 the Circuit Court invited summary judgment motions
on all grounds argued by all parties subject to waiver should any available ground not be raised
9 On August 13 2009 Biteo fIled a Motion for Summary Judgment requesting that the Circuit Court declare as a matter of law that Bitco owes no coverage andor duty to defend lA Street with respect to the claims asserted against JA Street in the underlying action See JA-263 IA Street filed a CrossshyMotion for Partial Summary Judgment on that issue Following oral argument the Circuit Court denied Biteos Motion and granted IA Streets Cross-Motion rmding that Biteo owes JA Street a duty to defend the underlying action until such time as the Plaintiff meets its burden of proof that no duty to defend exists See Order JA-I005 The Circuit Court concluded that it cannot definitively say at this time that under Tennessee law the plaintiff would not have a duty to defend Id On March 13 2014 1A Street filed a Third-Party Complaint pursuant to the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the Circuit Court determine that Biteo along with five (5) other insurers owe coverage to IA Street for the claims asserted against it by TlID and that no exclusions or other policy language excludes limits or defeats coverage See IA-I051 As discussed in Petitioners Brief extensive motion practice ensued regarding a host of intricate insurance issues
9
[L06957521
Accordingly on March 12 2015 Bitco filed a Second Amended Cross-Motion for Summary
Judgment arguing that there was no coverage nor any duty to defend under any of its policies
because contract claims for damages brought against construction contractors based upon defects
or deficiencies in the work do not constitute property damage caused by an occurrence are
not VIIithin the scope of the standard commercial liability or umbrella policy and are in any event
excluded See IA-8614 After briefing and argument on December 302016 the Circuit Court
entered an Order agreeing with Bitco and granting summary judgment in Bitcos favor along
with a declaration that Bitco owes no duty to defend nor any coverage of the claims asserted
against IA Street in the underlying action See Opinion JA-I0SS2 JA Street took an appeal
to this Court and filed its principal Brief on May 122017 Bitco now responds
II SUMMARY OF ARGUMENT
This Court should affirm the lower courts declaration that Bitco owes no coverage and
no duty to defend JA Street under its commercial general liability (CGL) and umbrella
insurance policies with respect to the claims asserted in the underlying action The claims
asserted by THD against JA Street in the underlying action are for breach of contract breach of
warranty and indemnity All of these claims are ex contractu they all arise out of a written
agreement between DID and 1A Street under which 1A Street agreed to construct the Merritt
Creek Shopping Center All claims in the underlying action relate to alleged breach of the
express or implied obligations of the aforesaid contract due to alleged deficiencies in
construction work that JA Street contracted to perform thereunder Pursuant to well-settled
law those claims are not covered by liability insurance policies
10
L0695752 I
All damages alleged in the underlying Amended Complaint are first-party claims alleging
economic damages directly relating to the work JA Street contracted to perform The fact that
the only claims pled are for breach of contract -- and not tort -- is dispositive to the insurance
coverage issues Well-established Tennessee authority and the decisions of a majority of other
jurisdictions across the country have explicitly recognized that contract claims precisely like
those asserted against lA Street are not within the embrace of the insuring agreement of the
standard commercial liability policy The Travelers Indemn Co of Am v Moore amp Assocs
Inc IO decision upon which the Petitioners principally rely is inapposite since it does not address
whether pure contract claims are covered The Tennessee Supreme Courts decision in Vernon
Williams amp Son Constr Inc v Continental Ins Co II which is still the law in Tennessee today
and which the Petitioners entirely ignore clearly holds that any contract-based claims for faulty
workmanship are not covered under a commercial liability policy Consequently the claims
asserted against lA Street in the underlying action are not covered under the clear and
unambiguous terms of the applicable policies initial grant of coverage because the claims
alleged are only for the recovery of economic damages based upon breach of contract In
addition the Circuit Court correctly noted the applicability of exclusion (m) relative to impaired
property Because it is clear that the policies do not afford coverage for the claims asserted in
the underlying action Bitco does not owe a duty to defend lA Street Therefore the Circuit
Courts determination that lA Street is not entitled to coverage and a defense under the Bitco
policies was entirely correct
10 216 SW3d 202 (Tenn 2007) 11 591 SW2d 760 (Tenn 1979)
11
L069S7S21 J
Finally though the issue is moot since Bitco owes no coverage at all Bitco cross-assigns
error in the Circuit Courts determinations that more than one policy and per occurrence limit
could apply under any circumstances The unambiguous policy language restricts any coverage
to only one policy period and only one applicable limit This Court should not need to reach
those issues however since there is no coverage at all
UI STATEMENT REGARDING ORAL ARGUMENT AND DECISION
Bitco does not believe the narrow issues necessary to affirm the judgment below are
particularly difficult or complex However if the Court is interested in entertaining oral
argument Bitcos counsel would of course happily oblige
IV ARGUMENT
A STANDARD OF REVIEW
Inasmuch as the summary judgment was entered with regard to a declaratory judgment
action [a] circuit courts entry of a declaratory judgment is reviewed de novo Id
(quoting Syl Pt 3 Cox v Amick 195 WVa 608 466 SE2d 459 (1995raquo See also
Blankenship v City of Charleston 223 WVa 822 824 679 SE2d 654 656 (2009) (quoting
Syi Pt 1 Painter v Peavy 192 WVa 189 451 SE2d 755 (1994raquo Moreover
[d]etermination of the proper coverage of an insurance contract when the facts are not in
dispute is a question of law Id at 825 (quoting Syi Pt 1 Tennant v Smallwood 211 WVa
703 568 SE2d 10 (2002raquo) As [t]he interpretation of an insurance contract including the
question of whether the contract is ambiguous is a legal determination like a lower courts
grant of summary judgment [it] shall be reviewed de novo on appeal Id (quoting SyI Pt 2
12
(L06957521 )
Riffe v Home Finders Associates Inc 205 WVa 216 517 SE2d 313 (1999)) Importantly as
discussed in detail immediately below since the core issue in this case merely requires a
comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies this case presents a pure matter of law that is uniquely
suitable for decision at the summary judgment stage
B THE CIRCUIT COURT CORRECTLY HELD THAT UNDER TENNESSEE LAW THE CONTRACTUAL CLAIMS ASSERTED BY THD AGAINST JA STREET ARE NOT COVERED
BY THE BITCO POLICIES
In this State a liability insurer has no duty to defend an action asserted against the
insured where it is clear from the allegations of the Complaint against the insured that there is no
coverage afforded under the relevant insurance policy See Horace Mann Ins Co v Leeber 376
SE2d 581 584 180 WVa 375 (1988) State Auto Mut Ins Co v Alpha Engg Servbull Inc
542 SE2d 876 879 208 WVa 713 (2000) (If the causes of action alleged in the plaintiffs
complaint are entirely foreign to the risks covered by the insurance policy then the insurance
company is relieved of its duties under the policy) Tennesseel2 follows exactly the same rule
See Drexel Chemical Co v Bitco Ins Co 933 SW2d 471480 1996 TennApp LEXIS 356
(1996) (holding that the insurer did not have a duty to defend where an exclusion applied to
foreclose coverage) Tenn Farmers Mut Ins Co v Brown 1990 TennApp LEXIS 812 (1990)
(The general rule in Tennessee is that an insurer is not obligated to undertake the defense of a
suit against its insured unless the allegations of the complaint show a claim for damages that
would be covered by the policy) Cincinnati Ins Co v Grand Pointe LLC 2007 US Dist
12 All parties concede that Tennessee law governs construction of the insurance policies
13
(L069S7S21 )
LEXIS 39784 (ED Tenn 2007) (If it is plain from the face of the underlying complaint the
allegations fail to state facts that bring the case within or potentially within the policy no duty to
defend exists) Am Nat Prop and Cas Ins Co v Gray 803 SW 2d 693 695-96 (Tenn Ct
App 1990) Graves v Liberty Mut Fire Ins Co 745 SW2d 282283 (Tenn Ct App 1987)
In ascertaining whether there is a duty to defend under a liability insurance policy
Tennessee adheres to a strict four comers approach See Interstate Packaging Co v Century
Indem Co bull 2013 US Dist LEXIS 45459 (MDTenn 2013) citing St Paul Fire amp Marine Ins
Co v Torpoco 879 SW2d 831 835 (Tenn 1994) Clark v Sputnicks LLC 368 SW3d 431
439 (Tenn 2012) (An insurers duty to defend is determined solely by an examination of the
allegations of the underlying complaint) Thus under Tennessee law the court must limit its
inquiry to the claims and allegations presented in the complaint against the insured [I]f the
allegations contained in the complaintare within the risk insured against and there is a
potential basis for recovery then [the insurer] must defend St Paul v Torpoco supra 879
SW2d at 835 Conversely if the claims alleged in the complaint are clearly not within the
scope of coverage then there is no duty to defend Drexel Chemical Co v Bitco Ins Co 933
SW2d 471 480 (Tenn 1996) As the United States Court of Appeals for the Sixth Circuit
stated it applying Tennessee law in Smith amp Nephew Inc v Fed Ins Co 113 FedAppx 99
(6th Cir 2004) in detennining an insurers duty to defend courts typically begin and end
their analysis with the four comers of the complaint Id at 102 Petitioner argues that there
are significant issues of material fact that exist given that there has been no final resolution of the
14
(LD09S752 I
underlying action13 but in fact clear-cut law dictates that all the Court must do is contrast the
averments of the Amended Complaint with the terms of the policies
The instant inquiry must therefore begin with the unique circumstances that the TIID
Amended Complaint against lA Street pleads only contract-based claims and not tort claims
Although the Circuit Court based its finding of no coverage solely on the Contractual Liability
exclusion as discussed in detail below courts in Tennessee and elsewhere have concluded that
there is no coverage for breach of contact claims and the damages that typically flow from such
claims on broader grounds While the Circuit Court did not subscribe to that broad view
our cases have made clear that it is permissible for us to affirm the granting of [dismissal] on bases difference or grounds other than those relief upon by the circuit court Hoover v Moran 222 WVa at 119 662 SE2d at 718 quoting Gently v Mangum 195 WVa 512519466 SE2d 171178 (1995) See also Schmehl v Helton 222 WVa 98 662 SE2d 697 705 n7 (2008) (this Court may in any event affirm the circuit court on any proper basis whether relied upon by the circuit court or not) Murphy v Smallridge 196 WVa 35 36-7 468 SE2d 167168-9 (1996) (An appellate court is not limited to the legal grounds relied upon by the circuit court but it may affirm or reverse a decision on any independently sufficient ground that has adequate support) Syl pt 3 Barnett v Wolfolk 149 WVa 246 140 SE2d 466 (1965) (This Court may on appeal affirm the judgment of the lower court when it appears that such judgment is correct on any legal ground disclosed by the record regardless of the ground reason or theory assigned by the lower court as the basis for its judgment)
Savarese v Allstate Ins Co 672 SE2d 255260 (WVa 2008)
One of the more elemental and uniformly embraced principles of corrunercial insurance
law is that the typical commercial liability insurance policy affords coverage for tort claims not
claims for breach of contract The authorities supporting that proposition are legion Dean
Henderson in his renowned and widely cited law review article makes the point emphatically
13 Petitioners Brief pp 25-27 15
(L0695752 1 J
[t]he risk intended to be insured is the possibility that the goods products or work of the insured once relinquished or completed will cause bodily injury or damage to property other than to the product or completed work itself and for which the insured may be found liable The insured as a source of goods or services may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable because it is lacking in some capacity This may even extend to an obligation to completely replace or rebuild the deficient product or work This liability however is not what the coverages in question are designed to protect against The coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb L Rev 415441 (1971)14
The overwhelming majority of courts and commentators that have addressed this issue
have held that breach of contract claims asserted against the insured are not covered under a
standard CGL policy See eg Couch on Insurance 3d sect1291-1294 (3d Ed 2005) (a
commercial general liability insurance policy is generally designed to provide coverage for tort
liability for physical damages to others and not for contractual liability of the insured for
economic loss the majority of jurisdictions have held that breach of contract is not an
14 The Henderson article has been widely relied upon by courts and commentators for over 40 years Noticeably it has been frequently cited with approval in Tennessee See Vernon (relying upon the Henderson article the Tennessee Court held that the standard comprehensive general liability policy does not provide coverage to an insured-contractor for a breach of contract action grounded upon faulty workmanship or materials where the damages claimed are the cost of correcting the work itself) Blaylock amp Brown Constr Inc v AIU Ins Co 796 SW2d 146 1990 TennApp LEXIS 338 (1990) (relying upon Henderson the Court holds bull that the language of the policy excludes liability coverage for the plaintiffs for damage to the property constructed pursuant to the contract) Standard Fire Ins Co v Chester-ODonley amp Assocs 972 SW2d 1 1998 TennApp LEXIS 65 (1998) (citing the Henderson article for the proposition that CGL policies are not intended to cover the insureds contractual liability for economic loss because its work was not that for which the damaged person bargained) Weedo v Stone-E-Brick Inc bull 81 NJ 233 405 A2d 788 (1979) (relying heavily upon the Henderson article the Court holds that a CGL policy does not provide coverage for a breach of contract action for faulty workmanship where the damages claimed are the cost ofcorrecting the work itself)
16
IL069S7S2 I
occurrencea [CGL] policy is not intended to provide coverage for the insureds contractual
liability which merely causes economic losses) Alan D Windt Insurance Claims and
Disputes sect117 (4th Ed 2001) (Finally there is the question as to whether a breach of
contract claim involves damages caused by an occurrence The answer should in general be
no) Erie Ins Prop amp Cas Co v Pioneer Home Improvement Inc 526 SE2d 28 33 206
WVa 506 513 (1999) (The coverage [under a COL policy] is for tort liability for physical
damages to others and not for contractual liability of the insured for economic loss because the
product or completed work is not that for which the damaged person bargained) Nationwide
Mutual Ins Co v CPB Intl Inc 562 F3d 591 598 2009 US App LEXIS 7795 14 (3d Cir
2009) (holding that under Pennsylvania law a CGL policy does not provide coverage for
claims in an underlying action that arise out of and relate to the contract between the parties)
Lyerla v AMCO Ins Co 536 F3d 684691-922008 US App LEXIS 164 78 (7th Cir 2008)
(applying Illinois law) (holding that underlying allegations that insured contractor did not satisfy
his contractual obligations is not property damage caused by an occurrence) L-J Inc v
Biteo Fire amp Marine Ins Co 621 SE2d 33 35 366 SC 117 (2005) (any liability that is
incurred because of faulty workmanship is part of the insureds contractual liability not an
insurable event under a CGL policy) Hotel Roanoke Conf Ctr Commn v Cincinnati Ins Co
303 FSupp2d 784 7882004 US Dist LEXIS 2539 (2004) (applying Virginia law) (damages
limited to the insureds work or product and resulting from the insureds defective perfonnance
of a contract are not covered losses under a [CGL] policy) Westfield Ins Co v Sheehan
Construction Co 580 FSupp2d 701 710 2008 US Dist LEXIS 66843 (2008) (applying
17
(L06957521
Indiana law) (a CGL policy serves to limit contractors tort liability for damage to property
caused by their work) Key Custom Homes Inc v Mid-Continent Cas Co 450 FSupp2d
1311 1317-182006 US Dist LEXIS 60355 (2006) (applying Florida law) (it is equally clear
that breach of contract claims for the recovery of money are not covered by general liability
insurance policies) Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254 1257329
Ore 620 (2000) (there can be no accident within the meaning of a commercial liability policy
when the resulting damage is merely a breach of contract) Bonded Concrete Inc v Transcon
Ins Co 12 AD3d 761 2004 NYAppDiv LEXIS 13020 (2004) (the purpose of a
commercial general liability policy is to provide coverage for tort liability for physical damage
to others and not for contractual liability of the insured for economic loss because the
product is not what the damaged [party] bargained for) United States Fire Ins Co v Milton
Co 35 FSupp2d 8386 1998 US Dist LEXIS 22116 (1998) (applying Maryland law) (there
is no occurrence under a comprehensive general liability insurance policy where and to the
extent that a contractors use of defective materials and substandard workmanship results in
economic losses that would normally be recoverable in a breach of contract action) Burlington
Ins Co v Oceanic Design amp Construction Inc 383 F3d 940 2004 US App LEXIS 18932
(9th Cir 2004) (applying Hawaii law) (holding that claims for breach of contract and negligent
breach of contract are not covered under a CGL policy) Norwalk Ready Mixed Concrete Inc v
Travelers Ins Co 246 F3d 1132 2001 US App LEXIS 7148 (8th Cir 2001) (applying Iowa
law) (holding that breach of contract and breach of warranty claims are not covered under a CGL
policy) USFampG Com v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476
18
(L06957521 l
(1989) (holding that a breach of contract claim asserted against an insured contractor is not
covered under a COL policy) Oreat Divide Ins Co v Bitterroot Timberfiames of Wyoming
LLC 2006 US Dist LEXIS 94826 (2006) (applying Wyoming law) (the allegations
demonstrate losses resulting from breach of contract and therefore cannot constitute an
accident for purposes of determining coverage) Union Ins Co v Hottenstein 83 P3d 1196
12022003 ColoApp LEXIS 1857 (2003) (poor workmanship constituting a breach of contract
is not a covered occurrence)
Tennessee lawl5 is in accord with these authorities The Tennessee Supreme Court has
defInitively held that breach of contract claims due to the insureds faulty workmanship such as
those asserted here by THD against IA Street in the underlying Amended Complaint are simply
not covered under the grant of coverage contained in a commercial liability policy See Vernon
supra Chester-ODonley supra at 6-7 (General liability policies are not all-risk policies and
only cover damages up to the policy limits for which the insured becomes liable as a result of
tort liability to a third party) (emphasis added) In Vernon the Supreme Court of Tennessee
expressly held that a standard COL policy only covers tort claims and such a policy does not
15 Under applicable Tennessee law contracts of insurance are subject to the same rules of interpretation and construction as other contracts McKimm v Bell 790 SW2d 526 527 1990 Tenn LEXIS 161 (1990) Thus [a]n insurance policy must be interpreted fairly and reasonably giving the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204 SW3d 758 2006 Tenn LEXIS 755 (2006) In the absence of fraud or mistake a contract must be interpreted and enforced as written even though it contains terms which may be thought harsh and unjust Allstate Ins Co v Wilson 856 SW2d 706 1992 TennApp LEXIS 1012 (1992) As a result the analysis of JA Streets right to coverage for the claims asserted in the underlying action are dictated by the terms of the policy The essential components of a general liability insurance policy include (1) the declarations (2) the insuring agreements and definitions (3) the exclusions (4) the conditions and (5) the endorsements See ChestershyODonley supra The insuring agreement sets the outer limits of an insurers contractual liability If coverage cannot be found in the insuring agreement it will not be found elsewhere in the policy Id 1998 TennApp LEXIS at 13-14
19
L069S7S21
afford coverage to an insured contractor for breach of contract claims Vernon 591 SW 2d at
765 Chester-ODonley supra at 6-7 Petitioner complains that the Circuit Court focused on
West Virginia cases such as Silk v Flat TOp6 but in fact the lower court expressly relied
upon a wealth of Tennessee authority17 including Vernon Cincinnati Ins Co v Grand Pointe
LLc18 and Trinity Univ Ins Co v Turner Funeral Home Inc 19 More recently Tennessee
courts have reaffirmed the rationale and holding of Vernon See State Auto Ins Cos v Gordon
Constr Inc 2001 TennApp LEXIS 349 (2001) (following Vernon and holding that the
insuring agreement of a CGL policy does not afford coverage for underlying breach of contract
and breach of warranty claims asserted against the insured contractor) Blake Indus Inc v
General Agents Ins Co of Am 2000 Tenn App LEXIS 490 (2000) (applying Vernon and
holding that claims asserted against the insured that were grounded in contract are not covered
under a CGL policy) Blaylock and Brown Constr Inc v AID Ins Co 796 SW2d 146 152shy
153 (Tenn Ct App 1990)
As the Circuit Court correctly recognized the express tenus of the insurance contract
clearly exclude contractual liability from coverage Exclusions help define and shape the scope
of coverage but they must be read in terms of the insuring agreement to which they apply
Exclusions can only decrease coverage they cannot increase it Chester-ODonley 972 SW2d
at 7-8 Moreover [e]ach exclusion reduces coverage and operates independently with reference
16 Petitioners Brief p 30 (citing 453 SE2d 356 (Wva 1994raquo 17 See See Opinion JA-I0552 ~27
18 2007 US Dist LEXIS 39784 (ED Tenn 2007) 19 2003 WL 23218046 (ED Tenn Dec 122003)
20
IL069S7S2 I I
to the insuring agreement Id at 8 The Contractual Liability exclusion specifically provides
that the insurance coverage does not apply to
Contractual liability
Bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement This exclusion does not apply to liability for damages
(1) That the insured would have in the absence of the contract or agreement or
(2) Assumed in a contract or agreement that is an insured contract provided the bodily injury or property damage occurs subsequent to the execution of the contract or agreement Solely for the purposes of liability assumed in a insured contract reasonable attorneys fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of bodily injury or property damage provided
(a) Liability to such party for or for the cost of that partys defense has also been assumed in the same insured contract and
(b) Such attorneys fees and litigation expenses are for defense of that party against the civil or alternative dispute resolution proceeding in which damages to which the insurance applies are alleged
See JA-62 Section I C[2
Even a cursory examination ofTHDs Amended Complaint reveals that all claims alleged
against JA Street were contractual There simply was no tort claim alleged In fact the claims
against JA Street were necessarily founded in contract for two reasons First the two-year
statute of limitations applicable to any tort claims elapsed long before THD first asserted its
claims against JA Street Tort claims were not pleaded and could not have been Second the
substantive law of West Virginia applies to the underlying claims asserted by THD against lA
21
(L069S7S21 I
Street20 and applicable West Virginia law plainly holds that even if THD had asserted tort
claims against JA Street the claims would still sound in contract under these circumstances for
purposes of the instant analysis since the gist of claims asserted against a contractor for deficient
work is necessarily ex contractu See Silk supra at 360 Dan Ryan Builders Inc v Crystal
Ridge Dev Inc 783 F3d 976 (4th Cir 2015) Unlike in both Silk and Dan Ryan THO did not
even assert any tort claims here Nor could it have Relevant to the precise policy language at
issue there simply was no liability for damages that [JA Street] would have in the absence of
the contract or agreement It simply cannot be contested that the claims alleged in the Amended
Complaint are and indeed necessarily were contractual in nature Given that alone the clear
holding of the Tennessee Court in Vernon mandated the Circuit Courts correct grant of
summary judgment in Biteos favor
A great majority of courts and commentators across the country that have addressed the
issue have held that the explicit unambiguous express Contractual Liability exclusion forecloses
coverage for all contract liability including breach of contract claims asserted against the
insured except where the insured has assumed the liability of another in an insured contract
See eg Silk v Flat Top Constr Inc 453 SE2d 356 359 192 WVa 522 (1994) (holding that
the contract exclusion applies to foreclose coverage for all contractual liability of the insured
except for liability assumed in an insured contract-a contract under which the insured
assumes the tort liability of another party) Gilbert Tex Constr v Underwriters at Lloyds
20 West Virginia applies the choice-of-law principle of lex loci delicti and there is no question here that the offending conduct and the loss all occurred in West Virginia such that JA Streets liability to THD would be governed by West Virginia law See State of Wva ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) (citing Syl Pt 1 Paul v Natl Life 352 SE2d 552 (WVa 1986raquo
22
(L069S7521 I
Londo 327 SW3d 118 (2010) (citing inter alia Nationwide Mut Ins Co v CPB Int Inc
No 306-CV-0363 2007 WL 4198173 at 8 (MDPa Nov26 2007) (Exclusion (b) is simply
further clarification in the policy that contract-based claims are not covered) ClM Ins Corp v
Midpac Auto Crr Inc 108 FSupp2d 1092 1099-1100 (DHaw2000) (clause in policy stating
that policy does not apply to liability assumed under any contract or agreement means that any
claim that is dependent on the existence of an underlying contract is not covered) Monticello
Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 at 2 (WDKy
Apr 3 1998) (exclusion for liability assumed by the insured under any contract or agreement
does not arise only when a party assumes the liability for another party rather the plain meaning
of the policy excludes a breach of contract claim from coverage) Silk supra (exclusion removed
coverage for breach of contract) TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 1091-92
(8th Cir1995) (exclusion for which the insured has assumed liability in a contract or agreement
plainly excluded coverage for contractual claims and not just hold-harmless or indemnity
agreements) Nationwide Mutual Ins Co v CPB Intl Inc 562 F3d 591 5992009 US App
LEXIS 7795 (3d Cir 2009) (applying Pa law) (holding that a breach of contract claim is excluded
under the Contractual Liability exclusion) Century Sur Co v Hardscape Constr Specialties Inc
578 F3d 262 2009 US App LEXIS 25300 (5th Cir 2009) (applying Texas law) (holding that the
Contractual Liability exclusion operates to exclude claims grounded primarily in breach of contract
and that no tort claims were asserted that triggered the insured contract exception) State Farm
Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 12 (2007) (applying Hawaii
law) (holding that claims arising from the insureds obligations under a contract are barred from
23
L0695152 I I
coverage under the Contractual Liability exclusion) JACO Airfield Constr Inc v National Trust
Ins Co 2007 US Dist LEXIS 100295 10 (2007) (applying Georgia law) (holding that the
Contractual Liability exclusion applies to foreclose coverage for the contractual based claims
asserted against the insured and that the insured contract exception to the Contractual Liability
exclusion does not apply because the insured did not assume the tort liability of another) Union Ins
Co v Williams Contr Inc 2006 US Dist LEXIS 35919 4-5 (2006) (holding that the
Contractual Liability exclusion precludes coverage for claims against the insured for breach of a
construction contract) Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270
GaApp 8 (2004) (affirming trial comts finding that the Contractual Liability exclusion barred
coverage for breach of contract and breach of implied warranty claims against the insured) Gibson
amp Assocs Inc v Home Ins Co 966 FSupp 468476-77 1997 US Dist LEXIS 4776 (1997)
(applying Texas law) (recognizing that the Contractual Liability exclusion precludes coverage for
breach of contract claims asserted against the insmed and that the policy only covers contractual
liability for indemnification actions ie an insured contract) James v Burlington Northern Santa
Fe Railway Co 2007 US Dist LEXIS 63282 4-5 (2007) (applying Arizona law) (holding that
the insured contract exception to the Contractual Liability exclusion does not bring ordinary
breach-of-contract claims within the scope of CGL coverage) TGA Dev Inc v Northern Ins Co
of New York 62 F3d 1089 1091-92 1995 USApp LEXIS 21700 (8th Cir 1995) (applying
Minnesota law) (holding that the Contractual Liability exclusion plainly excludes coverage for
contractual claims made for [the insmeds] failure to provide [the property owner] with a
condominium unit free from defects)
24
(lO6957521 )
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
Certain Underwriters at Llovds of London v Paniagill 957 FSupp2d 921 (WDTenn
2013) 35
Certain Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229
P3d 930 (WashApp 2001) 44
Champion Intl Corp v Continental Casualty Co 546_F2d 502 (2d Cir NY 1976) 39
CIM Ins Corp v Midpac Auto Ctr Inc 108 FSupp2d 1092 (DHaw2000) 23
Cincinnati Ins Co v Grand Pointe LLC 2007 US Dist LEXIS 39784 (ED Tenn 2007) 14
202627
Clark v Sputnicks LLC 368 SW3d 431 (Tenn 2012) 14
Columbia Mut Ins Co v Schauf 967 S W2d 74 (Mo 1998) 32
Copple Constr LLC v Columbia Natl Ins Co 776 NW2d 503 (Neb 2009) 32
Cox v Amick 195 WVa 608 466 SE2d 459 (1995) 12
Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270 GaApp 8 (2004) 24
Dan Ryan Builders Inc v Crystal Ridge Dey Inc 783 F3d 976 (4th Cir 2015) 22
Dey Inc y Northern Ins Co of New York 62 F3d 1089 1995 USApp LEXIS 21700 (8th Cir
1995) 24
Drexel Chemical Co v Bitco Ins Co 933 SW2d 4711996 TennApp LEXIS 356 (1996)
13 14
Erie Ins Prop amp Cas Co v Pioneer Home Improvement Inc 526 SE2d 28 206 WVa 506
(1999) 17
Ernst v Acuity 704 NW2d 869 (ND 2005) 33
Ewing Constr Co Inc v Amerisure ms Co 420 SW3d 30 (Tex 2014) 2829
General Housewares Corp v National Surety Corp 741 NE2d 408 (Ind 2000) 37
Gentry v Mangum 195 WVa 512466 SE2d 171 (1995) 15
Gibson amp Assocs Inc v Home Ins Co 966 FSupp 468 1997 US Dist LEXIS 4776 (1997) 24
Gilbert Tex Constr v Underwriters at Lloyds Londo 327 S W3d 118 (2010) 23 28 2930
Graves v Liberty Mut Fire Ins Co 745 SW2d 282 (Tenn Ct App 1987) 14
tv
L06957521 I
Great Divide Ins Co v Bitterroot Timberframes of Wyoming LLC 2006 US Dist LEXIS
94826 (2006) 19
Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) 43
Greenidge v Allstate Insurance Co 312 F2d430 (SDNY 2004) 43
GrinnellMut Reinsurance Co v Lynne 686 NW2d 118 (ND 2004) 33
Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th Cir 2000) 32
Hathaway Dev Co v lll Union Ins Co 274 Fed Appx 787 (11 th Cir 2008) 32
Headley v St Paul Fire amp Marine Ins Co 712 FSupp 745 (DSD 1989) 39
Hiraldo vs Allstate Insurance Co 8 AD3d 230 778 NYS 2d 50 (2004) 43
Hoover v Mornn 222 WVa at 119 662 SE2d at 718 15
Horace Mann Ins Co v Leeber 376 SE2d 581 180 WVa 375 (1988) 13
Hotel Roanoke Com Ctr Commn v Cincinnati Ins Co 303 FSupp2d 784 2004 US Dist
LEXIS 2539 (2004) 17
Interstate Packaging Co v Century Indem Co 2013 US Dist LEXIS 45459 (MD Tenn
2013) 14
JACO Airfield Constr Inc v National Trust Ins Co 2007 US Dist LEXIS 100295 (2007) 24
Jacob v Russo Builders 592 NW2d 271 (Wis Ct App 1999) 34
James v Burlington Northern Santa Fe Railway Co 2007 US Dist LEXIS 63282 (2007) 24
Kaiser Cement and Gypsum Corp v Insurance Co of the State of Pa 215 Cal App 4th 210
155Cal Rptr 3d283 (2013) 43
Key Custom Homes Inc v Mid-Continent Cas Co 450 FSupp2d 1311 2006 US Dist
LEXIS 60355 (2006) 18
Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) 39
Lennar Corp v Markel American Insurance Co 413 SW3d 750 (Texas 2013) 43
LISN Inc v Commercial Union Ins Cos 615 NE2d 650 (Ohio Ct App 1992) 33
L-J Inc v Bitco Fire amp Marine Ins Co 621 SE2d 33 366 SC 117 (2005) 17
Lyerla v AMCO Ins Co 536 F3d 684 2008 US App LEXIS 164 (7th Cir 2008) 17
McKimm v Bell 790 SW2d 526 (Tenn 1990) 1935
v
(t06957521 I
Monticello Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 (WDKy
Apr3 1998) 23
Murphy v Smallridge 196 WVa 35468 SE2d 167 (1996) 15
Naifeh v Valley Forge Life Ins Co 204 SW3d 758 (Tenn 2006) 1935
Nationwide Mutual Ins Co v CPB IntI Inc 562 F3d 591 2009 US App LEXIS 7795 (3d
Cir 2009) 17 23
Nesmith v Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) 43
Newark Ins Co v Acupac Packaging Inc 746 A2d 47 (NJ Super Ct App Div 2000) 34
North American Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552
(5th Cir 2008) 43
Norwalk Ready Mixed Concrete Inc v Travelers Ins Co 246 F3d 1132 2001 US App
LEXIS 7148 (8th Cir 2001) 18
Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254329 Ore 620 (2000) 18
Olympic Inc v Providence Washington Insurance Co of Alas~ 648 P2d 1008 (Alaska 1982)
30
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 (DDC 1984) 39
Painterv Peavy 192 WVa 189451 SE2d 755 (1994) 12
Paul v Natl Life 352 SE2d 552 (WVa 1986) 22
Riffe v Home Finders Associates Inc 205 WVa 216 517 SE2d 313 (1999) 13
Ryan Homes v Home Indem Co 647 A2d 939 (Pa Super 1994) 33
Safeco Insurance Company of American v Firemens Fund Insurance Co 148 Cal App 4th
620 55 Cal Rptr 3d 844 (2007) 43
Sapp v State Farm Fire amp Cas Co 486 SE2d 71 (Ga Ct App 1997) 32
Savarese v Allstate Ins Co 672 SE2d 255 260 (WVa 2008) 15
Schmehl v Helton 222 WVa 98662 SE2d 697 (2008) 15
Silk v Flat Top 453 SE2d 356 (WVa 1994) 20 22 23 25
Smith amp Nephew Inc v Fed Ins Co 113 FedAppx 99 (6th Cir 2004) 14
vi
(L069S7S21 I
Southern International Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct
App 3d Dist 1977) 39
St Paul Fire amp Marine Ins Co v Torpoco 879 SW2d 831 (Tenn 1994) 14
Standard Fire Ins Co v Chester-ODonley amp Assocs 972 SW2d 1 1998 TennApp LEXIS
65 (1998) 16 19
State Auto Ins Cos v Gordon Constr Inc 2001 TennApp LEXIS 349 (2001) 20
State Auto Mut Ins Co v Alpha Engg Serv Inc 542 SE2d 876 208 WVa 713 (2000) 13
State Farm Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 (2007) 23
State ofWVa ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) 22
Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) 43
Taylor v Travelers Ins Co 40 F3d 79 (5th Cir 1994) 31
Tenn Farmers Mut Ins Co v Brown 1990 TennApp LEXIS 812 (1990) 13
Tennant v Smallwood 211 WVa 703568 SE2d 10 (2002) 12
TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 (8th Cir1995) 2324
Thommes v Milwaukee Mut Ins Co 622 NW2d 155 (Minn Ct App 2001) 34
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 (ND Tex 1980) 39
Travelers Indemn Co of Am v Moore amp Assocsbull Inc 216 SW3d 202 (Tenn 2007) 112526
Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL 23218046 (ED Tenn Dec 12
2003) 20 27
Truk-Away Inc v Aetna Cas amp Sur Co 723 A2d 309 (RI 1999) 39
Union Ins Co v Hottenstein 83 P3d 11962003 ColoApp LEXIS 1857 (2003) 19
Union Ins Co v Williams Contr Inc 2006 US Dist LEXIS 35919 (2006) 24
United States Fire Ins Co v Milton Co 35 FSupp2d 83 1998 US Dist LEXIS 22116 (1998)
18
USFampG Corp v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476 (1989)
19
Vari Builders Inc v United States Fidelity amp Guaranty Co 523 A2d 549 (Del Super Ct
1986) 32
vii
IL0595752 I I
Vernon Williams amp Son Constr Inc v Continental Ins Co 591 SW2d 760 (Tenn 1979)
pasSIm
Weedo v Stone-E-Brick Inc 405 A2d 788 (NJ 1979) 1633
Westfield Ins Co v Sheehan Construction Co 580 FSupp2d 701 2008 US Dist LEXIS
66843 (2008) 17
STATUTES
West Virginia Declaratory Judgment Act W Va Code sect55-13-1 e seq 9
OTHER AUTHORITIES
Alan D Windt Insurance Claims and Disputes sect117 (4th Ed 2001) 17
Couch on Insurance 3d sect1291-1294 (3d Ed 2005) 16
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb 1 Rev 415441 (1971) 1631
Wielinski Patrick (4th ed) IRMI Ch 6 pp 180-185 29
viii
LC6957521 I
I ST ATEMENT OF THE CASE
A INTRoDUCTION
Bitoo General Insurance Corporation (Biteo) instituted this declaratory judgment action
seeking a declaration of no coverage and no duty to defend contract claims alleging poor
workmanship asserted against Bitcos named insured in an underlying civil action pending in the
Circuit Court of Cabell County captioned at THD Development LLC a West Virginia Limited
Liability Company and THD Investors 7 LLC a West Virginia Limited Liability Company
Plaintiffs v SamplE Inc a Corporation and JA Street amp Associates Inc a Corporation
Defendants Civil Action No 03-C-0490 (hereinafter underlying action) The threshold
question presented in this declaratory judgment action is whether Bitcos standard commercial
general liability and umbrella insurance policies afford coverage for pure ex contractu claims
asserted by THD Development (THD) against JA Street amp Associates Inc (IA Street)
At an early stage Bitco moved for summary judgment on that very narrow ground toshy
wit that all of the claims pleaded against JA Street are contract-based claims for poor
workmanship and such claims are not covered by Bitcos standard oommercialliability polices
under applicable Tennessee law Unfortunately the Circuit Court found that the issue was not
susceptible to summary judgement at that time Consequently the insurance case remained
pending and Biteo continued to defend the underlying action At a later point Biteo renewed
substantially the identical argument whereupon it was again determined to be an insufficient
basis for a summary judgment Although the Circuit Court was uncertain enough at that point
that it certified the issue for interlocutory appeal the Supreme Court declined to afford review
L0695752l
Thereafter THD and lA Street immeasurably complicated the matter They devised a
theory that the case demonstrated characteristics of ongoing progressive incessant damage
typical of the asbestos-type progressive damage cases which our system of the administration of
justice has come to know On that basis lA Street sought and obtained leave of court to add
six additional insurance companies that had written commercial liability and umbrellaexcess
liability insurance over a period of years between 2001 and the present That of course
plunged the case into a maelstrom of dispute over a multitude of new insurance issues such as
trigger of coverage the accompanying loss in progress known loss rule problems
concomitant disputes over horizontalvertical exhaustion the lively debates over stacking of
per occurrence limits over successive policy periods and of course the applicability of
multiple exclusions such as the standard impaired property and earth movement exclusions
When all was said and done the Circuit Court ultimately honored Bitcos original
argument on the very narrow core issue at hand and ruled that since all of the claims asserted
against JA Street were contract-based claims for damages sustained by THD due to faulty
workmanship the commercial liability coverage provided by the policies does not apply That
determination which could have been made in 2009 is correct since the claims plainly do not
fall within the embrace of the policies as a matter of well-settled law Should this Court affirm
the judgment none of the other issues addressed by the Circuit Court affects the substantial
rights of the parties In other words they are moot
For these reasons Biteo focuses its argument on the indefatigable conclusion that there is
no coverage under the Bitco policies or any other commercial liability policies for claims ex
2
L069S7521
I
contractu for damages for poor workmanship by a construction contractor on a commercial
construction project Bitco also briefly addresses the propriety of the trial courts finding that
exclusion (m) applicable to impaired property separately operates to bar coverage
Biteo confines its cross-assignments of error to only 2 points (1) coverage if there is
any would be confmed to only one policy period either 2001-2002 or 2002-2003 because
damage first began and was known to the insured during one or the other of those periods and
(2) only one per occurrence limit applies regardless of the number of policies that are
triggered These points should in fact be moot since the Circuit Court correctly decided there is
no coverage in the fIrst instance
B STATEMENT OF FACTS
As discussed above and hereinbelow the core issue involved in this appeal requires only
a comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies themselves l To that end the Amended Complaint filed in
the underlying action alleges as follows
THD a real estate development company2 is the developer of the Merritt Creek Farm
Commercial Shopping Development located in Barboursville West Virginia See JA217-250
Amended Complaint -rl The project consisted of several sections including an anticipated site
for a Target store [d at -r7 1HD sought to prepare a pad upon which the Target store was to
Consonant with the governing standard the universe of facts that are germane to a detennination of whether a liability insurer such as Bitco has a duty to defend its insured consist of the factual allegations of the complaint flIed against the insured In this instance that would be the Amended Complaint filed by THD in the underlying case which asserted claims against 1A Street That Amended Complaint was appended as an exhibit to Bitcos Complaint in the declaratory judgment action 2 THDs principal place of business is located in Bristol Tennessee
3
(106957521 )
be constructed whereupon THD would then convey that portion of the site to Target for further
development Id TIID in turn entered into an agreement with SampME Inc (SampME) a soils
engineering firm whereby SampME agreed to perfonn a geotechnical exploration of the site and
thereafter submit a report setting forth recommendations with respect to site preparation for the
entire development Id at 10
On June 5 2001 THD entered into a written contract with IA Street for 1A Street to
serve as the general contractor on the Merritt Creek Farm Project Id at ~13 Pursuant to the
THDJA Street written agreement IA Street agreed to perform construction tasks with regard
to the Merritt Creek Farm Project including preparing the site for construction in general
preparing the Target site for construction of the Target building and constructing various
buildings and structures on the site3 Id at [13-14
In September of 2001 1A Street was perfonning grading excavation and fill work for
the portion of the site beneath which Target would eventually erect its building Id at 17 On
September 212001 the slope at the rear of the Target store site failed causing a landslide Id
During 2002 and 2003 additional slides sloughing and land movement occurred at other
locations throughout the Merritt Creek Development Id at 19 As a result THD was required
to spend substantial sums to repair the slope and address associated consequences of the
landslide Id at 18-19 THD filed the underlying action to recover those economic damages
Id generally
3 JA Street did not contract to build the Target building The Target Corporation was to perform that construction itself
4
(L069S752 I l
THD initially brought the underlying action in 2003 solely against SampME asserting
various claims for damages incurred on the project Nearly four years later on December 11
2007 THD amended its Complaint to add JA Street as a defendant By that time the two-year
tort period of limitations had long since expired Thus THDs Amended Complaint asserted
claims against JA Street were based solely upon the construction contract between THD and
JA Street -- claims for breach of contract breach of warranty and for express and implied
contractual indemnity Id at ~71-96 Therein THD alleged that JA Street failed to
perform the work in a good and workmanlike manner failed to provide competent supervision
and failed to perform the work with a high degree of expertise and workmanship thereby
breaching its agreement with THD Id at ~16 No tort claims were alleged against JA Street
in the Amended Complaint All of the claims sounded exclusively in contract
During several policy periods from 2001 to 2007 Bitco insured JA Street under very
standard commercial general liability policies4 It is undisputed that these policies were issued
by an agent located in Tennessee to JA Street a Tennessee corporation with its principal offices
located in Tennessee See JA217-219 ~4 As suc~ the policies are governed by Tennessee law
4 Policy eLP 3 107706 B was in effect fOT policy period March 12001 to March 1 2002 See JA-4 Policy eLP 3 135489 B was in effect fOT policy period March 12002 to March 12003 See JA4-216 Subsequent one-year policies issued with coverage effective through March 1 2007 See Petitioners Brief pp 9-10 JAI066 1583-2223 It is immaterial which policy applies because the relevant provisions of all of the policies are the same
5
(L06957521 )
These policies are identical they are all written on the standard Insurance Services
Office Inc (ISO) Commercial General Liability coverage forms 5 Insofar as is relevant
instantly the policies provide
1 Insuring Agreement
a We will pay those sums that the insured becomes legally obligated to pay as damages because ofbodily injury or 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 bodily injury or property damage to which this insurance does not apply We may at our discretion investigate any occurrence and settle any claim or suit that may resuIL
b This insurance applies to bodily injury and property damage only if
(1) The bodily injury or property damage is caused by an occurrence that takes place in the coverage territory
(2) The bodily injury or property damage occurs during the policy period and
(3) Prior to the policy period no insured listed under Paragraph 1 of Section II - Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part If such a listed insured or authorized middotmiddotemployee knew prior to the policy period that the bodily injury or property damage occurred then any continuation change or resumption of such bodily injury or property damage during or after the policy period will be deemed to have been known prior to the policy period
c Bodily injury or property damage which occurs during the policy period and was not prior to the policy period known to have occurred by
5 ISO has long been the predominate publisher of commercial general liability insurance policy forms in the industry The ISO Commercial General Liability Coverage Form CGOOOI has long been the most widely used form in the United States As such the policies involved in this case are typical standardized and have frequently been the subject of interpretation by state and federal courts
6
[L0695752 1 I
any insured listed under Paragraph 1 of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim includes any continuation change or resumption of that bodily injury or property damage after the end of the policy period
d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph 1 of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim Reports all or any part of the bodily injury or property damage to us or any other insurer
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or
(2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
Id Section I ~1
Property damage is defined under the policies as
(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 it 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 causes it
Id Section V ~17
Occurrence is defined as
[A]n accident including continuous or repeated exposure to substantially the same general hannful conditions
Id Section V ~13
Consonant with the well-recognized fact that commercial liability insurance covers tort
claims and not contract claims in subparagraph 6 of the Exclusions section the policies
7
(L069S7S21 I
contain a Contractual Liability exclusion The language of this familiar exclusion makes clear
that the insurance does not apply to bodily injury or property damage for which the insured
is obligated to pay damages by reason of the assumption of liability in a contract or
agreement 6 The policies also contain exclusion (m) which states that the coverage does not
apply to
m Damage to impaired property or property not physically damaged Property damage to impaired property arising out of (1) a defect deficiency inadequacy or dangerous condition in your
product or your work or (2) a delay or failure by you or anyone acting on your behalf to
perform a contract or agreement in accordance with its terms 7
In addition to the commercial liability policies Bitco also insured 1A Street under
commercial umbrella policies from March 2003 through March 2007 each of which contained
materially identical provisions as set forth above except that the insuring agreement also
included the following language We will pay on behalf of the insured the ultimate net loss in
excess of the retained limit because of property damage caused by an occurrence which
takes place during the policy period 8 Paragraph 5 of the Limits of Insurance provision
addresses the limits of property damage coverage under Coverage A The language therein
states succinctly as follows
Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of
6 The exceptions are where the liability is one ( 1) That the insured would have in the absence of the contract or agreement [or] (2) Assumed in the contract or agreement that is an insured contract As discussed fully below neither of these exceptions to the Contractual Liability exclusion apply in this case 7 The policies also each have a Limits of Liability section discussed more fully below in Biteos CrossshyAssignments ofError 8 See JA3004-3312
8
(L069S7S2 I )
(a) Damages under Coverage A (b) Because of all bodily injury and property damage arising out of any one occurrence
Bitco extended a defense to lA Street in the underlying action but did so under
reservation ofright to deny coverage
C PROCEDURAL HISTORY
As stated the insurance issues herein relate to an Amended Complaint filed in the
underlying action on December 11 2007 joining and asserting claims against JA Street See
JA-2I7 On July 14 2008 Biteo filed the instant action for declaratory judgment pursuant to
the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the
Circuit Court detennine that the previously described commercial general liability insurance
policies afford no coverage and Bitco owes no duty to defend JA Street for the claims asserted
in the Amended Complaint in the underlying action See JA-19
By Order dated February 172015 the Circuit Court invited summary judgment motions
on all grounds argued by all parties subject to waiver should any available ground not be raised
9 On August 13 2009 Biteo fIled a Motion for Summary Judgment requesting that the Circuit Court declare as a matter of law that Bitco owes no coverage andor duty to defend lA Street with respect to the claims asserted against JA Street in the underlying action See JA-263 IA Street filed a CrossshyMotion for Partial Summary Judgment on that issue Following oral argument the Circuit Court denied Biteos Motion and granted IA Streets Cross-Motion rmding that Biteo owes JA Street a duty to defend the underlying action until such time as the Plaintiff meets its burden of proof that no duty to defend exists See Order JA-I005 The Circuit Court concluded that it cannot definitively say at this time that under Tennessee law the plaintiff would not have a duty to defend Id On March 13 2014 1A Street filed a Third-Party Complaint pursuant to the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the Circuit Court determine that Biteo along with five (5) other insurers owe coverage to IA Street for the claims asserted against it by TlID and that no exclusions or other policy language excludes limits or defeats coverage See IA-I051 As discussed in Petitioners Brief extensive motion practice ensued regarding a host of intricate insurance issues
9
[L06957521
Accordingly on March 12 2015 Bitco filed a Second Amended Cross-Motion for Summary
Judgment arguing that there was no coverage nor any duty to defend under any of its policies
because contract claims for damages brought against construction contractors based upon defects
or deficiencies in the work do not constitute property damage caused by an occurrence are
not VIIithin the scope of the standard commercial liability or umbrella policy and are in any event
excluded See IA-8614 After briefing and argument on December 302016 the Circuit Court
entered an Order agreeing with Bitco and granting summary judgment in Bitcos favor along
with a declaration that Bitco owes no duty to defend nor any coverage of the claims asserted
against IA Street in the underlying action See Opinion JA-I0SS2 JA Street took an appeal
to this Court and filed its principal Brief on May 122017 Bitco now responds
II SUMMARY OF ARGUMENT
This Court should affirm the lower courts declaration that Bitco owes no coverage and
no duty to defend JA Street under its commercial general liability (CGL) and umbrella
insurance policies with respect to the claims asserted in the underlying action The claims
asserted by THD against JA Street in the underlying action are for breach of contract breach of
warranty and indemnity All of these claims are ex contractu they all arise out of a written
agreement between DID and 1A Street under which 1A Street agreed to construct the Merritt
Creek Shopping Center All claims in the underlying action relate to alleged breach of the
express or implied obligations of the aforesaid contract due to alleged deficiencies in
construction work that JA Street contracted to perform thereunder Pursuant to well-settled
law those claims are not covered by liability insurance policies
10
L0695752 I
All damages alleged in the underlying Amended Complaint are first-party claims alleging
economic damages directly relating to the work JA Street contracted to perform The fact that
the only claims pled are for breach of contract -- and not tort -- is dispositive to the insurance
coverage issues Well-established Tennessee authority and the decisions of a majority of other
jurisdictions across the country have explicitly recognized that contract claims precisely like
those asserted against lA Street are not within the embrace of the insuring agreement of the
standard commercial liability policy The Travelers Indemn Co of Am v Moore amp Assocs
Inc IO decision upon which the Petitioners principally rely is inapposite since it does not address
whether pure contract claims are covered The Tennessee Supreme Courts decision in Vernon
Williams amp Son Constr Inc v Continental Ins Co II which is still the law in Tennessee today
and which the Petitioners entirely ignore clearly holds that any contract-based claims for faulty
workmanship are not covered under a commercial liability policy Consequently the claims
asserted against lA Street in the underlying action are not covered under the clear and
unambiguous terms of the applicable policies initial grant of coverage because the claims
alleged are only for the recovery of economic damages based upon breach of contract In
addition the Circuit Court correctly noted the applicability of exclusion (m) relative to impaired
property Because it is clear that the policies do not afford coverage for the claims asserted in
the underlying action Bitco does not owe a duty to defend lA Street Therefore the Circuit
Courts determination that lA Street is not entitled to coverage and a defense under the Bitco
policies was entirely correct
10 216 SW3d 202 (Tenn 2007) 11 591 SW2d 760 (Tenn 1979)
11
L069S7S21 J
Finally though the issue is moot since Bitco owes no coverage at all Bitco cross-assigns
error in the Circuit Courts determinations that more than one policy and per occurrence limit
could apply under any circumstances The unambiguous policy language restricts any coverage
to only one policy period and only one applicable limit This Court should not need to reach
those issues however since there is no coverage at all
UI STATEMENT REGARDING ORAL ARGUMENT AND DECISION
Bitco does not believe the narrow issues necessary to affirm the judgment below are
particularly difficult or complex However if the Court is interested in entertaining oral
argument Bitcos counsel would of course happily oblige
IV ARGUMENT
A STANDARD OF REVIEW
Inasmuch as the summary judgment was entered with regard to a declaratory judgment
action [a] circuit courts entry of a declaratory judgment is reviewed de novo Id
(quoting Syl Pt 3 Cox v Amick 195 WVa 608 466 SE2d 459 (1995raquo See also
Blankenship v City of Charleston 223 WVa 822 824 679 SE2d 654 656 (2009) (quoting
Syi Pt 1 Painter v Peavy 192 WVa 189 451 SE2d 755 (1994raquo Moreover
[d]etermination of the proper coverage of an insurance contract when the facts are not in
dispute is a question of law Id at 825 (quoting Syi Pt 1 Tennant v Smallwood 211 WVa
703 568 SE2d 10 (2002raquo) As [t]he interpretation of an insurance contract including the
question of whether the contract is ambiguous is a legal determination like a lower courts
grant of summary judgment [it] shall be reviewed de novo on appeal Id (quoting SyI Pt 2
12
(L06957521 )
Riffe v Home Finders Associates Inc 205 WVa 216 517 SE2d 313 (1999)) Importantly as
discussed in detail immediately below since the core issue in this case merely requires a
comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies this case presents a pure matter of law that is uniquely
suitable for decision at the summary judgment stage
B THE CIRCUIT COURT CORRECTLY HELD THAT UNDER TENNESSEE LAW THE CONTRACTUAL CLAIMS ASSERTED BY THD AGAINST JA STREET ARE NOT COVERED
BY THE BITCO POLICIES
In this State a liability insurer has no duty to defend an action asserted against the
insured where it is clear from the allegations of the Complaint against the insured that there is no
coverage afforded under the relevant insurance policy See Horace Mann Ins Co v Leeber 376
SE2d 581 584 180 WVa 375 (1988) State Auto Mut Ins Co v Alpha Engg Servbull Inc
542 SE2d 876 879 208 WVa 713 (2000) (If the causes of action alleged in the plaintiffs
complaint are entirely foreign to the risks covered by the insurance policy then the insurance
company is relieved of its duties under the policy) Tennesseel2 follows exactly the same rule
See Drexel Chemical Co v Bitco Ins Co 933 SW2d 471480 1996 TennApp LEXIS 356
(1996) (holding that the insurer did not have a duty to defend where an exclusion applied to
foreclose coverage) Tenn Farmers Mut Ins Co v Brown 1990 TennApp LEXIS 812 (1990)
(The general rule in Tennessee is that an insurer is not obligated to undertake the defense of a
suit against its insured unless the allegations of the complaint show a claim for damages that
would be covered by the policy) Cincinnati Ins Co v Grand Pointe LLC 2007 US Dist
12 All parties concede that Tennessee law governs construction of the insurance policies
13
(L069S7S21 )
LEXIS 39784 (ED Tenn 2007) (If it is plain from the face of the underlying complaint the
allegations fail to state facts that bring the case within or potentially within the policy no duty to
defend exists) Am Nat Prop and Cas Ins Co v Gray 803 SW 2d 693 695-96 (Tenn Ct
App 1990) Graves v Liberty Mut Fire Ins Co 745 SW2d 282283 (Tenn Ct App 1987)
In ascertaining whether there is a duty to defend under a liability insurance policy
Tennessee adheres to a strict four comers approach See Interstate Packaging Co v Century
Indem Co bull 2013 US Dist LEXIS 45459 (MDTenn 2013) citing St Paul Fire amp Marine Ins
Co v Torpoco 879 SW2d 831 835 (Tenn 1994) Clark v Sputnicks LLC 368 SW3d 431
439 (Tenn 2012) (An insurers duty to defend is determined solely by an examination of the
allegations of the underlying complaint) Thus under Tennessee law the court must limit its
inquiry to the claims and allegations presented in the complaint against the insured [I]f the
allegations contained in the complaintare within the risk insured against and there is a
potential basis for recovery then [the insurer] must defend St Paul v Torpoco supra 879
SW2d at 835 Conversely if the claims alleged in the complaint are clearly not within the
scope of coverage then there is no duty to defend Drexel Chemical Co v Bitco Ins Co 933
SW2d 471 480 (Tenn 1996) As the United States Court of Appeals for the Sixth Circuit
stated it applying Tennessee law in Smith amp Nephew Inc v Fed Ins Co 113 FedAppx 99
(6th Cir 2004) in detennining an insurers duty to defend courts typically begin and end
their analysis with the four comers of the complaint Id at 102 Petitioner argues that there
are significant issues of material fact that exist given that there has been no final resolution of the
14
(LD09S752 I
underlying action13 but in fact clear-cut law dictates that all the Court must do is contrast the
averments of the Amended Complaint with the terms of the policies
The instant inquiry must therefore begin with the unique circumstances that the TIID
Amended Complaint against lA Street pleads only contract-based claims and not tort claims
Although the Circuit Court based its finding of no coverage solely on the Contractual Liability
exclusion as discussed in detail below courts in Tennessee and elsewhere have concluded that
there is no coverage for breach of contact claims and the damages that typically flow from such
claims on broader grounds While the Circuit Court did not subscribe to that broad view
our cases have made clear that it is permissible for us to affirm the granting of [dismissal] on bases difference or grounds other than those relief upon by the circuit court Hoover v Moran 222 WVa at 119 662 SE2d at 718 quoting Gently v Mangum 195 WVa 512519466 SE2d 171178 (1995) See also Schmehl v Helton 222 WVa 98 662 SE2d 697 705 n7 (2008) (this Court may in any event affirm the circuit court on any proper basis whether relied upon by the circuit court or not) Murphy v Smallridge 196 WVa 35 36-7 468 SE2d 167168-9 (1996) (An appellate court is not limited to the legal grounds relied upon by the circuit court but it may affirm or reverse a decision on any independently sufficient ground that has adequate support) Syl pt 3 Barnett v Wolfolk 149 WVa 246 140 SE2d 466 (1965) (This Court may on appeal affirm the judgment of the lower court when it appears that such judgment is correct on any legal ground disclosed by the record regardless of the ground reason or theory assigned by the lower court as the basis for its judgment)
Savarese v Allstate Ins Co 672 SE2d 255260 (WVa 2008)
One of the more elemental and uniformly embraced principles of corrunercial insurance
law is that the typical commercial liability insurance policy affords coverage for tort claims not
claims for breach of contract The authorities supporting that proposition are legion Dean
Henderson in his renowned and widely cited law review article makes the point emphatically
13 Petitioners Brief pp 25-27 15
(L0695752 1 J
[t]he risk intended to be insured is the possibility that the goods products or work of the insured once relinquished or completed will cause bodily injury or damage to property other than to the product or completed work itself and for which the insured may be found liable The insured as a source of goods or services may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable because it is lacking in some capacity This may even extend to an obligation to completely replace or rebuild the deficient product or work This liability however is not what the coverages in question are designed to protect against The coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb L Rev 415441 (1971)14
The overwhelming majority of courts and commentators that have addressed this issue
have held that breach of contract claims asserted against the insured are not covered under a
standard CGL policy See eg Couch on Insurance 3d sect1291-1294 (3d Ed 2005) (a
commercial general liability insurance policy is generally designed to provide coverage for tort
liability for physical damages to others and not for contractual liability of the insured for
economic loss the majority of jurisdictions have held that breach of contract is not an
14 The Henderson article has been widely relied upon by courts and commentators for over 40 years Noticeably it has been frequently cited with approval in Tennessee See Vernon (relying upon the Henderson article the Tennessee Court held that the standard comprehensive general liability policy does not provide coverage to an insured-contractor for a breach of contract action grounded upon faulty workmanship or materials where the damages claimed are the cost of correcting the work itself) Blaylock amp Brown Constr Inc v AIU Ins Co 796 SW2d 146 1990 TennApp LEXIS 338 (1990) (relying upon Henderson the Court holds bull that the language of the policy excludes liability coverage for the plaintiffs for damage to the property constructed pursuant to the contract) Standard Fire Ins Co v Chester-ODonley amp Assocs 972 SW2d 1 1998 TennApp LEXIS 65 (1998) (citing the Henderson article for the proposition that CGL policies are not intended to cover the insureds contractual liability for economic loss because its work was not that for which the damaged person bargained) Weedo v Stone-E-Brick Inc bull 81 NJ 233 405 A2d 788 (1979) (relying heavily upon the Henderson article the Court holds that a CGL policy does not provide coverage for a breach of contract action for faulty workmanship where the damages claimed are the cost ofcorrecting the work itself)
16
IL069S7S2 I
occurrencea [CGL] policy is not intended to provide coverage for the insureds contractual
liability which merely causes economic losses) Alan D Windt Insurance Claims and
Disputes sect117 (4th Ed 2001) (Finally there is the question as to whether a breach of
contract claim involves damages caused by an occurrence The answer should in general be
no) Erie Ins Prop amp Cas Co v Pioneer Home Improvement Inc 526 SE2d 28 33 206
WVa 506 513 (1999) (The coverage [under a COL policy] is for tort liability for physical
damages to others and not for contractual liability of the insured for economic loss because the
product or completed work is not that for which the damaged person bargained) Nationwide
Mutual Ins Co v CPB Intl Inc 562 F3d 591 598 2009 US App LEXIS 7795 14 (3d Cir
2009) (holding that under Pennsylvania law a CGL policy does not provide coverage for
claims in an underlying action that arise out of and relate to the contract between the parties)
Lyerla v AMCO Ins Co 536 F3d 684691-922008 US App LEXIS 164 78 (7th Cir 2008)
(applying Illinois law) (holding that underlying allegations that insured contractor did not satisfy
his contractual obligations is not property damage caused by an occurrence) L-J Inc v
Biteo Fire amp Marine Ins Co 621 SE2d 33 35 366 SC 117 (2005) (any liability that is
incurred because of faulty workmanship is part of the insureds contractual liability not an
insurable event under a CGL policy) Hotel Roanoke Conf Ctr Commn v Cincinnati Ins Co
303 FSupp2d 784 7882004 US Dist LEXIS 2539 (2004) (applying Virginia law) (damages
limited to the insureds work or product and resulting from the insureds defective perfonnance
of a contract are not covered losses under a [CGL] policy) Westfield Ins Co v Sheehan
Construction Co 580 FSupp2d 701 710 2008 US Dist LEXIS 66843 (2008) (applying
17
(L06957521
Indiana law) (a CGL policy serves to limit contractors tort liability for damage to property
caused by their work) Key Custom Homes Inc v Mid-Continent Cas Co 450 FSupp2d
1311 1317-182006 US Dist LEXIS 60355 (2006) (applying Florida law) (it is equally clear
that breach of contract claims for the recovery of money are not covered by general liability
insurance policies) Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254 1257329
Ore 620 (2000) (there can be no accident within the meaning of a commercial liability policy
when the resulting damage is merely a breach of contract) Bonded Concrete Inc v Transcon
Ins Co 12 AD3d 761 2004 NYAppDiv LEXIS 13020 (2004) (the purpose of a
commercial general liability policy is to provide coverage for tort liability for physical damage
to others and not for contractual liability of the insured for economic loss because the
product is not what the damaged [party] bargained for) United States Fire Ins Co v Milton
Co 35 FSupp2d 8386 1998 US Dist LEXIS 22116 (1998) (applying Maryland law) (there
is no occurrence under a comprehensive general liability insurance policy where and to the
extent that a contractors use of defective materials and substandard workmanship results in
economic losses that would normally be recoverable in a breach of contract action) Burlington
Ins Co v Oceanic Design amp Construction Inc 383 F3d 940 2004 US App LEXIS 18932
(9th Cir 2004) (applying Hawaii law) (holding that claims for breach of contract and negligent
breach of contract are not covered under a CGL policy) Norwalk Ready Mixed Concrete Inc v
Travelers Ins Co 246 F3d 1132 2001 US App LEXIS 7148 (8th Cir 2001) (applying Iowa
law) (holding that breach of contract and breach of warranty claims are not covered under a CGL
policy) USFampG Com v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476
18
(L06957521 l
(1989) (holding that a breach of contract claim asserted against an insured contractor is not
covered under a COL policy) Oreat Divide Ins Co v Bitterroot Timberfiames of Wyoming
LLC 2006 US Dist LEXIS 94826 (2006) (applying Wyoming law) (the allegations
demonstrate losses resulting from breach of contract and therefore cannot constitute an
accident for purposes of determining coverage) Union Ins Co v Hottenstein 83 P3d 1196
12022003 ColoApp LEXIS 1857 (2003) (poor workmanship constituting a breach of contract
is not a covered occurrence)
Tennessee lawl5 is in accord with these authorities The Tennessee Supreme Court has
defInitively held that breach of contract claims due to the insureds faulty workmanship such as
those asserted here by THD against IA Street in the underlying Amended Complaint are simply
not covered under the grant of coverage contained in a commercial liability policy See Vernon
supra Chester-ODonley supra at 6-7 (General liability policies are not all-risk policies and
only cover damages up to the policy limits for which the insured becomes liable as a result of
tort liability to a third party) (emphasis added) In Vernon the Supreme Court of Tennessee
expressly held that a standard COL policy only covers tort claims and such a policy does not
15 Under applicable Tennessee law contracts of insurance are subject to the same rules of interpretation and construction as other contracts McKimm v Bell 790 SW2d 526 527 1990 Tenn LEXIS 161 (1990) Thus [a]n insurance policy must be interpreted fairly and reasonably giving the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204 SW3d 758 2006 Tenn LEXIS 755 (2006) In the absence of fraud or mistake a contract must be interpreted and enforced as written even though it contains terms which may be thought harsh and unjust Allstate Ins Co v Wilson 856 SW2d 706 1992 TennApp LEXIS 1012 (1992) As a result the analysis of JA Streets right to coverage for the claims asserted in the underlying action are dictated by the terms of the policy The essential components of a general liability insurance policy include (1) the declarations (2) the insuring agreements and definitions (3) the exclusions (4) the conditions and (5) the endorsements See ChestershyODonley supra The insuring agreement sets the outer limits of an insurers contractual liability If coverage cannot be found in the insuring agreement it will not be found elsewhere in the policy Id 1998 TennApp LEXIS at 13-14
19
L069S7S21
afford coverage to an insured contractor for breach of contract claims Vernon 591 SW 2d at
765 Chester-ODonley supra at 6-7 Petitioner complains that the Circuit Court focused on
West Virginia cases such as Silk v Flat TOp6 but in fact the lower court expressly relied
upon a wealth of Tennessee authority17 including Vernon Cincinnati Ins Co v Grand Pointe
LLc18 and Trinity Univ Ins Co v Turner Funeral Home Inc 19 More recently Tennessee
courts have reaffirmed the rationale and holding of Vernon See State Auto Ins Cos v Gordon
Constr Inc 2001 TennApp LEXIS 349 (2001) (following Vernon and holding that the
insuring agreement of a CGL policy does not afford coverage for underlying breach of contract
and breach of warranty claims asserted against the insured contractor) Blake Indus Inc v
General Agents Ins Co of Am 2000 Tenn App LEXIS 490 (2000) (applying Vernon and
holding that claims asserted against the insured that were grounded in contract are not covered
under a CGL policy) Blaylock and Brown Constr Inc v AID Ins Co 796 SW2d 146 152shy
153 (Tenn Ct App 1990)
As the Circuit Court correctly recognized the express tenus of the insurance contract
clearly exclude contractual liability from coverage Exclusions help define and shape the scope
of coverage but they must be read in terms of the insuring agreement to which they apply
Exclusions can only decrease coverage they cannot increase it Chester-ODonley 972 SW2d
at 7-8 Moreover [e]ach exclusion reduces coverage and operates independently with reference
16 Petitioners Brief p 30 (citing 453 SE2d 356 (Wva 1994raquo 17 See See Opinion JA-I0552 ~27
18 2007 US Dist LEXIS 39784 (ED Tenn 2007) 19 2003 WL 23218046 (ED Tenn Dec 122003)
20
IL069S7S2 I I
to the insuring agreement Id at 8 The Contractual Liability exclusion specifically provides
that the insurance coverage does not apply to
Contractual liability
Bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement This exclusion does not apply to liability for damages
(1) That the insured would have in the absence of the contract or agreement or
(2) Assumed in a contract or agreement that is an insured contract provided the bodily injury or property damage occurs subsequent to the execution of the contract or agreement Solely for the purposes of liability assumed in a insured contract reasonable attorneys fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of bodily injury or property damage provided
(a) Liability to such party for or for the cost of that partys defense has also been assumed in the same insured contract and
(b) Such attorneys fees and litigation expenses are for defense of that party against the civil or alternative dispute resolution proceeding in which damages to which the insurance applies are alleged
See JA-62 Section I C[2
Even a cursory examination ofTHDs Amended Complaint reveals that all claims alleged
against JA Street were contractual There simply was no tort claim alleged In fact the claims
against JA Street were necessarily founded in contract for two reasons First the two-year
statute of limitations applicable to any tort claims elapsed long before THD first asserted its
claims against JA Street Tort claims were not pleaded and could not have been Second the
substantive law of West Virginia applies to the underlying claims asserted by THD against lA
21
(L069S7S21 I
Street20 and applicable West Virginia law plainly holds that even if THD had asserted tort
claims against JA Street the claims would still sound in contract under these circumstances for
purposes of the instant analysis since the gist of claims asserted against a contractor for deficient
work is necessarily ex contractu See Silk supra at 360 Dan Ryan Builders Inc v Crystal
Ridge Dev Inc 783 F3d 976 (4th Cir 2015) Unlike in both Silk and Dan Ryan THO did not
even assert any tort claims here Nor could it have Relevant to the precise policy language at
issue there simply was no liability for damages that [JA Street] would have in the absence of
the contract or agreement It simply cannot be contested that the claims alleged in the Amended
Complaint are and indeed necessarily were contractual in nature Given that alone the clear
holding of the Tennessee Court in Vernon mandated the Circuit Courts correct grant of
summary judgment in Biteos favor
A great majority of courts and commentators across the country that have addressed the
issue have held that the explicit unambiguous express Contractual Liability exclusion forecloses
coverage for all contract liability including breach of contract claims asserted against the
insured except where the insured has assumed the liability of another in an insured contract
See eg Silk v Flat Top Constr Inc 453 SE2d 356 359 192 WVa 522 (1994) (holding that
the contract exclusion applies to foreclose coverage for all contractual liability of the insured
except for liability assumed in an insured contract-a contract under which the insured
assumes the tort liability of another party) Gilbert Tex Constr v Underwriters at Lloyds
20 West Virginia applies the choice-of-law principle of lex loci delicti and there is no question here that the offending conduct and the loss all occurred in West Virginia such that JA Streets liability to THD would be governed by West Virginia law See State of Wva ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) (citing Syl Pt 1 Paul v Natl Life 352 SE2d 552 (WVa 1986raquo
22
(L069S7521 I
Londo 327 SW3d 118 (2010) (citing inter alia Nationwide Mut Ins Co v CPB Int Inc
No 306-CV-0363 2007 WL 4198173 at 8 (MDPa Nov26 2007) (Exclusion (b) is simply
further clarification in the policy that contract-based claims are not covered) ClM Ins Corp v
Midpac Auto Crr Inc 108 FSupp2d 1092 1099-1100 (DHaw2000) (clause in policy stating
that policy does not apply to liability assumed under any contract or agreement means that any
claim that is dependent on the existence of an underlying contract is not covered) Monticello
Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 at 2 (WDKy
Apr 3 1998) (exclusion for liability assumed by the insured under any contract or agreement
does not arise only when a party assumes the liability for another party rather the plain meaning
of the policy excludes a breach of contract claim from coverage) Silk supra (exclusion removed
coverage for breach of contract) TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 1091-92
(8th Cir1995) (exclusion for which the insured has assumed liability in a contract or agreement
plainly excluded coverage for contractual claims and not just hold-harmless or indemnity
agreements) Nationwide Mutual Ins Co v CPB Intl Inc 562 F3d 591 5992009 US App
LEXIS 7795 (3d Cir 2009) (applying Pa law) (holding that a breach of contract claim is excluded
under the Contractual Liability exclusion) Century Sur Co v Hardscape Constr Specialties Inc
578 F3d 262 2009 US App LEXIS 25300 (5th Cir 2009) (applying Texas law) (holding that the
Contractual Liability exclusion operates to exclude claims grounded primarily in breach of contract
and that no tort claims were asserted that triggered the insured contract exception) State Farm
Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 12 (2007) (applying Hawaii
law) (holding that claims arising from the insureds obligations under a contract are barred from
23
L0695152 I I
coverage under the Contractual Liability exclusion) JACO Airfield Constr Inc v National Trust
Ins Co 2007 US Dist LEXIS 100295 10 (2007) (applying Georgia law) (holding that the
Contractual Liability exclusion applies to foreclose coverage for the contractual based claims
asserted against the insured and that the insured contract exception to the Contractual Liability
exclusion does not apply because the insured did not assume the tort liability of another) Union Ins
Co v Williams Contr Inc 2006 US Dist LEXIS 35919 4-5 (2006) (holding that the
Contractual Liability exclusion precludes coverage for claims against the insured for breach of a
construction contract) Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270
GaApp 8 (2004) (affirming trial comts finding that the Contractual Liability exclusion barred
coverage for breach of contract and breach of implied warranty claims against the insured) Gibson
amp Assocs Inc v Home Ins Co 966 FSupp 468476-77 1997 US Dist LEXIS 4776 (1997)
(applying Texas law) (recognizing that the Contractual Liability exclusion precludes coverage for
breach of contract claims asserted against the insmed and that the policy only covers contractual
liability for indemnification actions ie an insured contract) James v Burlington Northern Santa
Fe Railway Co 2007 US Dist LEXIS 63282 4-5 (2007) (applying Arizona law) (holding that
the insured contract exception to the Contractual Liability exclusion does not bring ordinary
breach-of-contract claims within the scope of CGL coverage) TGA Dev Inc v Northern Ins Co
of New York 62 F3d 1089 1091-92 1995 USApp LEXIS 21700 (8th Cir 1995) (applying
Minnesota law) (holding that the Contractual Liability exclusion plainly excludes coverage for
contractual claims made for [the insmeds] failure to provide [the property owner] with a
condominium unit free from defects)
24
(lO6957521 )
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
Great Divide Ins Co v Bitterroot Timberframes of Wyoming LLC 2006 US Dist LEXIS
94826 (2006) 19
Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) 43
Greenidge v Allstate Insurance Co 312 F2d430 (SDNY 2004) 43
GrinnellMut Reinsurance Co v Lynne 686 NW2d 118 (ND 2004) 33
Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th Cir 2000) 32
Hathaway Dev Co v lll Union Ins Co 274 Fed Appx 787 (11 th Cir 2008) 32
Headley v St Paul Fire amp Marine Ins Co 712 FSupp 745 (DSD 1989) 39
Hiraldo vs Allstate Insurance Co 8 AD3d 230 778 NYS 2d 50 (2004) 43
Hoover v Mornn 222 WVa at 119 662 SE2d at 718 15
Horace Mann Ins Co v Leeber 376 SE2d 581 180 WVa 375 (1988) 13
Hotel Roanoke Com Ctr Commn v Cincinnati Ins Co 303 FSupp2d 784 2004 US Dist
LEXIS 2539 (2004) 17
Interstate Packaging Co v Century Indem Co 2013 US Dist LEXIS 45459 (MD Tenn
2013) 14
JACO Airfield Constr Inc v National Trust Ins Co 2007 US Dist LEXIS 100295 (2007) 24
Jacob v Russo Builders 592 NW2d 271 (Wis Ct App 1999) 34
James v Burlington Northern Santa Fe Railway Co 2007 US Dist LEXIS 63282 (2007) 24
Kaiser Cement and Gypsum Corp v Insurance Co of the State of Pa 215 Cal App 4th 210
155Cal Rptr 3d283 (2013) 43
Key Custom Homes Inc v Mid-Continent Cas Co 450 FSupp2d 1311 2006 US Dist
LEXIS 60355 (2006) 18
Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) 39
Lennar Corp v Markel American Insurance Co 413 SW3d 750 (Texas 2013) 43
LISN Inc v Commercial Union Ins Cos 615 NE2d 650 (Ohio Ct App 1992) 33
L-J Inc v Bitco Fire amp Marine Ins Co 621 SE2d 33 366 SC 117 (2005) 17
Lyerla v AMCO Ins Co 536 F3d 684 2008 US App LEXIS 164 (7th Cir 2008) 17
McKimm v Bell 790 SW2d 526 (Tenn 1990) 1935
v
(t06957521 I
Monticello Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 (WDKy
Apr3 1998) 23
Murphy v Smallridge 196 WVa 35468 SE2d 167 (1996) 15
Naifeh v Valley Forge Life Ins Co 204 SW3d 758 (Tenn 2006) 1935
Nationwide Mutual Ins Co v CPB IntI Inc 562 F3d 591 2009 US App LEXIS 7795 (3d
Cir 2009) 17 23
Nesmith v Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) 43
Newark Ins Co v Acupac Packaging Inc 746 A2d 47 (NJ Super Ct App Div 2000) 34
North American Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552
(5th Cir 2008) 43
Norwalk Ready Mixed Concrete Inc v Travelers Ins Co 246 F3d 1132 2001 US App
LEXIS 7148 (8th Cir 2001) 18
Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254329 Ore 620 (2000) 18
Olympic Inc v Providence Washington Insurance Co of Alas~ 648 P2d 1008 (Alaska 1982)
30
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 (DDC 1984) 39
Painterv Peavy 192 WVa 189451 SE2d 755 (1994) 12
Paul v Natl Life 352 SE2d 552 (WVa 1986) 22
Riffe v Home Finders Associates Inc 205 WVa 216 517 SE2d 313 (1999) 13
Ryan Homes v Home Indem Co 647 A2d 939 (Pa Super 1994) 33
Safeco Insurance Company of American v Firemens Fund Insurance Co 148 Cal App 4th
620 55 Cal Rptr 3d 844 (2007) 43
Sapp v State Farm Fire amp Cas Co 486 SE2d 71 (Ga Ct App 1997) 32
Savarese v Allstate Ins Co 672 SE2d 255 260 (WVa 2008) 15
Schmehl v Helton 222 WVa 98662 SE2d 697 (2008) 15
Silk v Flat Top 453 SE2d 356 (WVa 1994) 20 22 23 25
Smith amp Nephew Inc v Fed Ins Co 113 FedAppx 99 (6th Cir 2004) 14
vi
(L069S7S21 I
Southern International Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct
App 3d Dist 1977) 39
St Paul Fire amp Marine Ins Co v Torpoco 879 SW2d 831 (Tenn 1994) 14
Standard Fire Ins Co v Chester-ODonley amp Assocs 972 SW2d 1 1998 TennApp LEXIS
65 (1998) 16 19
State Auto Ins Cos v Gordon Constr Inc 2001 TennApp LEXIS 349 (2001) 20
State Auto Mut Ins Co v Alpha Engg Serv Inc 542 SE2d 876 208 WVa 713 (2000) 13
State Farm Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 (2007) 23
State ofWVa ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) 22
Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) 43
Taylor v Travelers Ins Co 40 F3d 79 (5th Cir 1994) 31
Tenn Farmers Mut Ins Co v Brown 1990 TennApp LEXIS 812 (1990) 13
Tennant v Smallwood 211 WVa 703568 SE2d 10 (2002) 12
TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 (8th Cir1995) 2324
Thommes v Milwaukee Mut Ins Co 622 NW2d 155 (Minn Ct App 2001) 34
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 (ND Tex 1980) 39
Travelers Indemn Co of Am v Moore amp Assocsbull Inc 216 SW3d 202 (Tenn 2007) 112526
Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL 23218046 (ED Tenn Dec 12
2003) 20 27
Truk-Away Inc v Aetna Cas amp Sur Co 723 A2d 309 (RI 1999) 39
Union Ins Co v Hottenstein 83 P3d 11962003 ColoApp LEXIS 1857 (2003) 19
Union Ins Co v Williams Contr Inc 2006 US Dist LEXIS 35919 (2006) 24
United States Fire Ins Co v Milton Co 35 FSupp2d 83 1998 US Dist LEXIS 22116 (1998)
18
USFampG Corp v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476 (1989)
19
Vari Builders Inc v United States Fidelity amp Guaranty Co 523 A2d 549 (Del Super Ct
1986) 32
vii
IL0595752 I I
Vernon Williams amp Son Constr Inc v Continental Ins Co 591 SW2d 760 (Tenn 1979)
pasSIm
Weedo v Stone-E-Brick Inc 405 A2d 788 (NJ 1979) 1633
Westfield Ins Co v Sheehan Construction Co 580 FSupp2d 701 2008 US Dist LEXIS
66843 (2008) 17
STATUTES
West Virginia Declaratory Judgment Act W Va Code sect55-13-1 e seq 9
OTHER AUTHORITIES
Alan D Windt Insurance Claims and Disputes sect117 (4th Ed 2001) 17
Couch on Insurance 3d sect1291-1294 (3d Ed 2005) 16
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb 1 Rev 415441 (1971) 1631
Wielinski Patrick (4th ed) IRMI Ch 6 pp 180-185 29
viii
LC6957521 I
I ST ATEMENT OF THE CASE
A INTRoDUCTION
Bitoo General Insurance Corporation (Biteo) instituted this declaratory judgment action
seeking a declaration of no coverage and no duty to defend contract claims alleging poor
workmanship asserted against Bitcos named insured in an underlying civil action pending in the
Circuit Court of Cabell County captioned at THD Development LLC a West Virginia Limited
Liability Company and THD Investors 7 LLC a West Virginia Limited Liability Company
Plaintiffs v SamplE Inc a Corporation and JA Street amp Associates Inc a Corporation
Defendants Civil Action No 03-C-0490 (hereinafter underlying action) The threshold
question presented in this declaratory judgment action is whether Bitcos standard commercial
general liability and umbrella insurance policies afford coverage for pure ex contractu claims
asserted by THD Development (THD) against JA Street amp Associates Inc (IA Street)
At an early stage Bitco moved for summary judgment on that very narrow ground toshy
wit that all of the claims pleaded against JA Street are contract-based claims for poor
workmanship and such claims are not covered by Bitcos standard oommercialliability polices
under applicable Tennessee law Unfortunately the Circuit Court found that the issue was not
susceptible to summary judgement at that time Consequently the insurance case remained
pending and Biteo continued to defend the underlying action At a later point Biteo renewed
substantially the identical argument whereupon it was again determined to be an insufficient
basis for a summary judgment Although the Circuit Court was uncertain enough at that point
that it certified the issue for interlocutory appeal the Supreme Court declined to afford review
L0695752l
Thereafter THD and lA Street immeasurably complicated the matter They devised a
theory that the case demonstrated characteristics of ongoing progressive incessant damage
typical of the asbestos-type progressive damage cases which our system of the administration of
justice has come to know On that basis lA Street sought and obtained leave of court to add
six additional insurance companies that had written commercial liability and umbrellaexcess
liability insurance over a period of years between 2001 and the present That of course
plunged the case into a maelstrom of dispute over a multitude of new insurance issues such as
trigger of coverage the accompanying loss in progress known loss rule problems
concomitant disputes over horizontalvertical exhaustion the lively debates over stacking of
per occurrence limits over successive policy periods and of course the applicability of
multiple exclusions such as the standard impaired property and earth movement exclusions
When all was said and done the Circuit Court ultimately honored Bitcos original
argument on the very narrow core issue at hand and ruled that since all of the claims asserted
against JA Street were contract-based claims for damages sustained by THD due to faulty
workmanship the commercial liability coverage provided by the policies does not apply That
determination which could have been made in 2009 is correct since the claims plainly do not
fall within the embrace of the policies as a matter of well-settled law Should this Court affirm
the judgment none of the other issues addressed by the Circuit Court affects the substantial
rights of the parties In other words they are moot
For these reasons Biteo focuses its argument on the indefatigable conclusion that there is
no coverage under the Bitco policies or any other commercial liability policies for claims ex
2
L069S7521
I
contractu for damages for poor workmanship by a construction contractor on a commercial
construction project Bitco also briefly addresses the propriety of the trial courts finding that
exclusion (m) applicable to impaired property separately operates to bar coverage
Biteo confines its cross-assignments of error to only 2 points (1) coverage if there is
any would be confmed to only one policy period either 2001-2002 or 2002-2003 because
damage first began and was known to the insured during one or the other of those periods and
(2) only one per occurrence limit applies regardless of the number of policies that are
triggered These points should in fact be moot since the Circuit Court correctly decided there is
no coverage in the fIrst instance
B STATEMENT OF FACTS
As discussed above and hereinbelow the core issue involved in this appeal requires only
a comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies themselves l To that end the Amended Complaint filed in
the underlying action alleges as follows
THD a real estate development company2 is the developer of the Merritt Creek Farm
Commercial Shopping Development located in Barboursville West Virginia See JA217-250
Amended Complaint -rl The project consisted of several sections including an anticipated site
for a Target store [d at -r7 1HD sought to prepare a pad upon which the Target store was to
Consonant with the governing standard the universe of facts that are germane to a detennination of whether a liability insurer such as Bitco has a duty to defend its insured consist of the factual allegations of the complaint flIed against the insured In this instance that would be the Amended Complaint filed by THD in the underlying case which asserted claims against 1A Street That Amended Complaint was appended as an exhibit to Bitcos Complaint in the declaratory judgment action 2 THDs principal place of business is located in Bristol Tennessee
3
(106957521 )
be constructed whereupon THD would then convey that portion of the site to Target for further
development Id TIID in turn entered into an agreement with SampME Inc (SampME) a soils
engineering firm whereby SampME agreed to perfonn a geotechnical exploration of the site and
thereafter submit a report setting forth recommendations with respect to site preparation for the
entire development Id at 10
On June 5 2001 THD entered into a written contract with IA Street for 1A Street to
serve as the general contractor on the Merritt Creek Farm Project Id at ~13 Pursuant to the
THDJA Street written agreement IA Street agreed to perform construction tasks with regard
to the Merritt Creek Farm Project including preparing the site for construction in general
preparing the Target site for construction of the Target building and constructing various
buildings and structures on the site3 Id at [13-14
In September of 2001 1A Street was perfonning grading excavation and fill work for
the portion of the site beneath which Target would eventually erect its building Id at 17 On
September 212001 the slope at the rear of the Target store site failed causing a landslide Id
During 2002 and 2003 additional slides sloughing and land movement occurred at other
locations throughout the Merritt Creek Development Id at 19 As a result THD was required
to spend substantial sums to repair the slope and address associated consequences of the
landslide Id at 18-19 THD filed the underlying action to recover those economic damages
Id generally
3 JA Street did not contract to build the Target building The Target Corporation was to perform that construction itself
4
(L069S752 I l
THD initially brought the underlying action in 2003 solely against SampME asserting
various claims for damages incurred on the project Nearly four years later on December 11
2007 THD amended its Complaint to add JA Street as a defendant By that time the two-year
tort period of limitations had long since expired Thus THDs Amended Complaint asserted
claims against JA Street were based solely upon the construction contract between THD and
JA Street -- claims for breach of contract breach of warranty and for express and implied
contractual indemnity Id at ~71-96 Therein THD alleged that JA Street failed to
perform the work in a good and workmanlike manner failed to provide competent supervision
and failed to perform the work with a high degree of expertise and workmanship thereby
breaching its agreement with THD Id at ~16 No tort claims were alleged against JA Street
in the Amended Complaint All of the claims sounded exclusively in contract
During several policy periods from 2001 to 2007 Bitco insured JA Street under very
standard commercial general liability policies4 It is undisputed that these policies were issued
by an agent located in Tennessee to JA Street a Tennessee corporation with its principal offices
located in Tennessee See JA217-219 ~4 As suc~ the policies are governed by Tennessee law
4 Policy eLP 3 107706 B was in effect fOT policy period March 12001 to March 1 2002 See JA-4 Policy eLP 3 135489 B was in effect fOT policy period March 12002 to March 12003 See JA4-216 Subsequent one-year policies issued with coverage effective through March 1 2007 See Petitioners Brief pp 9-10 JAI066 1583-2223 It is immaterial which policy applies because the relevant provisions of all of the policies are the same
5
(L06957521 )
These policies are identical they are all written on the standard Insurance Services
Office Inc (ISO) Commercial General Liability coverage forms 5 Insofar as is relevant
instantly the policies provide
1 Insuring Agreement
a We will pay those sums that the insured becomes legally obligated to pay as damages because ofbodily injury or 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 bodily injury or property damage to which this insurance does not apply We may at our discretion investigate any occurrence and settle any claim or suit that may resuIL
b This insurance applies to bodily injury and property damage only if
(1) The bodily injury or property damage is caused by an occurrence that takes place in the coverage territory
(2) The bodily injury or property damage occurs during the policy period and
(3) Prior to the policy period no insured listed under Paragraph 1 of Section II - Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part If such a listed insured or authorized middotmiddotemployee knew prior to the policy period that the bodily injury or property damage occurred then any continuation change or resumption of such bodily injury or property damage during or after the policy period will be deemed to have been known prior to the policy period
c Bodily injury or property damage which occurs during the policy period and was not prior to the policy period known to have occurred by
5 ISO has long been the predominate publisher of commercial general liability insurance policy forms in the industry The ISO Commercial General Liability Coverage Form CGOOOI has long been the most widely used form in the United States As such the policies involved in this case are typical standardized and have frequently been the subject of interpretation by state and federal courts
6
[L0695752 1 I
any insured listed under Paragraph 1 of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim includes any continuation change or resumption of that bodily injury or property damage after the end of the policy period
d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph 1 of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim Reports all or any part of the bodily injury or property damage to us or any other insurer
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or
(2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
Id Section I ~1
Property damage is defined under the policies as
(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 it 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 causes it
Id Section V ~17
Occurrence is defined as
[A]n accident including continuous or repeated exposure to substantially the same general hannful conditions
Id Section V ~13
Consonant with the well-recognized fact that commercial liability insurance covers tort
claims and not contract claims in subparagraph 6 of the Exclusions section the policies
7
(L069S7S21 I
contain a Contractual Liability exclusion The language of this familiar exclusion makes clear
that the insurance does not apply to bodily injury or property damage for which the insured
is obligated to pay damages by reason of the assumption of liability in a contract or
agreement 6 The policies also contain exclusion (m) which states that the coverage does not
apply to
m Damage to impaired property or property not physically damaged Property damage to impaired property arising out of (1) a defect deficiency inadequacy or dangerous condition in your
product or your work or (2) a delay or failure by you or anyone acting on your behalf to
perform a contract or agreement in accordance with its terms 7
In addition to the commercial liability policies Bitco also insured 1A Street under
commercial umbrella policies from March 2003 through March 2007 each of which contained
materially identical provisions as set forth above except that the insuring agreement also
included the following language We will pay on behalf of the insured the ultimate net loss in
excess of the retained limit because of property damage caused by an occurrence which
takes place during the policy period 8 Paragraph 5 of the Limits of Insurance provision
addresses the limits of property damage coverage under Coverage A The language therein
states succinctly as follows
Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of
6 The exceptions are where the liability is one ( 1) That the insured would have in the absence of the contract or agreement [or] (2) Assumed in the contract or agreement that is an insured contract As discussed fully below neither of these exceptions to the Contractual Liability exclusion apply in this case 7 The policies also each have a Limits of Liability section discussed more fully below in Biteos CrossshyAssignments ofError 8 See JA3004-3312
8
(L069S7S2 I )
(a) Damages under Coverage A (b) Because of all bodily injury and property damage arising out of any one occurrence
Bitco extended a defense to lA Street in the underlying action but did so under
reservation ofright to deny coverage
C PROCEDURAL HISTORY
As stated the insurance issues herein relate to an Amended Complaint filed in the
underlying action on December 11 2007 joining and asserting claims against JA Street See
JA-2I7 On July 14 2008 Biteo filed the instant action for declaratory judgment pursuant to
the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the
Circuit Court detennine that the previously described commercial general liability insurance
policies afford no coverage and Bitco owes no duty to defend JA Street for the claims asserted
in the Amended Complaint in the underlying action See JA-19
By Order dated February 172015 the Circuit Court invited summary judgment motions
on all grounds argued by all parties subject to waiver should any available ground not be raised
9 On August 13 2009 Biteo fIled a Motion for Summary Judgment requesting that the Circuit Court declare as a matter of law that Bitco owes no coverage andor duty to defend lA Street with respect to the claims asserted against JA Street in the underlying action See JA-263 IA Street filed a CrossshyMotion for Partial Summary Judgment on that issue Following oral argument the Circuit Court denied Biteos Motion and granted IA Streets Cross-Motion rmding that Biteo owes JA Street a duty to defend the underlying action until such time as the Plaintiff meets its burden of proof that no duty to defend exists See Order JA-I005 The Circuit Court concluded that it cannot definitively say at this time that under Tennessee law the plaintiff would not have a duty to defend Id On March 13 2014 1A Street filed a Third-Party Complaint pursuant to the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the Circuit Court determine that Biteo along with five (5) other insurers owe coverage to IA Street for the claims asserted against it by TlID and that no exclusions or other policy language excludes limits or defeats coverage See IA-I051 As discussed in Petitioners Brief extensive motion practice ensued regarding a host of intricate insurance issues
9
[L06957521
Accordingly on March 12 2015 Bitco filed a Second Amended Cross-Motion for Summary
Judgment arguing that there was no coverage nor any duty to defend under any of its policies
because contract claims for damages brought against construction contractors based upon defects
or deficiencies in the work do not constitute property damage caused by an occurrence are
not VIIithin the scope of the standard commercial liability or umbrella policy and are in any event
excluded See IA-8614 After briefing and argument on December 302016 the Circuit Court
entered an Order agreeing with Bitco and granting summary judgment in Bitcos favor along
with a declaration that Bitco owes no duty to defend nor any coverage of the claims asserted
against IA Street in the underlying action See Opinion JA-I0SS2 JA Street took an appeal
to this Court and filed its principal Brief on May 122017 Bitco now responds
II SUMMARY OF ARGUMENT
This Court should affirm the lower courts declaration that Bitco owes no coverage and
no duty to defend JA Street under its commercial general liability (CGL) and umbrella
insurance policies with respect to the claims asserted in the underlying action The claims
asserted by THD against JA Street in the underlying action are for breach of contract breach of
warranty and indemnity All of these claims are ex contractu they all arise out of a written
agreement between DID and 1A Street under which 1A Street agreed to construct the Merritt
Creek Shopping Center All claims in the underlying action relate to alleged breach of the
express or implied obligations of the aforesaid contract due to alleged deficiencies in
construction work that JA Street contracted to perform thereunder Pursuant to well-settled
law those claims are not covered by liability insurance policies
10
L0695752 I
All damages alleged in the underlying Amended Complaint are first-party claims alleging
economic damages directly relating to the work JA Street contracted to perform The fact that
the only claims pled are for breach of contract -- and not tort -- is dispositive to the insurance
coverage issues Well-established Tennessee authority and the decisions of a majority of other
jurisdictions across the country have explicitly recognized that contract claims precisely like
those asserted against lA Street are not within the embrace of the insuring agreement of the
standard commercial liability policy The Travelers Indemn Co of Am v Moore amp Assocs
Inc IO decision upon which the Petitioners principally rely is inapposite since it does not address
whether pure contract claims are covered The Tennessee Supreme Courts decision in Vernon
Williams amp Son Constr Inc v Continental Ins Co II which is still the law in Tennessee today
and which the Petitioners entirely ignore clearly holds that any contract-based claims for faulty
workmanship are not covered under a commercial liability policy Consequently the claims
asserted against lA Street in the underlying action are not covered under the clear and
unambiguous terms of the applicable policies initial grant of coverage because the claims
alleged are only for the recovery of economic damages based upon breach of contract In
addition the Circuit Court correctly noted the applicability of exclusion (m) relative to impaired
property Because it is clear that the policies do not afford coverage for the claims asserted in
the underlying action Bitco does not owe a duty to defend lA Street Therefore the Circuit
Courts determination that lA Street is not entitled to coverage and a defense under the Bitco
policies was entirely correct
10 216 SW3d 202 (Tenn 2007) 11 591 SW2d 760 (Tenn 1979)
11
L069S7S21 J
Finally though the issue is moot since Bitco owes no coverage at all Bitco cross-assigns
error in the Circuit Courts determinations that more than one policy and per occurrence limit
could apply under any circumstances The unambiguous policy language restricts any coverage
to only one policy period and only one applicable limit This Court should not need to reach
those issues however since there is no coverage at all
UI STATEMENT REGARDING ORAL ARGUMENT AND DECISION
Bitco does not believe the narrow issues necessary to affirm the judgment below are
particularly difficult or complex However if the Court is interested in entertaining oral
argument Bitcos counsel would of course happily oblige
IV ARGUMENT
A STANDARD OF REVIEW
Inasmuch as the summary judgment was entered with regard to a declaratory judgment
action [a] circuit courts entry of a declaratory judgment is reviewed de novo Id
(quoting Syl Pt 3 Cox v Amick 195 WVa 608 466 SE2d 459 (1995raquo See also
Blankenship v City of Charleston 223 WVa 822 824 679 SE2d 654 656 (2009) (quoting
Syi Pt 1 Painter v Peavy 192 WVa 189 451 SE2d 755 (1994raquo Moreover
[d]etermination of the proper coverage of an insurance contract when the facts are not in
dispute is a question of law Id at 825 (quoting Syi Pt 1 Tennant v Smallwood 211 WVa
703 568 SE2d 10 (2002raquo) As [t]he interpretation of an insurance contract including the
question of whether the contract is ambiguous is a legal determination like a lower courts
grant of summary judgment [it] shall be reviewed de novo on appeal Id (quoting SyI Pt 2
12
(L06957521 )
Riffe v Home Finders Associates Inc 205 WVa 216 517 SE2d 313 (1999)) Importantly as
discussed in detail immediately below since the core issue in this case merely requires a
comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies this case presents a pure matter of law that is uniquely
suitable for decision at the summary judgment stage
B THE CIRCUIT COURT CORRECTLY HELD THAT UNDER TENNESSEE LAW THE CONTRACTUAL CLAIMS ASSERTED BY THD AGAINST JA STREET ARE NOT COVERED
BY THE BITCO POLICIES
In this State a liability insurer has no duty to defend an action asserted against the
insured where it is clear from the allegations of the Complaint against the insured that there is no
coverage afforded under the relevant insurance policy See Horace Mann Ins Co v Leeber 376
SE2d 581 584 180 WVa 375 (1988) State Auto Mut Ins Co v Alpha Engg Servbull Inc
542 SE2d 876 879 208 WVa 713 (2000) (If the causes of action alleged in the plaintiffs
complaint are entirely foreign to the risks covered by the insurance policy then the insurance
company is relieved of its duties under the policy) Tennesseel2 follows exactly the same rule
See Drexel Chemical Co v Bitco Ins Co 933 SW2d 471480 1996 TennApp LEXIS 356
(1996) (holding that the insurer did not have a duty to defend where an exclusion applied to
foreclose coverage) Tenn Farmers Mut Ins Co v Brown 1990 TennApp LEXIS 812 (1990)
(The general rule in Tennessee is that an insurer is not obligated to undertake the defense of a
suit against its insured unless the allegations of the complaint show a claim for damages that
would be covered by the policy) Cincinnati Ins Co v Grand Pointe LLC 2007 US Dist
12 All parties concede that Tennessee law governs construction of the insurance policies
13
(L069S7S21 )
LEXIS 39784 (ED Tenn 2007) (If it is plain from the face of the underlying complaint the
allegations fail to state facts that bring the case within or potentially within the policy no duty to
defend exists) Am Nat Prop and Cas Ins Co v Gray 803 SW 2d 693 695-96 (Tenn Ct
App 1990) Graves v Liberty Mut Fire Ins Co 745 SW2d 282283 (Tenn Ct App 1987)
In ascertaining whether there is a duty to defend under a liability insurance policy
Tennessee adheres to a strict four comers approach See Interstate Packaging Co v Century
Indem Co bull 2013 US Dist LEXIS 45459 (MDTenn 2013) citing St Paul Fire amp Marine Ins
Co v Torpoco 879 SW2d 831 835 (Tenn 1994) Clark v Sputnicks LLC 368 SW3d 431
439 (Tenn 2012) (An insurers duty to defend is determined solely by an examination of the
allegations of the underlying complaint) Thus under Tennessee law the court must limit its
inquiry to the claims and allegations presented in the complaint against the insured [I]f the
allegations contained in the complaintare within the risk insured against and there is a
potential basis for recovery then [the insurer] must defend St Paul v Torpoco supra 879
SW2d at 835 Conversely if the claims alleged in the complaint are clearly not within the
scope of coverage then there is no duty to defend Drexel Chemical Co v Bitco Ins Co 933
SW2d 471 480 (Tenn 1996) As the United States Court of Appeals for the Sixth Circuit
stated it applying Tennessee law in Smith amp Nephew Inc v Fed Ins Co 113 FedAppx 99
(6th Cir 2004) in detennining an insurers duty to defend courts typically begin and end
their analysis with the four comers of the complaint Id at 102 Petitioner argues that there
are significant issues of material fact that exist given that there has been no final resolution of the
14
(LD09S752 I
underlying action13 but in fact clear-cut law dictates that all the Court must do is contrast the
averments of the Amended Complaint with the terms of the policies
The instant inquiry must therefore begin with the unique circumstances that the TIID
Amended Complaint against lA Street pleads only contract-based claims and not tort claims
Although the Circuit Court based its finding of no coverage solely on the Contractual Liability
exclusion as discussed in detail below courts in Tennessee and elsewhere have concluded that
there is no coverage for breach of contact claims and the damages that typically flow from such
claims on broader grounds While the Circuit Court did not subscribe to that broad view
our cases have made clear that it is permissible for us to affirm the granting of [dismissal] on bases difference or grounds other than those relief upon by the circuit court Hoover v Moran 222 WVa at 119 662 SE2d at 718 quoting Gently v Mangum 195 WVa 512519466 SE2d 171178 (1995) See also Schmehl v Helton 222 WVa 98 662 SE2d 697 705 n7 (2008) (this Court may in any event affirm the circuit court on any proper basis whether relied upon by the circuit court or not) Murphy v Smallridge 196 WVa 35 36-7 468 SE2d 167168-9 (1996) (An appellate court is not limited to the legal grounds relied upon by the circuit court but it may affirm or reverse a decision on any independently sufficient ground that has adequate support) Syl pt 3 Barnett v Wolfolk 149 WVa 246 140 SE2d 466 (1965) (This Court may on appeal affirm the judgment of the lower court when it appears that such judgment is correct on any legal ground disclosed by the record regardless of the ground reason or theory assigned by the lower court as the basis for its judgment)
Savarese v Allstate Ins Co 672 SE2d 255260 (WVa 2008)
One of the more elemental and uniformly embraced principles of corrunercial insurance
law is that the typical commercial liability insurance policy affords coverage for tort claims not
claims for breach of contract The authorities supporting that proposition are legion Dean
Henderson in his renowned and widely cited law review article makes the point emphatically
13 Petitioners Brief pp 25-27 15
(L0695752 1 J
[t]he risk intended to be insured is the possibility that the goods products or work of the insured once relinquished or completed will cause bodily injury or damage to property other than to the product or completed work itself and for which the insured may be found liable The insured as a source of goods or services may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable because it is lacking in some capacity This may even extend to an obligation to completely replace or rebuild the deficient product or work This liability however is not what the coverages in question are designed to protect against The coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb L Rev 415441 (1971)14
The overwhelming majority of courts and commentators that have addressed this issue
have held that breach of contract claims asserted against the insured are not covered under a
standard CGL policy See eg Couch on Insurance 3d sect1291-1294 (3d Ed 2005) (a
commercial general liability insurance policy is generally designed to provide coverage for tort
liability for physical damages to others and not for contractual liability of the insured for
economic loss the majority of jurisdictions have held that breach of contract is not an
14 The Henderson article has been widely relied upon by courts and commentators for over 40 years Noticeably it has been frequently cited with approval in Tennessee See Vernon (relying upon the Henderson article the Tennessee Court held that the standard comprehensive general liability policy does not provide coverage to an insured-contractor for a breach of contract action grounded upon faulty workmanship or materials where the damages claimed are the cost of correcting the work itself) Blaylock amp Brown Constr Inc v AIU Ins Co 796 SW2d 146 1990 TennApp LEXIS 338 (1990) (relying upon Henderson the Court holds bull that the language of the policy excludes liability coverage for the plaintiffs for damage to the property constructed pursuant to the contract) Standard Fire Ins Co v Chester-ODonley amp Assocs 972 SW2d 1 1998 TennApp LEXIS 65 (1998) (citing the Henderson article for the proposition that CGL policies are not intended to cover the insureds contractual liability for economic loss because its work was not that for which the damaged person bargained) Weedo v Stone-E-Brick Inc bull 81 NJ 233 405 A2d 788 (1979) (relying heavily upon the Henderson article the Court holds that a CGL policy does not provide coverage for a breach of contract action for faulty workmanship where the damages claimed are the cost ofcorrecting the work itself)
16
IL069S7S2 I
occurrencea [CGL] policy is not intended to provide coverage for the insureds contractual
liability which merely causes economic losses) Alan D Windt Insurance Claims and
Disputes sect117 (4th Ed 2001) (Finally there is the question as to whether a breach of
contract claim involves damages caused by an occurrence The answer should in general be
no) Erie Ins Prop amp Cas Co v Pioneer Home Improvement Inc 526 SE2d 28 33 206
WVa 506 513 (1999) (The coverage [under a COL policy] is for tort liability for physical
damages to others and not for contractual liability of the insured for economic loss because the
product or completed work is not that for which the damaged person bargained) Nationwide
Mutual Ins Co v CPB Intl Inc 562 F3d 591 598 2009 US App LEXIS 7795 14 (3d Cir
2009) (holding that under Pennsylvania law a CGL policy does not provide coverage for
claims in an underlying action that arise out of and relate to the contract between the parties)
Lyerla v AMCO Ins Co 536 F3d 684691-922008 US App LEXIS 164 78 (7th Cir 2008)
(applying Illinois law) (holding that underlying allegations that insured contractor did not satisfy
his contractual obligations is not property damage caused by an occurrence) L-J Inc v
Biteo Fire amp Marine Ins Co 621 SE2d 33 35 366 SC 117 (2005) (any liability that is
incurred because of faulty workmanship is part of the insureds contractual liability not an
insurable event under a CGL policy) Hotel Roanoke Conf Ctr Commn v Cincinnati Ins Co
303 FSupp2d 784 7882004 US Dist LEXIS 2539 (2004) (applying Virginia law) (damages
limited to the insureds work or product and resulting from the insureds defective perfonnance
of a contract are not covered losses under a [CGL] policy) Westfield Ins Co v Sheehan
Construction Co 580 FSupp2d 701 710 2008 US Dist LEXIS 66843 (2008) (applying
17
(L06957521
Indiana law) (a CGL policy serves to limit contractors tort liability for damage to property
caused by their work) Key Custom Homes Inc v Mid-Continent Cas Co 450 FSupp2d
1311 1317-182006 US Dist LEXIS 60355 (2006) (applying Florida law) (it is equally clear
that breach of contract claims for the recovery of money are not covered by general liability
insurance policies) Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254 1257329
Ore 620 (2000) (there can be no accident within the meaning of a commercial liability policy
when the resulting damage is merely a breach of contract) Bonded Concrete Inc v Transcon
Ins Co 12 AD3d 761 2004 NYAppDiv LEXIS 13020 (2004) (the purpose of a
commercial general liability policy is to provide coverage for tort liability for physical damage
to others and not for contractual liability of the insured for economic loss because the
product is not what the damaged [party] bargained for) United States Fire Ins Co v Milton
Co 35 FSupp2d 8386 1998 US Dist LEXIS 22116 (1998) (applying Maryland law) (there
is no occurrence under a comprehensive general liability insurance policy where and to the
extent that a contractors use of defective materials and substandard workmanship results in
economic losses that would normally be recoverable in a breach of contract action) Burlington
Ins Co v Oceanic Design amp Construction Inc 383 F3d 940 2004 US App LEXIS 18932
(9th Cir 2004) (applying Hawaii law) (holding that claims for breach of contract and negligent
breach of contract are not covered under a CGL policy) Norwalk Ready Mixed Concrete Inc v
Travelers Ins Co 246 F3d 1132 2001 US App LEXIS 7148 (8th Cir 2001) (applying Iowa
law) (holding that breach of contract and breach of warranty claims are not covered under a CGL
policy) USFampG Com v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476
18
(L06957521 l
(1989) (holding that a breach of contract claim asserted against an insured contractor is not
covered under a COL policy) Oreat Divide Ins Co v Bitterroot Timberfiames of Wyoming
LLC 2006 US Dist LEXIS 94826 (2006) (applying Wyoming law) (the allegations
demonstrate losses resulting from breach of contract and therefore cannot constitute an
accident for purposes of determining coverage) Union Ins Co v Hottenstein 83 P3d 1196
12022003 ColoApp LEXIS 1857 (2003) (poor workmanship constituting a breach of contract
is not a covered occurrence)
Tennessee lawl5 is in accord with these authorities The Tennessee Supreme Court has
defInitively held that breach of contract claims due to the insureds faulty workmanship such as
those asserted here by THD against IA Street in the underlying Amended Complaint are simply
not covered under the grant of coverage contained in a commercial liability policy See Vernon
supra Chester-ODonley supra at 6-7 (General liability policies are not all-risk policies and
only cover damages up to the policy limits for which the insured becomes liable as a result of
tort liability to a third party) (emphasis added) In Vernon the Supreme Court of Tennessee
expressly held that a standard COL policy only covers tort claims and such a policy does not
15 Under applicable Tennessee law contracts of insurance are subject to the same rules of interpretation and construction as other contracts McKimm v Bell 790 SW2d 526 527 1990 Tenn LEXIS 161 (1990) Thus [a]n insurance policy must be interpreted fairly and reasonably giving the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204 SW3d 758 2006 Tenn LEXIS 755 (2006) In the absence of fraud or mistake a contract must be interpreted and enforced as written even though it contains terms which may be thought harsh and unjust Allstate Ins Co v Wilson 856 SW2d 706 1992 TennApp LEXIS 1012 (1992) As a result the analysis of JA Streets right to coverage for the claims asserted in the underlying action are dictated by the terms of the policy The essential components of a general liability insurance policy include (1) the declarations (2) the insuring agreements and definitions (3) the exclusions (4) the conditions and (5) the endorsements See ChestershyODonley supra The insuring agreement sets the outer limits of an insurers contractual liability If coverage cannot be found in the insuring agreement it will not be found elsewhere in the policy Id 1998 TennApp LEXIS at 13-14
19
L069S7S21
afford coverage to an insured contractor for breach of contract claims Vernon 591 SW 2d at
765 Chester-ODonley supra at 6-7 Petitioner complains that the Circuit Court focused on
West Virginia cases such as Silk v Flat TOp6 but in fact the lower court expressly relied
upon a wealth of Tennessee authority17 including Vernon Cincinnati Ins Co v Grand Pointe
LLc18 and Trinity Univ Ins Co v Turner Funeral Home Inc 19 More recently Tennessee
courts have reaffirmed the rationale and holding of Vernon See State Auto Ins Cos v Gordon
Constr Inc 2001 TennApp LEXIS 349 (2001) (following Vernon and holding that the
insuring agreement of a CGL policy does not afford coverage for underlying breach of contract
and breach of warranty claims asserted against the insured contractor) Blake Indus Inc v
General Agents Ins Co of Am 2000 Tenn App LEXIS 490 (2000) (applying Vernon and
holding that claims asserted against the insured that were grounded in contract are not covered
under a CGL policy) Blaylock and Brown Constr Inc v AID Ins Co 796 SW2d 146 152shy
153 (Tenn Ct App 1990)
As the Circuit Court correctly recognized the express tenus of the insurance contract
clearly exclude contractual liability from coverage Exclusions help define and shape the scope
of coverage but they must be read in terms of the insuring agreement to which they apply
Exclusions can only decrease coverage they cannot increase it Chester-ODonley 972 SW2d
at 7-8 Moreover [e]ach exclusion reduces coverage and operates independently with reference
16 Petitioners Brief p 30 (citing 453 SE2d 356 (Wva 1994raquo 17 See See Opinion JA-I0552 ~27
18 2007 US Dist LEXIS 39784 (ED Tenn 2007) 19 2003 WL 23218046 (ED Tenn Dec 122003)
20
IL069S7S2 I I
to the insuring agreement Id at 8 The Contractual Liability exclusion specifically provides
that the insurance coverage does not apply to
Contractual liability
Bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement This exclusion does not apply to liability for damages
(1) That the insured would have in the absence of the contract or agreement or
(2) Assumed in a contract or agreement that is an insured contract provided the bodily injury or property damage occurs subsequent to the execution of the contract or agreement Solely for the purposes of liability assumed in a insured contract reasonable attorneys fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of bodily injury or property damage provided
(a) Liability to such party for or for the cost of that partys defense has also been assumed in the same insured contract and
(b) Such attorneys fees and litigation expenses are for defense of that party against the civil or alternative dispute resolution proceeding in which damages to which the insurance applies are alleged
See JA-62 Section I C[2
Even a cursory examination ofTHDs Amended Complaint reveals that all claims alleged
against JA Street were contractual There simply was no tort claim alleged In fact the claims
against JA Street were necessarily founded in contract for two reasons First the two-year
statute of limitations applicable to any tort claims elapsed long before THD first asserted its
claims against JA Street Tort claims were not pleaded and could not have been Second the
substantive law of West Virginia applies to the underlying claims asserted by THD against lA
21
(L069S7S21 I
Street20 and applicable West Virginia law plainly holds that even if THD had asserted tort
claims against JA Street the claims would still sound in contract under these circumstances for
purposes of the instant analysis since the gist of claims asserted against a contractor for deficient
work is necessarily ex contractu See Silk supra at 360 Dan Ryan Builders Inc v Crystal
Ridge Dev Inc 783 F3d 976 (4th Cir 2015) Unlike in both Silk and Dan Ryan THO did not
even assert any tort claims here Nor could it have Relevant to the precise policy language at
issue there simply was no liability for damages that [JA Street] would have in the absence of
the contract or agreement It simply cannot be contested that the claims alleged in the Amended
Complaint are and indeed necessarily were contractual in nature Given that alone the clear
holding of the Tennessee Court in Vernon mandated the Circuit Courts correct grant of
summary judgment in Biteos favor
A great majority of courts and commentators across the country that have addressed the
issue have held that the explicit unambiguous express Contractual Liability exclusion forecloses
coverage for all contract liability including breach of contract claims asserted against the
insured except where the insured has assumed the liability of another in an insured contract
See eg Silk v Flat Top Constr Inc 453 SE2d 356 359 192 WVa 522 (1994) (holding that
the contract exclusion applies to foreclose coverage for all contractual liability of the insured
except for liability assumed in an insured contract-a contract under which the insured
assumes the tort liability of another party) Gilbert Tex Constr v Underwriters at Lloyds
20 West Virginia applies the choice-of-law principle of lex loci delicti and there is no question here that the offending conduct and the loss all occurred in West Virginia such that JA Streets liability to THD would be governed by West Virginia law See State of Wva ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) (citing Syl Pt 1 Paul v Natl Life 352 SE2d 552 (WVa 1986raquo
22
(L069S7521 I
Londo 327 SW3d 118 (2010) (citing inter alia Nationwide Mut Ins Co v CPB Int Inc
No 306-CV-0363 2007 WL 4198173 at 8 (MDPa Nov26 2007) (Exclusion (b) is simply
further clarification in the policy that contract-based claims are not covered) ClM Ins Corp v
Midpac Auto Crr Inc 108 FSupp2d 1092 1099-1100 (DHaw2000) (clause in policy stating
that policy does not apply to liability assumed under any contract or agreement means that any
claim that is dependent on the existence of an underlying contract is not covered) Monticello
Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 at 2 (WDKy
Apr 3 1998) (exclusion for liability assumed by the insured under any contract or agreement
does not arise only when a party assumes the liability for another party rather the plain meaning
of the policy excludes a breach of contract claim from coverage) Silk supra (exclusion removed
coverage for breach of contract) TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 1091-92
(8th Cir1995) (exclusion for which the insured has assumed liability in a contract or agreement
plainly excluded coverage for contractual claims and not just hold-harmless or indemnity
agreements) Nationwide Mutual Ins Co v CPB Intl Inc 562 F3d 591 5992009 US App
LEXIS 7795 (3d Cir 2009) (applying Pa law) (holding that a breach of contract claim is excluded
under the Contractual Liability exclusion) Century Sur Co v Hardscape Constr Specialties Inc
578 F3d 262 2009 US App LEXIS 25300 (5th Cir 2009) (applying Texas law) (holding that the
Contractual Liability exclusion operates to exclude claims grounded primarily in breach of contract
and that no tort claims were asserted that triggered the insured contract exception) State Farm
Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 12 (2007) (applying Hawaii
law) (holding that claims arising from the insureds obligations under a contract are barred from
23
L0695152 I I
coverage under the Contractual Liability exclusion) JACO Airfield Constr Inc v National Trust
Ins Co 2007 US Dist LEXIS 100295 10 (2007) (applying Georgia law) (holding that the
Contractual Liability exclusion applies to foreclose coverage for the contractual based claims
asserted against the insured and that the insured contract exception to the Contractual Liability
exclusion does not apply because the insured did not assume the tort liability of another) Union Ins
Co v Williams Contr Inc 2006 US Dist LEXIS 35919 4-5 (2006) (holding that the
Contractual Liability exclusion precludes coverage for claims against the insured for breach of a
construction contract) Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270
GaApp 8 (2004) (affirming trial comts finding that the Contractual Liability exclusion barred
coverage for breach of contract and breach of implied warranty claims against the insured) Gibson
amp Assocs Inc v Home Ins Co 966 FSupp 468476-77 1997 US Dist LEXIS 4776 (1997)
(applying Texas law) (recognizing that the Contractual Liability exclusion precludes coverage for
breach of contract claims asserted against the insmed and that the policy only covers contractual
liability for indemnification actions ie an insured contract) James v Burlington Northern Santa
Fe Railway Co 2007 US Dist LEXIS 63282 4-5 (2007) (applying Arizona law) (holding that
the insured contract exception to the Contractual Liability exclusion does not bring ordinary
breach-of-contract claims within the scope of CGL coverage) TGA Dev Inc v Northern Ins Co
of New York 62 F3d 1089 1091-92 1995 USApp LEXIS 21700 (8th Cir 1995) (applying
Minnesota law) (holding that the Contractual Liability exclusion plainly excludes coverage for
contractual claims made for [the insmeds] failure to provide [the property owner] with a
condominium unit free from defects)
24
(lO6957521 )
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
Monticello Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 (WDKy
Apr3 1998) 23
Murphy v Smallridge 196 WVa 35468 SE2d 167 (1996) 15
Naifeh v Valley Forge Life Ins Co 204 SW3d 758 (Tenn 2006) 1935
Nationwide Mutual Ins Co v CPB IntI Inc 562 F3d 591 2009 US App LEXIS 7795 (3d
Cir 2009) 17 23
Nesmith v Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) 43
Newark Ins Co v Acupac Packaging Inc 746 A2d 47 (NJ Super Ct App Div 2000) 34
North American Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552
(5th Cir 2008) 43
Norwalk Ready Mixed Concrete Inc v Travelers Ins Co 246 F3d 1132 2001 US App
LEXIS 7148 (8th Cir 2001) 18
Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254329 Ore 620 (2000) 18
Olympic Inc v Providence Washington Insurance Co of Alas~ 648 P2d 1008 (Alaska 1982)
30
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 (DDC 1984) 39
Painterv Peavy 192 WVa 189451 SE2d 755 (1994) 12
Paul v Natl Life 352 SE2d 552 (WVa 1986) 22
Riffe v Home Finders Associates Inc 205 WVa 216 517 SE2d 313 (1999) 13
Ryan Homes v Home Indem Co 647 A2d 939 (Pa Super 1994) 33
Safeco Insurance Company of American v Firemens Fund Insurance Co 148 Cal App 4th
620 55 Cal Rptr 3d 844 (2007) 43
Sapp v State Farm Fire amp Cas Co 486 SE2d 71 (Ga Ct App 1997) 32
Savarese v Allstate Ins Co 672 SE2d 255 260 (WVa 2008) 15
Schmehl v Helton 222 WVa 98662 SE2d 697 (2008) 15
Silk v Flat Top 453 SE2d 356 (WVa 1994) 20 22 23 25
Smith amp Nephew Inc v Fed Ins Co 113 FedAppx 99 (6th Cir 2004) 14
vi
(L069S7S21 I
Southern International Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct
App 3d Dist 1977) 39
St Paul Fire amp Marine Ins Co v Torpoco 879 SW2d 831 (Tenn 1994) 14
Standard Fire Ins Co v Chester-ODonley amp Assocs 972 SW2d 1 1998 TennApp LEXIS
65 (1998) 16 19
State Auto Ins Cos v Gordon Constr Inc 2001 TennApp LEXIS 349 (2001) 20
State Auto Mut Ins Co v Alpha Engg Serv Inc 542 SE2d 876 208 WVa 713 (2000) 13
State Farm Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 (2007) 23
State ofWVa ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) 22
Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) 43
Taylor v Travelers Ins Co 40 F3d 79 (5th Cir 1994) 31
Tenn Farmers Mut Ins Co v Brown 1990 TennApp LEXIS 812 (1990) 13
Tennant v Smallwood 211 WVa 703568 SE2d 10 (2002) 12
TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 (8th Cir1995) 2324
Thommes v Milwaukee Mut Ins Co 622 NW2d 155 (Minn Ct App 2001) 34
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 (ND Tex 1980) 39
Travelers Indemn Co of Am v Moore amp Assocsbull Inc 216 SW3d 202 (Tenn 2007) 112526
Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL 23218046 (ED Tenn Dec 12
2003) 20 27
Truk-Away Inc v Aetna Cas amp Sur Co 723 A2d 309 (RI 1999) 39
Union Ins Co v Hottenstein 83 P3d 11962003 ColoApp LEXIS 1857 (2003) 19
Union Ins Co v Williams Contr Inc 2006 US Dist LEXIS 35919 (2006) 24
United States Fire Ins Co v Milton Co 35 FSupp2d 83 1998 US Dist LEXIS 22116 (1998)
18
USFampG Corp v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476 (1989)
19
Vari Builders Inc v United States Fidelity amp Guaranty Co 523 A2d 549 (Del Super Ct
1986) 32
vii
IL0595752 I I
Vernon Williams amp Son Constr Inc v Continental Ins Co 591 SW2d 760 (Tenn 1979)
pasSIm
Weedo v Stone-E-Brick Inc 405 A2d 788 (NJ 1979) 1633
Westfield Ins Co v Sheehan Construction Co 580 FSupp2d 701 2008 US Dist LEXIS
66843 (2008) 17
STATUTES
West Virginia Declaratory Judgment Act W Va Code sect55-13-1 e seq 9
OTHER AUTHORITIES
Alan D Windt Insurance Claims and Disputes sect117 (4th Ed 2001) 17
Couch on Insurance 3d sect1291-1294 (3d Ed 2005) 16
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb 1 Rev 415441 (1971) 1631
Wielinski Patrick (4th ed) IRMI Ch 6 pp 180-185 29
viii
LC6957521 I
I ST ATEMENT OF THE CASE
A INTRoDUCTION
Bitoo General Insurance Corporation (Biteo) instituted this declaratory judgment action
seeking a declaration of no coverage and no duty to defend contract claims alleging poor
workmanship asserted against Bitcos named insured in an underlying civil action pending in the
Circuit Court of Cabell County captioned at THD Development LLC a West Virginia Limited
Liability Company and THD Investors 7 LLC a West Virginia Limited Liability Company
Plaintiffs v SamplE Inc a Corporation and JA Street amp Associates Inc a Corporation
Defendants Civil Action No 03-C-0490 (hereinafter underlying action) The threshold
question presented in this declaratory judgment action is whether Bitcos standard commercial
general liability and umbrella insurance policies afford coverage for pure ex contractu claims
asserted by THD Development (THD) against JA Street amp Associates Inc (IA Street)
At an early stage Bitco moved for summary judgment on that very narrow ground toshy
wit that all of the claims pleaded against JA Street are contract-based claims for poor
workmanship and such claims are not covered by Bitcos standard oommercialliability polices
under applicable Tennessee law Unfortunately the Circuit Court found that the issue was not
susceptible to summary judgement at that time Consequently the insurance case remained
pending and Biteo continued to defend the underlying action At a later point Biteo renewed
substantially the identical argument whereupon it was again determined to be an insufficient
basis for a summary judgment Although the Circuit Court was uncertain enough at that point
that it certified the issue for interlocutory appeal the Supreme Court declined to afford review
L0695752l
Thereafter THD and lA Street immeasurably complicated the matter They devised a
theory that the case demonstrated characteristics of ongoing progressive incessant damage
typical of the asbestos-type progressive damage cases which our system of the administration of
justice has come to know On that basis lA Street sought and obtained leave of court to add
six additional insurance companies that had written commercial liability and umbrellaexcess
liability insurance over a period of years between 2001 and the present That of course
plunged the case into a maelstrom of dispute over a multitude of new insurance issues such as
trigger of coverage the accompanying loss in progress known loss rule problems
concomitant disputes over horizontalvertical exhaustion the lively debates over stacking of
per occurrence limits over successive policy periods and of course the applicability of
multiple exclusions such as the standard impaired property and earth movement exclusions
When all was said and done the Circuit Court ultimately honored Bitcos original
argument on the very narrow core issue at hand and ruled that since all of the claims asserted
against JA Street were contract-based claims for damages sustained by THD due to faulty
workmanship the commercial liability coverage provided by the policies does not apply That
determination which could have been made in 2009 is correct since the claims plainly do not
fall within the embrace of the policies as a matter of well-settled law Should this Court affirm
the judgment none of the other issues addressed by the Circuit Court affects the substantial
rights of the parties In other words they are moot
For these reasons Biteo focuses its argument on the indefatigable conclusion that there is
no coverage under the Bitco policies or any other commercial liability policies for claims ex
2
L069S7521
I
contractu for damages for poor workmanship by a construction contractor on a commercial
construction project Bitco also briefly addresses the propriety of the trial courts finding that
exclusion (m) applicable to impaired property separately operates to bar coverage
Biteo confines its cross-assignments of error to only 2 points (1) coverage if there is
any would be confmed to only one policy period either 2001-2002 or 2002-2003 because
damage first began and was known to the insured during one or the other of those periods and
(2) only one per occurrence limit applies regardless of the number of policies that are
triggered These points should in fact be moot since the Circuit Court correctly decided there is
no coverage in the fIrst instance
B STATEMENT OF FACTS
As discussed above and hereinbelow the core issue involved in this appeal requires only
a comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies themselves l To that end the Amended Complaint filed in
the underlying action alleges as follows
THD a real estate development company2 is the developer of the Merritt Creek Farm
Commercial Shopping Development located in Barboursville West Virginia See JA217-250
Amended Complaint -rl The project consisted of several sections including an anticipated site
for a Target store [d at -r7 1HD sought to prepare a pad upon which the Target store was to
Consonant with the governing standard the universe of facts that are germane to a detennination of whether a liability insurer such as Bitco has a duty to defend its insured consist of the factual allegations of the complaint flIed against the insured In this instance that would be the Amended Complaint filed by THD in the underlying case which asserted claims against 1A Street That Amended Complaint was appended as an exhibit to Bitcos Complaint in the declaratory judgment action 2 THDs principal place of business is located in Bristol Tennessee
3
(106957521 )
be constructed whereupon THD would then convey that portion of the site to Target for further
development Id TIID in turn entered into an agreement with SampME Inc (SampME) a soils
engineering firm whereby SampME agreed to perfonn a geotechnical exploration of the site and
thereafter submit a report setting forth recommendations with respect to site preparation for the
entire development Id at 10
On June 5 2001 THD entered into a written contract with IA Street for 1A Street to
serve as the general contractor on the Merritt Creek Farm Project Id at ~13 Pursuant to the
THDJA Street written agreement IA Street agreed to perform construction tasks with regard
to the Merritt Creek Farm Project including preparing the site for construction in general
preparing the Target site for construction of the Target building and constructing various
buildings and structures on the site3 Id at [13-14
In September of 2001 1A Street was perfonning grading excavation and fill work for
the portion of the site beneath which Target would eventually erect its building Id at 17 On
September 212001 the slope at the rear of the Target store site failed causing a landslide Id
During 2002 and 2003 additional slides sloughing and land movement occurred at other
locations throughout the Merritt Creek Development Id at 19 As a result THD was required
to spend substantial sums to repair the slope and address associated consequences of the
landslide Id at 18-19 THD filed the underlying action to recover those economic damages
Id generally
3 JA Street did not contract to build the Target building The Target Corporation was to perform that construction itself
4
(L069S752 I l
THD initially brought the underlying action in 2003 solely against SampME asserting
various claims for damages incurred on the project Nearly four years later on December 11
2007 THD amended its Complaint to add JA Street as a defendant By that time the two-year
tort period of limitations had long since expired Thus THDs Amended Complaint asserted
claims against JA Street were based solely upon the construction contract between THD and
JA Street -- claims for breach of contract breach of warranty and for express and implied
contractual indemnity Id at ~71-96 Therein THD alleged that JA Street failed to
perform the work in a good and workmanlike manner failed to provide competent supervision
and failed to perform the work with a high degree of expertise and workmanship thereby
breaching its agreement with THD Id at ~16 No tort claims were alleged against JA Street
in the Amended Complaint All of the claims sounded exclusively in contract
During several policy periods from 2001 to 2007 Bitco insured JA Street under very
standard commercial general liability policies4 It is undisputed that these policies were issued
by an agent located in Tennessee to JA Street a Tennessee corporation with its principal offices
located in Tennessee See JA217-219 ~4 As suc~ the policies are governed by Tennessee law
4 Policy eLP 3 107706 B was in effect fOT policy period March 12001 to March 1 2002 See JA-4 Policy eLP 3 135489 B was in effect fOT policy period March 12002 to March 12003 See JA4-216 Subsequent one-year policies issued with coverage effective through March 1 2007 See Petitioners Brief pp 9-10 JAI066 1583-2223 It is immaterial which policy applies because the relevant provisions of all of the policies are the same
5
(L06957521 )
These policies are identical they are all written on the standard Insurance Services
Office Inc (ISO) Commercial General Liability coverage forms 5 Insofar as is relevant
instantly the policies provide
1 Insuring Agreement
a We will pay those sums that the insured becomes legally obligated to pay as damages because ofbodily injury or 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 bodily injury or property damage to which this insurance does not apply We may at our discretion investigate any occurrence and settle any claim or suit that may resuIL
b This insurance applies to bodily injury and property damage only if
(1) The bodily injury or property damage is caused by an occurrence that takes place in the coverage territory
(2) The bodily injury or property damage occurs during the policy period and
(3) Prior to the policy period no insured listed under Paragraph 1 of Section II - Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part If such a listed insured or authorized middotmiddotemployee knew prior to the policy period that the bodily injury or property damage occurred then any continuation change or resumption of such bodily injury or property damage during or after the policy period will be deemed to have been known prior to the policy period
c Bodily injury or property damage which occurs during the policy period and was not prior to the policy period known to have occurred by
5 ISO has long been the predominate publisher of commercial general liability insurance policy forms in the industry The ISO Commercial General Liability Coverage Form CGOOOI has long been the most widely used form in the United States As such the policies involved in this case are typical standardized and have frequently been the subject of interpretation by state and federal courts
6
[L0695752 1 I
any insured listed under Paragraph 1 of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim includes any continuation change or resumption of that bodily injury or property damage after the end of the policy period
d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph 1 of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim Reports all or any part of the bodily injury or property damage to us or any other insurer
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or
(2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
Id Section I ~1
Property damage is defined under the policies as
(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 it 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 causes it
Id Section V ~17
Occurrence is defined as
[A]n accident including continuous or repeated exposure to substantially the same general hannful conditions
Id Section V ~13
Consonant with the well-recognized fact that commercial liability insurance covers tort
claims and not contract claims in subparagraph 6 of the Exclusions section the policies
7
(L069S7S21 I
contain a Contractual Liability exclusion The language of this familiar exclusion makes clear
that the insurance does not apply to bodily injury or property damage for which the insured
is obligated to pay damages by reason of the assumption of liability in a contract or
agreement 6 The policies also contain exclusion (m) which states that the coverage does not
apply to
m Damage to impaired property or property not physically damaged Property damage to impaired property arising out of (1) a defect deficiency inadequacy or dangerous condition in your
product or your work or (2) a delay or failure by you or anyone acting on your behalf to
perform a contract or agreement in accordance with its terms 7
In addition to the commercial liability policies Bitco also insured 1A Street under
commercial umbrella policies from March 2003 through March 2007 each of which contained
materially identical provisions as set forth above except that the insuring agreement also
included the following language We will pay on behalf of the insured the ultimate net loss in
excess of the retained limit because of property damage caused by an occurrence which
takes place during the policy period 8 Paragraph 5 of the Limits of Insurance provision
addresses the limits of property damage coverage under Coverage A The language therein
states succinctly as follows
Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of
6 The exceptions are where the liability is one ( 1) That the insured would have in the absence of the contract or agreement [or] (2) Assumed in the contract or agreement that is an insured contract As discussed fully below neither of these exceptions to the Contractual Liability exclusion apply in this case 7 The policies also each have a Limits of Liability section discussed more fully below in Biteos CrossshyAssignments ofError 8 See JA3004-3312
8
(L069S7S2 I )
(a) Damages under Coverage A (b) Because of all bodily injury and property damage arising out of any one occurrence
Bitco extended a defense to lA Street in the underlying action but did so under
reservation ofright to deny coverage
C PROCEDURAL HISTORY
As stated the insurance issues herein relate to an Amended Complaint filed in the
underlying action on December 11 2007 joining and asserting claims against JA Street See
JA-2I7 On July 14 2008 Biteo filed the instant action for declaratory judgment pursuant to
the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the
Circuit Court detennine that the previously described commercial general liability insurance
policies afford no coverage and Bitco owes no duty to defend JA Street for the claims asserted
in the Amended Complaint in the underlying action See JA-19
By Order dated February 172015 the Circuit Court invited summary judgment motions
on all grounds argued by all parties subject to waiver should any available ground not be raised
9 On August 13 2009 Biteo fIled a Motion for Summary Judgment requesting that the Circuit Court declare as a matter of law that Bitco owes no coverage andor duty to defend lA Street with respect to the claims asserted against JA Street in the underlying action See JA-263 IA Street filed a CrossshyMotion for Partial Summary Judgment on that issue Following oral argument the Circuit Court denied Biteos Motion and granted IA Streets Cross-Motion rmding that Biteo owes JA Street a duty to defend the underlying action until such time as the Plaintiff meets its burden of proof that no duty to defend exists See Order JA-I005 The Circuit Court concluded that it cannot definitively say at this time that under Tennessee law the plaintiff would not have a duty to defend Id On March 13 2014 1A Street filed a Third-Party Complaint pursuant to the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the Circuit Court determine that Biteo along with five (5) other insurers owe coverage to IA Street for the claims asserted against it by TlID and that no exclusions or other policy language excludes limits or defeats coverage See IA-I051 As discussed in Petitioners Brief extensive motion practice ensued regarding a host of intricate insurance issues
9
[L06957521
Accordingly on March 12 2015 Bitco filed a Second Amended Cross-Motion for Summary
Judgment arguing that there was no coverage nor any duty to defend under any of its policies
because contract claims for damages brought against construction contractors based upon defects
or deficiencies in the work do not constitute property damage caused by an occurrence are
not VIIithin the scope of the standard commercial liability or umbrella policy and are in any event
excluded See IA-8614 After briefing and argument on December 302016 the Circuit Court
entered an Order agreeing with Bitco and granting summary judgment in Bitcos favor along
with a declaration that Bitco owes no duty to defend nor any coverage of the claims asserted
against IA Street in the underlying action See Opinion JA-I0SS2 JA Street took an appeal
to this Court and filed its principal Brief on May 122017 Bitco now responds
II SUMMARY OF ARGUMENT
This Court should affirm the lower courts declaration that Bitco owes no coverage and
no duty to defend JA Street under its commercial general liability (CGL) and umbrella
insurance policies with respect to the claims asserted in the underlying action The claims
asserted by THD against JA Street in the underlying action are for breach of contract breach of
warranty and indemnity All of these claims are ex contractu they all arise out of a written
agreement between DID and 1A Street under which 1A Street agreed to construct the Merritt
Creek Shopping Center All claims in the underlying action relate to alleged breach of the
express or implied obligations of the aforesaid contract due to alleged deficiencies in
construction work that JA Street contracted to perform thereunder Pursuant to well-settled
law those claims are not covered by liability insurance policies
10
L0695752 I
All damages alleged in the underlying Amended Complaint are first-party claims alleging
economic damages directly relating to the work JA Street contracted to perform The fact that
the only claims pled are for breach of contract -- and not tort -- is dispositive to the insurance
coverage issues Well-established Tennessee authority and the decisions of a majority of other
jurisdictions across the country have explicitly recognized that contract claims precisely like
those asserted against lA Street are not within the embrace of the insuring agreement of the
standard commercial liability policy The Travelers Indemn Co of Am v Moore amp Assocs
Inc IO decision upon which the Petitioners principally rely is inapposite since it does not address
whether pure contract claims are covered The Tennessee Supreme Courts decision in Vernon
Williams amp Son Constr Inc v Continental Ins Co II which is still the law in Tennessee today
and which the Petitioners entirely ignore clearly holds that any contract-based claims for faulty
workmanship are not covered under a commercial liability policy Consequently the claims
asserted against lA Street in the underlying action are not covered under the clear and
unambiguous terms of the applicable policies initial grant of coverage because the claims
alleged are only for the recovery of economic damages based upon breach of contract In
addition the Circuit Court correctly noted the applicability of exclusion (m) relative to impaired
property Because it is clear that the policies do not afford coverage for the claims asserted in
the underlying action Bitco does not owe a duty to defend lA Street Therefore the Circuit
Courts determination that lA Street is not entitled to coverage and a defense under the Bitco
policies was entirely correct
10 216 SW3d 202 (Tenn 2007) 11 591 SW2d 760 (Tenn 1979)
11
L069S7S21 J
Finally though the issue is moot since Bitco owes no coverage at all Bitco cross-assigns
error in the Circuit Courts determinations that more than one policy and per occurrence limit
could apply under any circumstances The unambiguous policy language restricts any coverage
to only one policy period and only one applicable limit This Court should not need to reach
those issues however since there is no coverage at all
UI STATEMENT REGARDING ORAL ARGUMENT AND DECISION
Bitco does not believe the narrow issues necessary to affirm the judgment below are
particularly difficult or complex However if the Court is interested in entertaining oral
argument Bitcos counsel would of course happily oblige
IV ARGUMENT
A STANDARD OF REVIEW
Inasmuch as the summary judgment was entered with regard to a declaratory judgment
action [a] circuit courts entry of a declaratory judgment is reviewed de novo Id
(quoting Syl Pt 3 Cox v Amick 195 WVa 608 466 SE2d 459 (1995raquo See also
Blankenship v City of Charleston 223 WVa 822 824 679 SE2d 654 656 (2009) (quoting
Syi Pt 1 Painter v Peavy 192 WVa 189 451 SE2d 755 (1994raquo Moreover
[d]etermination of the proper coverage of an insurance contract when the facts are not in
dispute is a question of law Id at 825 (quoting Syi Pt 1 Tennant v Smallwood 211 WVa
703 568 SE2d 10 (2002raquo) As [t]he interpretation of an insurance contract including the
question of whether the contract is ambiguous is a legal determination like a lower courts
grant of summary judgment [it] shall be reviewed de novo on appeal Id (quoting SyI Pt 2
12
(L06957521 )
Riffe v Home Finders Associates Inc 205 WVa 216 517 SE2d 313 (1999)) Importantly as
discussed in detail immediately below since the core issue in this case merely requires a
comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies this case presents a pure matter of law that is uniquely
suitable for decision at the summary judgment stage
B THE CIRCUIT COURT CORRECTLY HELD THAT UNDER TENNESSEE LAW THE CONTRACTUAL CLAIMS ASSERTED BY THD AGAINST JA STREET ARE NOT COVERED
BY THE BITCO POLICIES
In this State a liability insurer has no duty to defend an action asserted against the
insured where it is clear from the allegations of the Complaint against the insured that there is no
coverage afforded under the relevant insurance policy See Horace Mann Ins Co v Leeber 376
SE2d 581 584 180 WVa 375 (1988) State Auto Mut Ins Co v Alpha Engg Servbull Inc
542 SE2d 876 879 208 WVa 713 (2000) (If the causes of action alleged in the plaintiffs
complaint are entirely foreign to the risks covered by the insurance policy then the insurance
company is relieved of its duties under the policy) Tennesseel2 follows exactly the same rule
See Drexel Chemical Co v Bitco Ins Co 933 SW2d 471480 1996 TennApp LEXIS 356
(1996) (holding that the insurer did not have a duty to defend where an exclusion applied to
foreclose coverage) Tenn Farmers Mut Ins Co v Brown 1990 TennApp LEXIS 812 (1990)
(The general rule in Tennessee is that an insurer is not obligated to undertake the defense of a
suit against its insured unless the allegations of the complaint show a claim for damages that
would be covered by the policy) Cincinnati Ins Co v Grand Pointe LLC 2007 US Dist
12 All parties concede that Tennessee law governs construction of the insurance policies
13
(L069S7S21 )
LEXIS 39784 (ED Tenn 2007) (If it is plain from the face of the underlying complaint the
allegations fail to state facts that bring the case within or potentially within the policy no duty to
defend exists) Am Nat Prop and Cas Ins Co v Gray 803 SW 2d 693 695-96 (Tenn Ct
App 1990) Graves v Liberty Mut Fire Ins Co 745 SW2d 282283 (Tenn Ct App 1987)
In ascertaining whether there is a duty to defend under a liability insurance policy
Tennessee adheres to a strict four comers approach See Interstate Packaging Co v Century
Indem Co bull 2013 US Dist LEXIS 45459 (MDTenn 2013) citing St Paul Fire amp Marine Ins
Co v Torpoco 879 SW2d 831 835 (Tenn 1994) Clark v Sputnicks LLC 368 SW3d 431
439 (Tenn 2012) (An insurers duty to defend is determined solely by an examination of the
allegations of the underlying complaint) Thus under Tennessee law the court must limit its
inquiry to the claims and allegations presented in the complaint against the insured [I]f the
allegations contained in the complaintare within the risk insured against and there is a
potential basis for recovery then [the insurer] must defend St Paul v Torpoco supra 879
SW2d at 835 Conversely if the claims alleged in the complaint are clearly not within the
scope of coverage then there is no duty to defend Drexel Chemical Co v Bitco Ins Co 933
SW2d 471 480 (Tenn 1996) As the United States Court of Appeals for the Sixth Circuit
stated it applying Tennessee law in Smith amp Nephew Inc v Fed Ins Co 113 FedAppx 99
(6th Cir 2004) in detennining an insurers duty to defend courts typically begin and end
their analysis with the four comers of the complaint Id at 102 Petitioner argues that there
are significant issues of material fact that exist given that there has been no final resolution of the
14
(LD09S752 I
underlying action13 but in fact clear-cut law dictates that all the Court must do is contrast the
averments of the Amended Complaint with the terms of the policies
The instant inquiry must therefore begin with the unique circumstances that the TIID
Amended Complaint against lA Street pleads only contract-based claims and not tort claims
Although the Circuit Court based its finding of no coverage solely on the Contractual Liability
exclusion as discussed in detail below courts in Tennessee and elsewhere have concluded that
there is no coverage for breach of contact claims and the damages that typically flow from such
claims on broader grounds While the Circuit Court did not subscribe to that broad view
our cases have made clear that it is permissible for us to affirm the granting of [dismissal] on bases difference or grounds other than those relief upon by the circuit court Hoover v Moran 222 WVa at 119 662 SE2d at 718 quoting Gently v Mangum 195 WVa 512519466 SE2d 171178 (1995) See also Schmehl v Helton 222 WVa 98 662 SE2d 697 705 n7 (2008) (this Court may in any event affirm the circuit court on any proper basis whether relied upon by the circuit court or not) Murphy v Smallridge 196 WVa 35 36-7 468 SE2d 167168-9 (1996) (An appellate court is not limited to the legal grounds relied upon by the circuit court but it may affirm or reverse a decision on any independently sufficient ground that has adequate support) Syl pt 3 Barnett v Wolfolk 149 WVa 246 140 SE2d 466 (1965) (This Court may on appeal affirm the judgment of the lower court when it appears that such judgment is correct on any legal ground disclosed by the record regardless of the ground reason or theory assigned by the lower court as the basis for its judgment)
Savarese v Allstate Ins Co 672 SE2d 255260 (WVa 2008)
One of the more elemental and uniformly embraced principles of corrunercial insurance
law is that the typical commercial liability insurance policy affords coverage for tort claims not
claims for breach of contract The authorities supporting that proposition are legion Dean
Henderson in his renowned and widely cited law review article makes the point emphatically
13 Petitioners Brief pp 25-27 15
(L0695752 1 J
[t]he risk intended to be insured is the possibility that the goods products or work of the insured once relinquished or completed will cause bodily injury or damage to property other than to the product or completed work itself and for which the insured may be found liable The insured as a source of goods or services may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable because it is lacking in some capacity This may even extend to an obligation to completely replace or rebuild the deficient product or work This liability however is not what the coverages in question are designed to protect against The coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb L Rev 415441 (1971)14
The overwhelming majority of courts and commentators that have addressed this issue
have held that breach of contract claims asserted against the insured are not covered under a
standard CGL policy See eg Couch on Insurance 3d sect1291-1294 (3d Ed 2005) (a
commercial general liability insurance policy is generally designed to provide coverage for tort
liability for physical damages to others and not for contractual liability of the insured for
economic loss the majority of jurisdictions have held that breach of contract is not an
14 The Henderson article has been widely relied upon by courts and commentators for over 40 years Noticeably it has been frequently cited with approval in Tennessee See Vernon (relying upon the Henderson article the Tennessee Court held that the standard comprehensive general liability policy does not provide coverage to an insured-contractor for a breach of contract action grounded upon faulty workmanship or materials where the damages claimed are the cost of correcting the work itself) Blaylock amp Brown Constr Inc v AIU Ins Co 796 SW2d 146 1990 TennApp LEXIS 338 (1990) (relying upon Henderson the Court holds bull that the language of the policy excludes liability coverage for the plaintiffs for damage to the property constructed pursuant to the contract) Standard Fire Ins Co v Chester-ODonley amp Assocs 972 SW2d 1 1998 TennApp LEXIS 65 (1998) (citing the Henderson article for the proposition that CGL policies are not intended to cover the insureds contractual liability for economic loss because its work was not that for which the damaged person bargained) Weedo v Stone-E-Brick Inc bull 81 NJ 233 405 A2d 788 (1979) (relying heavily upon the Henderson article the Court holds that a CGL policy does not provide coverage for a breach of contract action for faulty workmanship where the damages claimed are the cost ofcorrecting the work itself)
16
IL069S7S2 I
occurrencea [CGL] policy is not intended to provide coverage for the insureds contractual
liability which merely causes economic losses) Alan D Windt Insurance Claims and
Disputes sect117 (4th Ed 2001) (Finally there is the question as to whether a breach of
contract claim involves damages caused by an occurrence The answer should in general be
no) Erie Ins Prop amp Cas Co v Pioneer Home Improvement Inc 526 SE2d 28 33 206
WVa 506 513 (1999) (The coverage [under a COL policy] is for tort liability for physical
damages to others and not for contractual liability of the insured for economic loss because the
product or completed work is not that for which the damaged person bargained) Nationwide
Mutual Ins Co v CPB Intl Inc 562 F3d 591 598 2009 US App LEXIS 7795 14 (3d Cir
2009) (holding that under Pennsylvania law a CGL policy does not provide coverage for
claims in an underlying action that arise out of and relate to the contract between the parties)
Lyerla v AMCO Ins Co 536 F3d 684691-922008 US App LEXIS 164 78 (7th Cir 2008)
(applying Illinois law) (holding that underlying allegations that insured contractor did not satisfy
his contractual obligations is not property damage caused by an occurrence) L-J Inc v
Biteo Fire amp Marine Ins Co 621 SE2d 33 35 366 SC 117 (2005) (any liability that is
incurred because of faulty workmanship is part of the insureds contractual liability not an
insurable event under a CGL policy) Hotel Roanoke Conf Ctr Commn v Cincinnati Ins Co
303 FSupp2d 784 7882004 US Dist LEXIS 2539 (2004) (applying Virginia law) (damages
limited to the insureds work or product and resulting from the insureds defective perfonnance
of a contract are not covered losses under a [CGL] policy) Westfield Ins Co v Sheehan
Construction Co 580 FSupp2d 701 710 2008 US Dist LEXIS 66843 (2008) (applying
17
(L06957521
Indiana law) (a CGL policy serves to limit contractors tort liability for damage to property
caused by their work) Key Custom Homes Inc v Mid-Continent Cas Co 450 FSupp2d
1311 1317-182006 US Dist LEXIS 60355 (2006) (applying Florida law) (it is equally clear
that breach of contract claims for the recovery of money are not covered by general liability
insurance policies) Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254 1257329
Ore 620 (2000) (there can be no accident within the meaning of a commercial liability policy
when the resulting damage is merely a breach of contract) Bonded Concrete Inc v Transcon
Ins Co 12 AD3d 761 2004 NYAppDiv LEXIS 13020 (2004) (the purpose of a
commercial general liability policy is to provide coverage for tort liability for physical damage
to others and not for contractual liability of the insured for economic loss because the
product is not what the damaged [party] bargained for) United States Fire Ins Co v Milton
Co 35 FSupp2d 8386 1998 US Dist LEXIS 22116 (1998) (applying Maryland law) (there
is no occurrence under a comprehensive general liability insurance policy where and to the
extent that a contractors use of defective materials and substandard workmanship results in
economic losses that would normally be recoverable in a breach of contract action) Burlington
Ins Co v Oceanic Design amp Construction Inc 383 F3d 940 2004 US App LEXIS 18932
(9th Cir 2004) (applying Hawaii law) (holding that claims for breach of contract and negligent
breach of contract are not covered under a CGL policy) Norwalk Ready Mixed Concrete Inc v
Travelers Ins Co 246 F3d 1132 2001 US App LEXIS 7148 (8th Cir 2001) (applying Iowa
law) (holding that breach of contract and breach of warranty claims are not covered under a CGL
policy) USFampG Com v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476
18
(L06957521 l
(1989) (holding that a breach of contract claim asserted against an insured contractor is not
covered under a COL policy) Oreat Divide Ins Co v Bitterroot Timberfiames of Wyoming
LLC 2006 US Dist LEXIS 94826 (2006) (applying Wyoming law) (the allegations
demonstrate losses resulting from breach of contract and therefore cannot constitute an
accident for purposes of determining coverage) Union Ins Co v Hottenstein 83 P3d 1196
12022003 ColoApp LEXIS 1857 (2003) (poor workmanship constituting a breach of contract
is not a covered occurrence)
Tennessee lawl5 is in accord with these authorities The Tennessee Supreme Court has
defInitively held that breach of contract claims due to the insureds faulty workmanship such as
those asserted here by THD against IA Street in the underlying Amended Complaint are simply
not covered under the grant of coverage contained in a commercial liability policy See Vernon
supra Chester-ODonley supra at 6-7 (General liability policies are not all-risk policies and
only cover damages up to the policy limits for which the insured becomes liable as a result of
tort liability to a third party) (emphasis added) In Vernon the Supreme Court of Tennessee
expressly held that a standard COL policy only covers tort claims and such a policy does not
15 Under applicable Tennessee law contracts of insurance are subject to the same rules of interpretation and construction as other contracts McKimm v Bell 790 SW2d 526 527 1990 Tenn LEXIS 161 (1990) Thus [a]n insurance policy must be interpreted fairly and reasonably giving the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204 SW3d 758 2006 Tenn LEXIS 755 (2006) In the absence of fraud or mistake a contract must be interpreted and enforced as written even though it contains terms which may be thought harsh and unjust Allstate Ins Co v Wilson 856 SW2d 706 1992 TennApp LEXIS 1012 (1992) As a result the analysis of JA Streets right to coverage for the claims asserted in the underlying action are dictated by the terms of the policy The essential components of a general liability insurance policy include (1) the declarations (2) the insuring agreements and definitions (3) the exclusions (4) the conditions and (5) the endorsements See ChestershyODonley supra The insuring agreement sets the outer limits of an insurers contractual liability If coverage cannot be found in the insuring agreement it will not be found elsewhere in the policy Id 1998 TennApp LEXIS at 13-14
19
L069S7S21
afford coverage to an insured contractor for breach of contract claims Vernon 591 SW 2d at
765 Chester-ODonley supra at 6-7 Petitioner complains that the Circuit Court focused on
West Virginia cases such as Silk v Flat TOp6 but in fact the lower court expressly relied
upon a wealth of Tennessee authority17 including Vernon Cincinnati Ins Co v Grand Pointe
LLc18 and Trinity Univ Ins Co v Turner Funeral Home Inc 19 More recently Tennessee
courts have reaffirmed the rationale and holding of Vernon See State Auto Ins Cos v Gordon
Constr Inc 2001 TennApp LEXIS 349 (2001) (following Vernon and holding that the
insuring agreement of a CGL policy does not afford coverage for underlying breach of contract
and breach of warranty claims asserted against the insured contractor) Blake Indus Inc v
General Agents Ins Co of Am 2000 Tenn App LEXIS 490 (2000) (applying Vernon and
holding that claims asserted against the insured that were grounded in contract are not covered
under a CGL policy) Blaylock and Brown Constr Inc v AID Ins Co 796 SW2d 146 152shy
153 (Tenn Ct App 1990)
As the Circuit Court correctly recognized the express tenus of the insurance contract
clearly exclude contractual liability from coverage Exclusions help define and shape the scope
of coverage but they must be read in terms of the insuring agreement to which they apply
Exclusions can only decrease coverage they cannot increase it Chester-ODonley 972 SW2d
at 7-8 Moreover [e]ach exclusion reduces coverage and operates independently with reference
16 Petitioners Brief p 30 (citing 453 SE2d 356 (Wva 1994raquo 17 See See Opinion JA-I0552 ~27
18 2007 US Dist LEXIS 39784 (ED Tenn 2007) 19 2003 WL 23218046 (ED Tenn Dec 122003)
20
IL069S7S2 I I
to the insuring agreement Id at 8 The Contractual Liability exclusion specifically provides
that the insurance coverage does not apply to
Contractual liability
Bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement This exclusion does not apply to liability for damages
(1) That the insured would have in the absence of the contract or agreement or
(2) Assumed in a contract or agreement that is an insured contract provided the bodily injury or property damage occurs subsequent to the execution of the contract or agreement Solely for the purposes of liability assumed in a insured contract reasonable attorneys fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of bodily injury or property damage provided
(a) Liability to such party for or for the cost of that partys defense has also been assumed in the same insured contract and
(b) Such attorneys fees and litigation expenses are for defense of that party against the civil or alternative dispute resolution proceeding in which damages to which the insurance applies are alleged
See JA-62 Section I C[2
Even a cursory examination ofTHDs Amended Complaint reveals that all claims alleged
against JA Street were contractual There simply was no tort claim alleged In fact the claims
against JA Street were necessarily founded in contract for two reasons First the two-year
statute of limitations applicable to any tort claims elapsed long before THD first asserted its
claims against JA Street Tort claims were not pleaded and could not have been Second the
substantive law of West Virginia applies to the underlying claims asserted by THD against lA
21
(L069S7S21 I
Street20 and applicable West Virginia law plainly holds that even if THD had asserted tort
claims against JA Street the claims would still sound in contract under these circumstances for
purposes of the instant analysis since the gist of claims asserted against a contractor for deficient
work is necessarily ex contractu See Silk supra at 360 Dan Ryan Builders Inc v Crystal
Ridge Dev Inc 783 F3d 976 (4th Cir 2015) Unlike in both Silk and Dan Ryan THO did not
even assert any tort claims here Nor could it have Relevant to the precise policy language at
issue there simply was no liability for damages that [JA Street] would have in the absence of
the contract or agreement It simply cannot be contested that the claims alleged in the Amended
Complaint are and indeed necessarily were contractual in nature Given that alone the clear
holding of the Tennessee Court in Vernon mandated the Circuit Courts correct grant of
summary judgment in Biteos favor
A great majority of courts and commentators across the country that have addressed the
issue have held that the explicit unambiguous express Contractual Liability exclusion forecloses
coverage for all contract liability including breach of contract claims asserted against the
insured except where the insured has assumed the liability of another in an insured contract
See eg Silk v Flat Top Constr Inc 453 SE2d 356 359 192 WVa 522 (1994) (holding that
the contract exclusion applies to foreclose coverage for all contractual liability of the insured
except for liability assumed in an insured contract-a contract under which the insured
assumes the tort liability of another party) Gilbert Tex Constr v Underwriters at Lloyds
20 West Virginia applies the choice-of-law principle of lex loci delicti and there is no question here that the offending conduct and the loss all occurred in West Virginia such that JA Streets liability to THD would be governed by West Virginia law See State of Wva ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) (citing Syl Pt 1 Paul v Natl Life 352 SE2d 552 (WVa 1986raquo
22
(L069S7521 I
Londo 327 SW3d 118 (2010) (citing inter alia Nationwide Mut Ins Co v CPB Int Inc
No 306-CV-0363 2007 WL 4198173 at 8 (MDPa Nov26 2007) (Exclusion (b) is simply
further clarification in the policy that contract-based claims are not covered) ClM Ins Corp v
Midpac Auto Crr Inc 108 FSupp2d 1092 1099-1100 (DHaw2000) (clause in policy stating
that policy does not apply to liability assumed under any contract or agreement means that any
claim that is dependent on the existence of an underlying contract is not covered) Monticello
Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 at 2 (WDKy
Apr 3 1998) (exclusion for liability assumed by the insured under any contract or agreement
does not arise only when a party assumes the liability for another party rather the plain meaning
of the policy excludes a breach of contract claim from coverage) Silk supra (exclusion removed
coverage for breach of contract) TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 1091-92
(8th Cir1995) (exclusion for which the insured has assumed liability in a contract or agreement
plainly excluded coverage for contractual claims and not just hold-harmless or indemnity
agreements) Nationwide Mutual Ins Co v CPB Intl Inc 562 F3d 591 5992009 US App
LEXIS 7795 (3d Cir 2009) (applying Pa law) (holding that a breach of contract claim is excluded
under the Contractual Liability exclusion) Century Sur Co v Hardscape Constr Specialties Inc
578 F3d 262 2009 US App LEXIS 25300 (5th Cir 2009) (applying Texas law) (holding that the
Contractual Liability exclusion operates to exclude claims grounded primarily in breach of contract
and that no tort claims were asserted that triggered the insured contract exception) State Farm
Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 12 (2007) (applying Hawaii
law) (holding that claims arising from the insureds obligations under a contract are barred from
23
L0695152 I I
coverage under the Contractual Liability exclusion) JACO Airfield Constr Inc v National Trust
Ins Co 2007 US Dist LEXIS 100295 10 (2007) (applying Georgia law) (holding that the
Contractual Liability exclusion applies to foreclose coverage for the contractual based claims
asserted against the insured and that the insured contract exception to the Contractual Liability
exclusion does not apply because the insured did not assume the tort liability of another) Union Ins
Co v Williams Contr Inc 2006 US Dist LEXIS 35919 4-5 (2006) (holding that the
Contractual Liability exclusion precludes coverage for claims against the insured for breach of a
construction contract) Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270
GaApp 8 (2004) (affirming trial comts finding that the Contractual Liability exclusion barred
coverage for breach of contract and breach of implied warranty claims against the insured) Gibson
amp Assocs Inc v Home Ins Co 966 FSupp 468476-77 1997 US Dist LEXIS 4776 (1997)
(applying Texas law) (recognizing that the Contractual Liability exclusion precludes coverage for
breach of contract claims asserted against the insmed and that the policy only covers contractual
liability for indemnification actions ie an insured contract) James v Burlington Northern Santa
Fe Railway Co 2007 US Dist LEXIS 63282 4-5 (2007) (applying Arizona law) (holding that
the insured contract exception to the Contractual Liability exclusion does not bring ordinary
breach-of-contract claims within the scope of CGL coverage) TGA Dev Inc v Northern Ins Co
of New York 62 F3d 1089 1091-92 1995 USApp LEXIS 21700 (8th Cir 1995) (applying
Minnesota law) (holding that the Contractual Liability exclusion plainly excludes coverage for
contractual claims made for [the insmeds] failure to provide [the property owner] with a
condominium unit free from defects)
24
(lO6957521 )
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
Southern International Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct
App 3d Dist 1977) 39
St Paul Fire amp Marine Ins Co v Torpoco 879 SW2d 831 (Tenn 1994) 14
Standard Fire Ins Co v Chester-ODonley amp Assocs 972 SW2d 1 1998 TennApp LEXIS
65 (1998) 16 19
State Auto Ins Cos v Gordon Constr Inc 2001 TennApp LEXIS 349 (2001) 20
State Auto Mut Ins Co v Alpha Engg Serv Inc 542 SE2d 876 208 WVa 713 (2000) 13
State Farm Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 (2007) 23
State ofWVa ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) 22
Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) 43
Taylor v Travelers Ins Co 40 F3d 79 (5th Cir 1994) 31
Tenn Farmers Mut Ins Co v Brown 1990 TennApp LEXIS 812 (1990) 13
Tennant v Smallwood 211 WVa 703568 SE2d 10 (2002) 12
TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 (8th Cir1995) 2324
Thommes v Milwaukee Mut Ins Co 622 NW2d 155 (Minn Ct App 2001) 34
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 (ND Tex 1980) 39
Travelers Indemn Co of Am v Moore amp Assocsbull Inc 216 SW3d 202 (Tenn 2007) 112526
Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL 23218046 (ED Tenn Dec 12
2003) 20 27
Truk-Away Inc v Aetna Cas amp Sur Co 723 A2d 309 (RI 1999) 39
Union Ins Co v Hottenstein 83 P3d 11962003 ColoApp LEXIS 1857 (2003) 19
Union Ins Co v Williams Contr Inc 2006 US Dist LEXIS 35919 (2006) 24
United States Fire Ins Co v Milton Co 35 FSupp2d 83 1998 US Dist LEXIS 22116 (1998)
18
USFampG Corp v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476 (1989)
19
Vari Builders Inc v United States Fidelity amp Guaranty Co 523 A2d 549 (Del Super Ct
1986) 32
vii
IL0595752 I I
Vernon Williams amp Son Constr Inc v Continental Ins Co 591 SW2d 760 (Tenn 1979)
pasSIm
Weedo v Stone-E-Brick Inc 405 A2d 788 (NJ 1979) 1633
Westfield Ins Co v Sheehan Construction Co 580 FSupp2d 701 2008 US Dist LEXIS
66843 (2008) 17
STATUTES
West Virginia Declaratory Judgment Act W Va Code sect55-13-1 e seq 9
OTHER AUTHORITIES
Alan D Windt Insurance Claims and Disputes sect117 (4th Ed 2001) 17
Couch on Insurance 3d sect1291-1294 (3d Ed 2005) 16
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb 1 Rev 415441 (1971) 1631
Wielinski Patrick (4th ed) IRMI Ch 6 pp 180-185 29
viii
LC6957521 I
I ST ATEMENT OF THE CASE
A INTRoDUCTION
Bitoo General Insurance Corporation (Biteo) instituted this declaratory judgment action
seeking a declaration of no coverage and no duty to defend contract claims alleging poor
workmanship asserted against Bitcos named insured in an underlying civil action pending in the
Circuit Court of Cabell County captioned at THD Development LLC a West Virginia Limited
Liability Company and THD Investors 7 LLC a West Virginia Limited Liability Company
Plaintiffs v SamplE Inc a Corporation and JA Street amp Associates Inc a Corporation
Defendants Civil Action No 03-C-0490 (hereinafter underlying action) The threshold
question presented in this declaratory judgment action is whether Bitcos standard commercial
general liability and umbrella insurance policies afford coverage for pure ex contractu claims
asserted by THD Development (THD) against JA Street amp Associates Inc (IA Street)
At an early stage Bitco moved for summary judgment on that very narrow ground toshy
wit that all of the claims pleaded against JA Street are contract-based claims for poor
workmanship and such claims are not covered by Bitcos standard oommercialliability polices
under applicable Tennessee law Unfortunately the Circuit Court found that the issue was not
susceptible to summary judgement at that time Consequently the insurance case remained
pending and Biteo continued to defend the underlying action At a later point Biteo renewed
substantially the identical argument whereupon it was again determined to be an insufficient
basis for a summary judgment Although the Circuit Court was uncertain enough at that point
that it certified the issue for interlocutory appeal the Supreme Court declined to afford review
L0695752l
Thereafter THD and lA Street immeasurably complicated the matter They devised a
theory that the case demonstrated characteristics of ongoing progressive incessant damage
typical of the asbestos-type progressive damage cases which our system of the administration of
justice has come to know On that basis lA Street sought and obtained leave of court to add
six additional insurance companies that had written commercial liability and umbrellaexcess
liability insurance over a period of years between 2001 and the present That of course
plunged the case into a maelstrom of dispute over a multitude of new insurance issues such as
trigger of coverage the accompanying loss in progress known loss rule problems
concomitant disputes over horizontalvertical exhaustion the lively debates over stacking of
per occurrence limits over successive policy periods and of course the applicability of
multiple exclusions such as the standard impaired property and earth movement exclusions
When all was said and done the Circuit Court ultimately honored Bitcos original
argument on the very narrow core issue at hand and ruled that since all of the claims asserted
against JA Street were contract-based claims for damages sustained by THD due to faulty
workmanship the commercial liability coverage provided by the policies does not apply That
determination which could have been made in 2009 is correct since the claims plainly do not
fall within the embrace of the policies as a matter of well-settled law Should this Court affirm
the judgment none of the other issues addressed by the Circuit Court affects the substantial
rights of the parties In other words they are moot
For these reasons Biteo focuses its argument on the indefatigable conclusion that there is
no coverage under the Bitco policies or any other commercial liability policies for claims ex
2
L069S7521
I
contractu for damages for poor workmanship by a construction contractor on a commercial
construction project Bitco also briefly addresses the propriety of the trial courts finding that
exclusion (m) applicable to impaired property separately operates to bar coverage
Biteo confines its cross-assignments of error to only 2 points (1) coverage if there is
any would be confmed to only one policy period either 2001-2002 or 2002-2003 because
damage first began and was known to the insured during one or the other of those periods and
(2) only one per occurrence limit applies regardless of the number of policies that are
triggered These points should in fact be moot since the Circuit Court correctly decided there is
no coverage in the fIrst instance
B STATEMENT OF FACTS
As discussed above and hereinbelow the core issue involved in this appeal requires only
a comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies themselves l To that end the Amended Complaint filed in
the underlying action alleges as follows
THD a real estate development company2 is the developer of the Merritt Creek Farm
Commercial Shopping Development located in Barboursville West Virginia See JA217-250
Amended Complaint -rl The project consisted of several sections including an anticipated site
for a Target store [d at -r7 1HD sought to prepare a pad upon which the Target store was to
Consonant with the governing standard the universe of facts that are germane to a detennination of whether a liability insurer such as Bitco has a duty to defend its insured consist of the factual allegations of the complaint flIed against the insured In this instance that would be the Amended Complaint filed by THD in the underlying case which asserted claims against 1A Street That Amended Complaint was appended as an exhibit to Bitcos Complaint in the declaratory judgment action 2 THDs principal place of business is located in Bristol Tennessee
3
(106957521 )
be constructed whereupon THD would then convey that portion of the site to Target for further
development Id TIID in turn entered into an agreement with SampME Inc (SampME) a soils
engineering firm whereby SampME agreed to perfonn a geotechnical exploration of the site and
thereafter submit a report setting forth recommendations with respect to site preparation for the
entire development Id at 10
On June 5 2001 THD entered into a written contract with IA Street for 1A Street to
serve as the general contractor on the Merritt Creek Farm Project Id at ~13 Pursuant to the
THDJA Street written agreement IA Street agreed to perform construction tasks with regard
to the Merritt Creek Farm Project including preparing the site for construction in general
preparing the Target site for construction of the Target building and constructing various
buildings and structures on the site3 Id at [13-14
In September of 2001 1A Street was perfonning grading excavation and fill work for
the portion of the site beneath which Target would eventually erect its building Id at 17 On
September 212001 the slope at the rear of the Target store site failed causing a landslide Id
During 2002 and 2003 additional slides sloughing and land movement occurred at other
locations throughout the Merritt Creek Development Id at 19 As a result THD was required
to spend substantial sums to repair the slope and address associated consequences of the
landslide Id at 18-19 THD filed the underlying action to recover those economic damages
Id generally
3 JA Street did not contract to build the Target building The Target Corporation was to perform that construction itself
4
(L069S752 I l
THD initially brought the underlying action in 2003 solely against SampME asserting
various claims for damages incurred on the project Nearly four years later on December 11
2007 THD amended its Complaint to add JA Street as a defendant By that time the two-year
tort period of limitations had long since expired Thus THDs Amended Complaint asserted
claims against JA Street were based solely upon the construction contract between THD and
JA Street -- claims for breach of contract breach of warranty and for express and implied
contractual indemnity Id at ~71-96 Therein THD alleged that JA Street failed to
perform the work in a good and workmanlike manner failed to provide competent supervision
and failed to perform the work with a high degree of expertise and workmanship thereby
breaching its agreement with THD Id at ~16 No tort claims were alleged against JA Street
in the Amended Complaint All of the claims sounded exclusively in contract
During several policy periods from 2001 to 2007 Bitco insured JA Street under very
standard commercial general liability policies4 It is undisputed that these policies were issued
by an agent located in Tennessee to JA Street a Tennessee corporation with its principal offices
located in Tennessee See JA217-219 ~4 As suc~ the policies are governed by Tennessee law
4 Policy eLP 3 107706 B was in effect fOT policy period March 12001 to March 1 2002 See JA-4 Policy eLP 3 135489 B was in effect fOT policy period March 12002 to March 12003 See JA4-216 Subsequent one-year policies issued with coverage effective through March 1 2007 See Petitioners Brief pp 9-10 JAI066 1583-2223 It is immaterial which policy applies because the relevant provisions of all of the policies are the same
5
(L06957521 )
These policies are identical they are all written on the standard Insurance Services
Office Inc (ISO) Commercial General Liability coverage forms 5 Insofar as is relevant
instantly the policies provide
1 Insuring Agreement
a We will pay those sums that the insured becomes legally obligated to pay as damages because ofbodily injury or 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 bodily injury or property damage to which this insurance does not apply We may at our discretion investigate any occurrence and settle any claim or suit that may resuIL
b This insurance applies to bodily injury and property damage only if
(1) The bodily injury or property damage is caused by an occurrence that takes place in the coverage territory
(2) The bodily injury or property damage occurs during the policy period and
(3) Prior to the policy period no insured listed under Paragraph 1 of Section II - Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part If such a listed insured or authorized middotmiddotemployee knew prior to the policy period that the bodily injury or property damage occurred then any continuation change or resumption of such bodily injury or property damage during or after the policy period will be deemed to have been known prior to the policy period
c Bodily injury or property damage which occurs during the policy period and was not prior to the policy period known to have occurred by
5 ISO has long been the predominate publisher of commercial general liability insurance policy forms in the industry The ISO Commercial General Liability Coverage Form CGOOOI has long been the most widely used form in the United States As such the policies involved in this case are typical standardized and have frequently been the subject of interpretation by state and federal courts
6
[L0695752 1 I
any insured listed under Paragraph 1 of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim includes any continuation change or resumption of that bodily injury or property damage after the end of the policy period
d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph 1 of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim Reports all or any part of the bodily injury or property damage to us or any other insurer
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or
(2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
Id Section I ~1
Property damage is defined under the policies as
(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 it 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 causes it
Id Section V ~17
Occurrence is defined as
[A]n accident including continuous or repeated exposure to substantially the same general hannful conditions
Id Section V ~13
Consonant with the well-recognized fact that commercial liability insurance covers tort
claims and not contract claims in subparagraph 6 of the Exclusions section the policies
7
(L069S7S21 I
contain a Contractual Liability exclusion The language of this familiar exclusion makes clear
that the insurance does not apply to bodily injury or property damage for which the insured
is obligated to pay damages by reason of the assumption of liability in a contract or
agreement 6 The policies also contain exclusion (m) which states that the coverage does not
apply to
m Damage to impaired property or property not physically damaged Property damage to impaired property arising out of (1) a defect deficiency inadequacy or dangerous condition in your
product or your work or (2) a delay or failure by you or anyone acting on your behalf to
perform a contract or agreement in accordance with its terms 7
In addition to the commercial liability policies Bitco also insured 1A Street under
commercial umbrella policies from March 2003 through March 2007 each of which contained
materially identical provisions as set forth above except that the insuring agreement also
included the following language We will pay on behalf of the insured the ultimate net loss in
excess of the retained limit because of property damage caused by an occurrence which
takes place during the policy period 8 Paragraph 5 of the Limits of Insurance provision
addresses the limits of property damage coverage under Coverage A The language therein
states succinctly as follows
Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of
6 The exceptions are where the liability is one ( 1) That the insured would have in the absence of the contract or agreement [or] (2) Assumed in the contract or agreement that is an insured contract As discussed fully below neither of these exceptions to the Contractual Liability exclusion apply in this case 7 The policies also each have a Limits of Liability section discussed more fully below in Biteos CrossshyAssignments ofError 8 See JA3004-3312
8
(L069S7S2 I )
(a) Damages under Coverage A (b) Because of all bodily injury and property damage arising out of any one occurrence
Bitco extended a defense to lA Street in the underlying action but did so under
reservation ofright to deny coverage
C PROCEDURAL HISTORY
As stated the insurance issues herein relate to an Amended Complaint filed in the
underlying action on December 11 2007 joining and asserting claims against JA Street See
JA-2I7 On July 14 2008 Biteo filed the instant action for declaratory judgment pursuant to
the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the
Circuit Court detennine that the previously described commercial general liability insurance
policies afford no coverage and Bitco owes no duty to defend JA Street for the claims asserted
in the Amended Complaint in the underlying action See JA-19
By Order dated February 172015 the Circuit Court invited summary judgment motions
on all grounds argued by all parties subject to waiver should any available ground not be raised
9 On August 13 2009 Biteo fIled a Motion for Summary Judgment requesting that the Circuit Court declare as a matter of law that Bitco owes no coverage andor duty to defend lA Street with respect to the claims asserted against JA Street in the underlying action See JA-263 IA Street filed a CrossshyMotion for Partial Summary Judgment on that issue Following oral argument the Circuit Court denied Biteos Motion and granted IA Streets Cross-Motion rmding that Biteo owes JA Street a duty to defend the underlying action until such time as the Plaintiff meets its burden of proof that no duty to defend exists See Order JA-I005 The Circuit Court concluded that it cannot definitively say at this time that under Tennessee law the plaintiff would not have a duty to defend Id On March 13 2014 1A Street filed a Third-Party Complaint pursuant to the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the Circuit Court determine that Biteo along with five (5) other insurers owe coverage to IA Street for the claims asserted against it by TlID and that no exclusions or other policy language excludes limits or defeats coverage See IA-I051 As discussed in Petitioners Brief extensive motion practice ensued regarding a host of intricate insurance issues
9
[L06957521
Accordingly on March 12 2015 Bitco filed a Second Amended Cross-Motion for Summary
Judgment arguing that there was no coverage nor any duty to defend under any of its policies
because contract claims for damages brought against construction contractors based upon defects
or deficiencies in the work do not constitute property damage caused by an occurrence are
not VIIithin the scope of the standard commercial liability or umbrella policy and are in any event
excluded See IA-8614 After briefing and argument on December 302016 the Circuit Court
entered an Order agreeing with Bitco and granting summary judgment in Bitcos favor along
with a declaration that Bitco owes no duty to defend nor any coverage of the claims asserted
against IA Street in the underlying action See Opinion JA-I0SS2 JA Street took an appeal
to this Court and filed its principal Brief on May 122017 Bitco now responds
II SUMMARY OF ARGUMENT
This Court should affirm the lower courts declaration that Bitco owes no coverage and
no duty to defend JA Street under its commercial general liability (CGL) and umbrella
insurance policies with respect to the claims asserted in the underlying action The claims
asserted by THD against JA Street in the underlying action are for breach of contract breach of
warranty and indemnity All of these claims are ex contractu they all arise out of a written
agreement between DID and 1A Street under which 1A Street agreed to construct the Merritt
Creek Shopping Center All claims in the underlying action relate to alleged breach of the
express or implied obligations of the aforesaid contract due to alleged deficiencies in
construction work that JA Street contracted to perform thereunder Pursuant to well-settled
law those claims are not covered by liability insurance policies
10
L0695752 I
All damages alleged in the underlying Amended Complaint are first-party claims alleging
economic damages directly relating to the work JA Street contracted to perform The fact that
the only claims pled are for breach of contract -- and not tort -- is dispositive to the insurance
coverage issues Well-established Tennessee authority and the decisions of a majority of other
jurisdictions across the country have explicitly recognized that contract claims precisely like
those asserted against lA Street are not within the embrace of the insuring agreement of the
standard commercial liability policy The Travelers Indemn Co of Am v Moore amp Assocs
Inc IO decision upon which the Petitioners principally rely is inapposite since it does not address
whether pure contract claims are covered The Tennessee Supreme Courts decision in Vernon
Williams amp Son Constr Inc v Continental Ins Co II which is still the law in Tennessee today
and which the Petitioners entirely ignore clearly holds that any contract-based claims for faulty
workmanship are not covered under a commercial liability policy Consequently the claims
asserted against lA Street in the underlying action are not covered under the clear and
unambiguous terms of the applicable policies initial grant of coverage because the claims
alleged are only for the recovery of economic damages based upon breach of contract In
addition the Circuit Court correctly noted the applicability of exclusion (m) relative to impaired
property Because it is clear that the policies do not afford coverage for the claims asserted in
the underlying action Bitco does not owe a duty to defend lA Street Therefore the Circuit
Courts determination that lA Street is not entitled to coverage and a defense under the Bitco
policies was entirely correct
10 216 SW3d 202 (Tenn 2007) 11 591 SW2d 760 (Tenn 1979)
11
L069S7S21 J
Finally though the issue is moot since Bitco owes no coverage at all Bitco cross-assigns
error in the Circuit Courts determinations that more than one policy and per occurrence limit
could apply under any circumstances The unambiguous policy language restricts any coverage
to only one policy period and only one applicable limit This Court should not need to reach
those issues however since there is no coverage at all
UI STATEMENT REGARDING ORAL ARGUMENT AND DECISION
Bitco does not believe the narrow issues necessary to affirm the judgment below are
particularly difficult or complex However if the Court is interested in entertaining oral
argument Bitcos counsel would of course happily oblige
IV ARGUMENT
A STANDARD OF REVIEW
Inasmuch as the summary judgment was entered with regard to a declaratory judgment
action [a] circuit courts entry of a declaratory judgment is reviewed de novo Id
(quoting Syl Pt 3 Cox v Amick 195 WVa 608 466 SE2d 459 (1995raquo See also
Blankenship v City of Charleston 223 WVa 822 824 679 SE2d 654 656 (2009) (quoting
Syi Pt 1 Painter v Peavy 192 WVa 189 451 SE2d 755 (1994raquo Moreover
[d]etermination of the proper coverage of an insurance contract when the facts are not in
dispute is a question of law Id at 825 (quoting Syi Pt 1 Tennant v Smallwood 211 WVa
703 568 SE2d 10 (2002raquo) As [t]he interpretation of an insurance contract including the
question of whether the contract is ambiguous is a legal determination like a lower courts
grant of summary judgment [it] shall be reviewed de novo on appeal Id (quoting SyI Pt 2
12
(L06957521 )
Riffe v Home Finders Associates Inc 205 WVa 216 517 SE2d 313 (1999)) Importantly as
discussed in detail immediately below since the core issue in this case merely requires a
comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies this case presents a pure matter of law that is uniquely
suitable for decision at the summary judgment stage
B THE CIRCUIT COURT CORRECTLY HELD THAT UNDER TENNESSEE LAW THE CONTRACTUAL CLAIMS ASSERTED BY THD AGAINST JA STREET ARE NOT COVERED
BY THE BITCO POLICIES
In this State a liability insurer has no duty to defend an action asserted against the
insured where it is clear from the allegations of the Complaint against the insured that there is no
coverage afforded under the relevant insurance policy See Horace Mann Ins Co v Leeber 376
SE2d 581 584 180 WVa 375 (1988) State Auto Mut Ins Co v Alpha Engg Servbull Inc
542 SE2d 876 879 208 WVa 713 (2000) (If the causes of action alleged in the plaintiffs
complaint are entirely foreign to the risks covered by the insurance policy then the insurance
company is relieved of its duties under the policy) Tennesseel2 follows exactly the same rule
See Drexel Chemical Co v Bitco Ins Co 933 SW2d 471480 1996 TennApp LEXIS 356
(1996) (holding that the insurer did not have a duty to defend where an exclusion applied to
foreclose coverage) Tenn Farmers Mut Ins Co v Brown 1990 TennApp LEXIS 812 (1990)
(The general rule in Tennessee is that an insurer is not obligated to undertake the defense of a
suit against its insured unless the allegations of the complaint show a claim for damages that
would be covered by the policy) Cincinnati Ins Co v Grand Pointe LLC 2007 US Dist
12 All parties concede that Tennessee law governs construction of the insurance policies
13
(L069S7S21 )
LEXIS 39784 (ED Tenn 2007) (If it is plain from the face of the underlying complaint the
allegations fail to state facts that bring the case within or potentially within the policy no duty to
defend exists) Am Nat Prop and Cas Ins Co v Gray 803 SW 2d 693 695-96 (Tenn Ct
App 1990) Graves v Liberty Mut Fire Ins Co 745 SW2d 282283 (Tenn Ct App 1987)
In ascertaining whether there is a duty to defend under a liability insurance policy
Tennessee adheres to a strict four comers approach See Interstate Packaging Co v Century
Indem Co bull 2013 US Dist LEXIS 45459 (MDTenn 2013) citing St Paul Fire amp Marine Ins
Co v Torpoco 879 SW2d 831 835 (Tenn 1994) Clark v Sputnicks LLC 368 SW3d 431
439 (Tenn 2012) (An insurers duty to defend is determined solely by an examination of the
allegations of the underlying complaint) Thus under Tennessee law the court must limit its
inquiry to the claims and allegations presented in the complaint against the insured [I]f the
allegations contained in the complaintare within the risk insured against and there is a
potential basis for recovery then [the insurer] must defend St Paul v Torpoco supra 879
SW2d at 835 Conversely if the claims alleged in the complaint are clearly not within the
scope of coverage then there is no duty to defend Drexel Chemical Co v Bitco Ins Co 933
SW2d 471 480 (Tenn 1996) As the United States Court of Appeals for the Sixth Circuit
stated it applying Tennessee law in Smith amp Nephew Inc v Fed Ins Co 113 FedAppx 99
(6th Cir 2004) in detennining an insurers duty to defend courts typically begin and end
their analysis with the four comers of the complaint Id at 102 Petitioner argues that there
are significant issues of material fact that exist given that there has been no final resolution of the
14
(LD09S752 I
underlying action13 but in fact clear-cut law dictates that all the Court must do is contrast the
averments of the Amended Complaint with the terms of the policies
The instant inquiry must therefore begin with the unique circumstances that the TIID
Amended Complaint against lA Street pleads only contract-based claims and not tort claims
Although the Circuit Court based its finding of no coverage solely on the Contractual Liability
exclusion as discussed in detail below courts in Tennessee and elsewhere have concluded that
there is no coverage for breach of contact claims and the damages that typically flow from such
claims on broader grounds While the Circuit Court did not subscribe to that broad view
our cases have made clear that it is permissible for us to affirm the granting of [dismissal] on bases difference or grounds other than those relief upon by the circuit court Hoover v Moran 222 WVa at 119 662 SE2d at 718 quoting Gently v Mangum 195 WVa 512519466 SE2d 171178 (1995) See also Schmehl v Helton 222 WVa 98 662 SE2d 697 705 n7 (2008) (this Court may in any event affirm the circuit court on any proper basis whether relied upon by the circuit court or not) Murphy v Smallridge 196 WVa 35 36-7 468 SE2d 167168-9 (1996) (An appellate court is not limited to the legal grounds relied upon by the circuit court but it may affirm or reverse a decision on any independently sufficient ground that has adequate support) Syl pt 3 Barnett v Wolfolk 149 WVa 246 140 SE2d 466 (1965) (This Court may on appeal affirm the judgment of the lower court when it appears that such judgment is correct on any legal ground disclosed by the record regardless of the ground reason or theory assigned by the lower court as the basis for its judgment)
Savarese v Allstate Ins Co 672 SE2d 255260 (WVa 2008)
One of the more elemental and uniformly embraced principles of corrunercial insurance
law is that the typical commercial liability insurance policy affords coverage for tort claims not
claims for breach of contract The authorities supporting that proposition are legion Dean
Henderson in his renowned and widely cited law review article makes the point emphatically
13 Petitioners Brief pp 25-27 15
(L0695752 1 J
[t]he risk intended to be insured is the possibility that the goods products or work of the insured once relinquished or completed will cause bodily injury or damage to property other than to the product or completed work itself and for which the insured may be found liable The insured as a source of goods or services may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable because it is lacking in some capacity This may even extend to an obligation to completely replace or rebuild the deficient product or work This liability however is not what the coverages in question are designed to protect against The coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb L Rev 415441 (1971)14
The overwhelming majority of courts and commentators that have addressed this issue
have held that breach of contract claims asserted against the insured are not covered under a
standard CGL policy See eg Couch on Insurance 3d sect1291-1294 (3d Ed 2005) (a
commercial general liability insurance policy is generally designed to provide coverage for tort
liability for physical damages to others and not for contractual liability of the insured for
economic loss the majority of jurisdictions have held that breach of contract is not an
14 The Henderson article has been widely relied upon by courts and commentators for over 40 years Noticeably it has been frequently cited with approval in Tennessee See Vernon (relying upon the Henderson article the Tennessee Court held that the standard comprehensive general liability policy does not provide coverage to an insured-contractor for a breach of contract action grounded upon faulty workmanship or materials where the damages claimed are the cost of correcting the work itself) Blaylock amp Brown Constr Inc v AIU Ins Co 796 SW2d 146 1990 TennApp LEXIS 338 (1990) (relying upon Henderson the Court holds bull that the language of the policy excludes liability coverage for the plaintiffs for damage to the property constructed pursuant to the contract) Standard Fire Ins Co v Chester-ODonley amp Assocs 972 SW2d 1 1998 TennApp LEXIS 65 (1998) (citing the Henderson article for the proposition that CGL policies are not intended to cover the insureds contractual liability for economic loss because its work was not that for which the damaged person bargained) Weedo v Stone-E-Brick Inc bull 81 NJ 233 405 A2d 788 (1979) (relying heavily upon the Henderson article the Court holds that a CGL policy does not provide coverage for a breach of contract action for faulty workmanship where the damages claimed are the cost ofcorrecting the work itself)
16
IL069S7S2 I
occurrencea [CGL] policy is not intended to provide coverage for the insureds contractual
liability which merely causes economic losses) Alan D Windt Insurance Claims and
Disputes sect117 (4th Ed 2001) (Finally there is the question as to whether a breach of
contract claim involves damages caused by an occurrence The answer should in general be
no) Erie Ins Prop amp Cas Co v Pioneer Home Improvement Inc 526 SE2d 28 33 206
WVa 506 513 (1999) (The coverage [under a COL policy] is for tort liability for physical
damages to others and not for contractual liability of the insured for economic loss because the
product or completed work is not that for which the damaged person bargained) Nationwide
Mutual Ins Co v CPB Intl Inc 562 F3d 591 598 2009 US App LEXIS 7795 14 (3d Cir
2009) (holding that under Pennsylvania law a CGL policy does not provide coverage for
claims in an underlying action that arise out of and relate to the contract between the parties)
Lyerla v AMCO Ins Co 536 F3d 684691-922008 US App LEXIS 164 78 (7th Cir 2008)
(applying Illinois law) (holding that underlying allegations that insured contractor did not satisfy
his contractual obligations is not property damage caused by an occurrence) L-J Inc v
Biteo Fire amp Marine Ins Co 621 SE2d 33 35 366 SC 117 (2005) (any liability that is
incurred because of faulty workmanship is part of the insureds contractual liability not an
insurable event under a CGL policy) Hotel Roanoke Conf Ctr Commn v Cincinnati Ins Co
303 FSupp2d 784 7882004 US Dist LEXIS 2539 (2004) (applying Virginia law) (damages
limited to the insureds work or product and resulting from the insureds defective perfonnance
of a contract are not covered losses under a [CGL] policy) Westfield Ins Co v Sheehan
Construction Co 580 FSupp2d 701 710 2008 US Dist LEXIS 66843 (2008) (applying
17
(L06957521
Indiana law) (a CGL policy serves to limit contractors tort liability for damage to property
caused by their work) Key Custom Homes Inc v Mid-Continent Cas Co 450 FSupp2d
1311 1317-182006 US Dist LEXIS 60355 (2006) (applying Florida law) (it is equally clear
that breach of contract claims for the recovery of money are not covered by general liability
insurance policies) Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254 1257329
Ore 620 (2000) (there can be no accident within the meaning of a commercial liability policy
when the resulting damage is merely a breach of contract) Bonded Concrete Inc v Transcon
Ins Co 12 AD3d 761 2004 NYAppDiv LEXIS 13020 (2004) (the purpose of a
commercial general liability policy is to provide coverage for tort liability for physical damage
to others and not for contractual liability of the insured for economic loss because the
product is not what the damaged [party] bargained for) United States Fire Ins Co v Milton
Co 35 FSupp2d 8386 1998 US Dist LEXIS 22116 (1998) (applying Maryland law) (there
is no occurrence under a comprehensive general liability insurance policy where and to the
extent that a contractors use of defective materials and substandard workmanship results in
economic losses that would normally be recoverable in a breach of contract action) Burlington
Ins Co v Oceanic Design amp Construction Inc 383 F3d 940 2004 US App LEXIS 18932
(9th Cir 2004) (applying Hawaii law) (holding that claims for breach of contract and negligent
breach of contract are not covered under a CGL policy) Norwalk Ready Mixed Concrete Inc v
Travelers Ins Co 246 F3d 1132 2001 US App LEXIS 7148 (8th Cir 2001) (applying Iowa
law) (holding that breach of contract and breach of warranty claims are not covered under a CGL
policy) USFampG Com v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476
18
(L06957521 l
(1989) (holding that a breach of contract claim asserted against an insured contractor is not
covered under a COL policy) Oreat Divide Ins Co v Bitterroot Timberfiames of Wyoming
LLC 2006 US Dist LEXIS 94826 (2006) (applying Wyoming law) (the allegations
demonstrate losses resulting from breach of contract and therefore cannot constitute an
accident for purposes of determining coverage) Union Ins Co v Hottenstein 83 P3d 1196
12022003 ColoApp LEXIS 1857 (2003) (poor workmanship constituting a breach of contract
is not a covered occurrence)
Tennessee lawl5 is in accord with these authorities The Tennessee Supreme Court has
defInitively held that breach of contract claims due to the insureds faulty workmanship such as
those asserted here by THD against IA Street in the underlying Amended Complaint are simply
not covered under the grant of coverage contained in a commercial liability policy See Vernon
supra Chester-ODonley supra at 6-7 (General liability policies are not all-risk policies and
only cover damages up to the policy limits for which the insured becomes liable as a result of
tort liability to a third party) (emphasis added) In Vernon the Supreme Court of Tennessee
expressly held that a standard COL policy only covers tort claims and such a policy does not
15 Under applicable Tennessee law contracts of insurance are subject to the same rules of interpretation and construction as other contracts McKimm v Bell 790 SW2d 526 527 1990 Tenn LEXIS 161 (1990) Thus [a]n insurance policy must be interpreted fairly and reasonably giving the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204 SW3d 758 2006 Tenn LEXIS 755 (2006) In the absence of fraud or mistake a contract must be interpreted and enforced as written even though it contains terms which may be thought harsh and unjust Allstate Ins Co v Wilson 856 SW2d 706 1992 TennApp LEXIS 1012 (1992) As a result the analysis of JA Streets right to coverage for the claims asserted in the underlying action are dictated by the terms of the policy The essential components of a general liability insurance policy include (1) the declarations (2) the insuring agreements and definitions (3) the exclusions (4) the conditions and (5) the endorsements See ChestershyODonley supra The insuring agreement sets the outer limits of an insurers contractual liability If coverage cannot be found in the insuring agreement it will not be found elsewhere in the policy Id 1998 TennApp LEXIS at 13-14
19
L069S7S21
afford coverage to an insured contractor for breach of contract claims Vernon 591 SW 2d at
765 Chester-ODonley supra at 6-7 Petitioner complains that the Circuit Court focused on
West Virginia cases such as Silk v Flat TOp6 but in fact the lower court expressly relied
upon a wealth of Tennessee authority17 including Vernon Cincinnati Ins Co v Grand Pointe
LLc18 and Trinity Univ Ins Co v Turner Funeral Home Inc 19 More recently Tennessee
courts have reaffirmed the rationale and holding of Vernon See State Auto Ins Cos v Gordon
Constr Inc 2001 TennApp LEXIS 349 (2001) (following Vernon and holding that the
insuring agreement of a CGL policy does not afford coverage for underlying breach of contract
and breach of warranty claims asserted against the insured contractor) Blake Indus Inc v
General Agents Ins Co of Am 2000 Tenn App LEXIS 490 (2000) (applying Vernon and
holding that claims asserted against the insured that were grounded in contract are not covered
under a CGL policy) Blaylock and Brown Constr Inc v AID Ins Co 796 SW2d 146 152shy
153 (Tenn Ct App 1990)
As the Circuit Court correctly recognized the express tenus of the insurance contract
clearly exclude contractual liability from coverage Exclusions help define and shape the scope
of coverage but they must be read in terms of the insuring agreement to which they apply
Exclusions can only decrease coverage they cannot increase it Chester-ODonley 972 SW2d
at 7-8 Moreover [e]ach exclusion reduces coverage and operates independently with reference
16 Petitioners Brief p 30 (citing 453 SE2d 356 (Wva 1994raquo 17 See See Opinion JA-I0552 ~27
18 2007 US Dist LEXIS 39784 (ED Tenn 2007) 19 2003 WL 23218046 (ED Tenn Dec 122003)
20
IL069S7S2 I I
to the insuring agreement Id at 8 The Contractual Liability exclusion specifically provides
that the insurance coverage does not apply to
Contractual liability
Bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement This exclusion does not apply to liability for damages
(1) That the insured would have in the absence of the contract or agreement or
(2) Assumed in a contract or agreement that is an insured contract provided the bodily injury or property damage occurs subsequent to the execution of the contract or agreement Solely for the purposes of liability assumed in a insured contract reasonable attorneys fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of bodily injury or property damage provided
(a) Liability to such party for or for the cost of that partys defense has also been assumed in the same insured contract and
(b) Such attorneys fees and litigation expenses are for defense of that party against the civil or alternative dispute resolution proceeding in which damages to which the insurance applies are alleged
See JA-62 Section I C[2
Even a cursory examination ofTHDs Amended Complaint reveals that all claims alleged
against JA Street were contractual There simply was no tort claim alleged In fact the claims
against JA Street were necessarily founded in contract for two reasons First the two-year
statute of limitations applicable to any tort claims elapsed long before THD first asserted its
claims against JA Street Tort claims were not pleaded and could not have been Second the
substantive law of West Virginia applies to the underlying claims asserted by THD against lA
21
(L069S7S21 I
Street20 and applicable West Virginia law plainly holds that even if THD had asserted tort
claims against JA Street the claims would still sound in contract under these circumstances for
purposes of the instant analysis since the gist of claims asserted against a contractor for deficient
work is necessarily ex contractu See Silk supra at 360 Dan Ryan Builders Inc v Crystal
Ridge Dev Inc 783 F3d 976 (4th Cir 2015) Unlike in both Silk and Dan Ryan THO did not
even assert any tort claims here Nor could it have Relevant to the precise policy language at
issue there simply was no liability for damages that [JA Street] would have in the absence of
the contract or agreement It simply cannot be contested that the claims alleged in the Amended
Complaint are and indeed necessarily were contractual in nature Given that alone the clear
holding of the Tennessee Court in Vernon mandated the Circuit Courts correct grant of
summary judgment in Biteos favor
A great majority of courts and commentators across the country that have addressed the
issue have held that the explicit unambiguous express Contractual Liability exclusion forecloses
coverage for all contract liability including breach of contract claims asserted against the
insured except where the insured has assumed the liability of another in an insured contract
See eg Silk v Flat Top Constr Inc 453 SE2d 356 359 192 WVa 522 (1994) (holding that
the contract exclusion applies to foreclose coverage for all contractual liability of the insured
except for liability assumed in an insured contract-a contract under which the insured
assumes the tort liability of another party) Gilbert Tex Constr v Underwriters at Lloyds
20 West Virginia applies the choice-of-law principle of lex loci delicti and there is no question here that the offending conduct and the loss all occurred in West Virginia such that JA Streets liability to THD would be governed by West Virginia law See State of Wva ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) (citing Syl Pt 1 Paul v Natl Life 352 SE2d 552 (WVa 1986raquo
22
(L069S7521 I
Londo 327 SW3d 118 (2010) (citing inter alia Nationwide Mut Ins Co v CPB Int Inc
No 306-CV-0363 2007 WL 4198173 at 8 (MDPa Nov26 2007) (Exclusion (b) is simply
further clarification in the policy that contract-based claims are not covered) ClM Ins Corp v
Midpac Auto Crr Inc 108 FSupp2d 1092 1099-1100 (DHaw2000) (clause in policy stating
that policy does not apply to liability assumed under any contract or agreement means that any
claim that is dependent on the existence of an underlying contract is not covered) Monticello
Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 at 2 (WDKy
Apr 3 1998) (exclusion for liability assumed by the insured under any contract or agreement
does not arise only when a party assumes the liability for another party rather the plain meaning
of the policy excludes a breach of contract claim from coverage) Silk supra (exclusion removed
coverage for breach of contract) TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 1091-92
(8th Cir1995) (exclusion for which the insured has assumed liability in a contract or agreement
plainly excluded coverage for contractual claims and not just hold-harmless or indemnity
agreements) Nationwide Mutual Ins Co v CPB Intl Inc 562 F3d 591 5992009 US App
LEXIS 7795 (3d Cir 2009) (applying Pa law) (holding that a breach of contract claim is excluded
under the Contractual Liability exclusion) Century Sur Co v Hardscape Constr Specialties Inc
578 F3d 262 2009 US App LEXIS 25300 (5th Cir 2009) (applying Texas law) (holding that the
Contractual Liability exclusion operates to exclude claims grounded primarily in breach of contract
and that no tort claims were asserted that triggered the insured contract exception) State Farm
Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 12 (2007) (applying Hawaii
law) (holding that claims arising from the insureds obligations under a contract are barred from
23
L0695152 I I
coverage under the Contractual Liability exclusion) JACO Airfield Constr Inc v National Trust
Ins Co 2007 US Dist LEXIS 100295 10 (2007) (applying Georgia law) (holding that the
Contractual Liability exclusion applies to foreclose coverage for the contractual based claims
asserted against the insured and that the insured contract exception to the Contractual Liability
exclusion does not apply because the insured did not assume the tort liability of another) Union Ins
Co v Williams Contr Inc 2006 US Dist LEXIS 35919 4-5 (2006) (holding that the
Contractual Liability exclusion precludes coverage for claims against the insured for breach of a
construction contract) Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270
GaApp 8 (2004) (affirming trial comts finding that the Contractual Liability exclusion barred
coverage for breach of contract and breach of implied warranty claims against the insured) Gibson
amp Assocs Inc v Home Ins Co 966 FSupp 468476-77 1997 US Dist LEXIS 4776 (1997)
(applying Texas law) (recognizing that the Contractual Liability exclusion precludes coverage for
breach of contract claims asserted against the insmed and that the policy only covers contractual
liability for indemnification actions ie an insured contract) James v Burlington Northern Santa
Fe Railway Co 2007 US Dist LEXIS 63282 4-5 (2007) (applying Arizona law) (holding that
the insured contract exception to the Contractual Liability exclusion does not bring ordinary
breach-of-contract claims within the scope of CGL coverage) TGA Dev Inc v Northern Ins Co
of New York 62 F3d 1089 1091-92 1995 USApp LEXIS 21700 (8th Cir 1995) (applying
Minnesota law) (holding that the Contractual Liability exclusion plainly excludes coverage for
contractual claims made for [the insmeds] failure to provide [the property owner] with a
condominium unit free from defects)
24
(lO6957521 )
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
Vernon Williams amp Son Constr Inc v Continental Ins Co 591 SW2d 760 (Tenn 1979)
pasSIm
Weedo v Stone-E-Brick Inc 405 A2d 788 (NJ 1979) 1633
Westfield Ins Co v Sheehan Construction Co 580 FSupp2d 701 2008 US Dist LEXIS
66843 (2008) 17
STATUTES
West Virginia Declaratory Judgment Act W Va Code sect55-13-1 e seq 9
OTHER AUTHORITIES
Alan D Windt Insurance Claims and Disputes sect117 (4th Ed 2001) 17
Couch on Insurance 3d sect1291-1294 (3d Ed 2005) 16
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb 1 Rev 415441 (1971) 1631
Wielinski Patrick (4th ed) IRMI Ch 6 pp 180-185 29
viii
LC6957521 I
I ST ATEMENT OF THE CASE
A INTRoDUCTION
Bitoo General Insurance Corporation (Biteo) instituted this declaratory judgment action
seeking a declaration of no coverage and no duty to defend contract claims alleging poor
workmanship asserted against Bitcos named insured in an underlying civil action pending in the
Circuit Court of Cabell County captioned at THD Development LLC a West Virginia Limited
Liability Company and THD Investors 7 LLC a West Virginia Limited Liability Company
Plaintiffs v SamplE Inc a Corporation and JA Street amp Associates Inc a Corporation
Defendants Civil Action No 03-C-0490 (hereinafter underlying action) The threshold
question presented in this declaratory judgment action is whether Bitcos standard commercial
general liability and umbrella insurance policies afford coverage for pure ex contractu claims
asserted by THD Development (THD) against JA Street amp Associates Inc (IA Street)
At an early stage Bitco moved for summary judgment on that very narrow ground toshy
wit that all of the claims pleaded against JA Street are contract-based claims for poor
workmanship and such claims are not covered by Bitcos standard oommercialliability polices
under applicable Tennessee law Unfortunately the Circuit Court found that the issue was not
susceptible to summary judgement at that time Consequently the insurance case remained
pending and Biteo continued to defend the underlying action At a later point Biteo renewed
substantially the identical argument whereupon it was again determined to be an insufficient
basis for a summary judgment Although the Circuit Court was uncertain enough at that point
that it certified the issue for interlocutory appeal the Supreme Court declined to afford review
L0695752l
Thereafter THD and lA Street immeasurably complicated the matter They devised a
theory that the case demonstrated characteristics of ongoing progressive incessant damage
typical of the asbestos-type progressive damage cases which our system of the administration of
justice has come to know On that basis lA Street sought and obtained leave of court to add
six additional insurance companies that had written commercial liability and umbrellaexcess
liability insurance over a period of years between 2001 and the present That of course
plunged the case into a maelstrom of dispute over a multitude of new insurance issues such as
trigger of coverage the accompanying loss in progress known loss rule problems
concomitant disputes over horizontalvertical exhaustion the lively debates over stacking of
per occurrence limits over successive policy periods and of course the applicability of
multiple exclusions such as the standard impaired property and earth movement exclusions
When all was said and done the Circuit Court ultimately honored Bitcos original
argument on the very narrow core issue at hand and ruled that since all of the claims asserted
against JA Street were contract-based claims for damages sustained by THD due to faulty
workmanship the commercial liability coverage provided by the policies does not apply That
determination which could have been made in 2009 is correct since the claims plainly do not
fall within the embrace of the policies as a matter of well-settled law Should this Court affirm
the judgment none of the other issues addressed by the Circuit Court affects the substantial
rights of the parties In other words they are moot
For these reasons Biteo focuses its argument on the indefatigable conclusion that there is
no coverage under the Bitco policies or any other commercial liability policies for claims ex
2
L069S7521
I
contractu for damages for poor workmanship by a construction contractor on a commercial
construction project Bitco also briefly addresses the propriety of the trial courts finding that
exclusion (m) applicable to impaired property separately operates to bar coverage
Biteo confines its cross-assignments of error to only 2 points (1) coverage if there is
any would be confmed to only one policy period either 2001-2002 or 2002-2003 because
damage first began and was known to the insured during one or the other of those periods and
(2) only one per occurrence limit applies regardless of the number of policies that are
triggered These points should in fact be moot since the Circuit Court correctly decided there is
no coverage in the fIrst instance
B STATEMENT OF FACTS
As discussed above and hereinbelow the core issue involved in this appeal requires only
a comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies themselves l To that end the Amended Complaint filed in
the underlying action alleges as follows
THD a real estate development company2 is the developer of the Merritt Creek Farm
Commercial Shopping Development located in Barboursville West Virginia See JA217-250
Amended Complaint -rl The project consisted of several sections including an anticipated site
for a Target store [d at -r7 1HD sought to prepare a pad upon which the Target store was to
Consonant with the governing standard the universe of facts that are germane to a detennination of whether a liability insurer such as Bitco has a duty to defend its insured consist of the factual allegations of the complaint flIed against the insured In this instance that would be the Amended Complaint filed by THD in the underlying case which asserted claims against 1A Street That Amended Complaint was appended as an exhibit to Bitcos Complaint in the declaratory judgment action 2 THDs principal place of business is located in Bristol Tennessee
3
(106957521 )
be constructed whereupon THD would then convey that portion of the site to Target for further
development Id TIID in turn entered into an agreement with SampME Inc (SampME) a soils
engineering firm whereby SampME agreed to perfonn a geotechnical exploration of the site and
thereafter submit a report setting forth recommendations with respect to site preparation for the
entire development Id at 10
On June 5 2001 THD entered into a written contract with IA Street for 1A Street to
serve as the general contractor on the Merritt Creek Farm Project Id at ~13 Pursuant to the
THDJA Street written agreement IA Street agreed to perform construction tasks with regard
to the Merritt Creek Farm Project including preparing the site for construction in general
preparing the Target site for construction of the Target building and constructing various
buildings and structures on the site3 Id at [13-14
In September of 2001 1A Street was perfonning grading excavation and fill work for
the portion of the site beneath which Target would eventually erect its building Id at 17 On
September 212001 the slope at the rear of the Target store site failed causing a landslide Id
During 2002 and 2003 additional slides sloughing and land movement occurred at other
locations throughout the Merritt Creek Development Id at 19 As a result THD was required
to spend substantial sums to repair the slope and address associated consequences of the
landslide Id at 18-19 THD filed the underlying action to recover those economic damages
Id generally
3 JA Street did not contract to build the Target building The Target Corporation was to perform that construction itself
4
(L069S752 I l
THD initially brought the underlying action in 2003 solely against SampME asserting
various claims for damages incurred on the project Nearly four years later on December 11
2007 THD amended its Complaint to add JA Street as a defendant By that time the two-year
tort period of limitations had long since expired Thus THDs Amended Complaint asserted
claims against JA Street were based solely upon the construction contract between THD and
JA Street -- claims for breach of contract breach of warranty and for express and implied
contractual indemnity Id at ~71-96 Therein THD alleged that JA Street failed to
perform the work in a good and workmanlike manner failed to provide competent supervision
and failed to perform the work with a high degree of expertise and workmanship thereby
breaching its agreement with THD Id at ~16 No tort claims were alleged against JA Street
in the Amended Complaint All of the claims sounded exclusively in contract
During several policy periods from 2001 to 2007 Bitco insured JA Street under very
standard commercial general liability policies4 It is undisputed that these policies were issued
by an agent located in Tennessee to JA Street a Tennessee corporation with its principal offices
located in Tennessee See JA217-219 ~4 As suc~ the policies are governed by Tennessee law
4 Policy eLP 3 107706 B was in effect fOT policy period March 12001 to March 1 2002 See JA-4 Policy eLP 3 135489 B was in effect fOT policy period March 12002 to March 12003 See JA4-216 Subsequent one-year policies issued with coverage effective through March 1 2007 See Petitioners Brief pp 9-10 JAI066 1583-2223 It is immaterial which policy applies because the relevant provisions of all of the policies are the same
5
(L06957521 )
These policies are identical they are all written on the standard Insurance Services
Office Inc (ISO) Commercial General Liability coverage forms 5 Insofar as is relevant
instantly the policies provide
1 Insuring Agreement
a We will pay those sums that the insured becomes legally obligated to pay as damages because ofbodily injury or 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 bodily injury or property damage to which this insurance does not apply We may at our discretion investigate any occurrence and settle any claim or suit that may resuIL
b This insurance applies to bodily injury and property damage only if
(1) The bodily injury or property damage is caused by an occurrence that takes place in the coverage territory
(2) The bodily injury or property damage occurs during the policy period and
(3) Prior to the policy period no insured listed under Paragraph 1 of Section II - Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part If such a listed insured or authorized middotmiddotemployee knew prior to the policy period that the bodily injury or property damage occurred then any continuation change or resumption of such bodily injury or property damage during or after the policy period will be deemed to have been known prior to the policy period
c Bodily injury or property damage which occurs during the policy period and was not prior to the policy period known to have occurred by
5 ISO has long been the predominate publisher of commercial general liability insurance policy forms in the industry The ISO Commercial General Liability Coverage Form CGOOOI has long been the most widely used form in the United States As such the policies involved in this case are typical standardized and have frequently been the subject of interpretation by state and federal courts
6
[L0695752 1 I
any insured listed under Paragraph 1 of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim includes any continuation change or resumption of that bodily injury or property damage after the end of the policy period
d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph 1 of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim Reports all or any part of the bodily injury or property damage to us or any other insurer
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or
(2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
Id Section I ~1
Property damage is defined under the policies as
(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 it 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 causes it
Id Section V ~17
Occurrence is defined as
[A]n accident including continuous or repeated exposure to substantially the same general hannful conditions
Id Section V ~13
Consonant with the well-recognized fact that commercial liability insurance covers tort
claims and not contract claims in subparagraph 6 of the Exclusions section the policies
7
(L069S7S21 I
contain a Contractual Liability exclusion The language of this familiar exclusion makes clear
that the insurance does not apply to bodily injury or property damage for which the insured
is obligated to pay damages by reason of the assumption of liability in a contract or
agreement 6 The policies also contain exclusion (m) which states that the coverage does not
apply to
m Damage to impaired property or property not physically damaged Property damage to impaired property arising out of (1) a defect deficiency inadequacy or dangerous condition in your
product or your work or (2) a delay or failure by you or anyone acting on your behalf to
perform a contract or agreement in accordance with its terms 7
In addition to the commercial liability policies Bitco also insured 1A Street under
commercial umbrella policies from March 2003 through March 2007 each of which contained
materially identical provisions as set forth above except that the insuring agreement also
included the following language We will pay on behalf of the insured the ultimate net loss in
excess of the retained limit because of property damage caused by an occurrence which
takes place during the policy period 8 Paragraph 5 of the Limits of Insurance provision
addresses the limits of property damage coverage under Coverage A The language therein
states succinctly as follows
Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of
6 The exceptions are where the liability is one ( 1) That the insured would have in the absence of the contract or agreement [or] (2) Assumed in the contract or agreement that is an insured contract As discussed fully below neither of these exceptions to the Contractual Liability exclusion apply in this case 7 The policies also each have a Limits of Liability section discussed more fully below in Biteos CrossshyAssignments ofError 8 See JA3004-3312
8
(L069S7S2 I )
(a) Damages under Coverage A (b) Because of all bodily injury and property damage arising out of any one occurrence
Bitco extended a defense to lA Street in the underlying action but did so under
reservation ofright to deny coverage
C PROCEDURAL HISTORY
As stated the insurance issues herein relate to an Amended Complaint filed in the
underlying action on December 11 2007 joining and asserting claims against JA Street See
JA-2I7 On July 14 2008 Biteo filed the instant action for declaratory judgment pursuant to
the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the
Circuit Court detennine that the previously described commercial general liability insurance
policies afford no coverage and Bitco owes no duty to defend JA Street for the claims asserted
in the Amended Complaint in the underlying action See JA-19
By Order dated February 172015 the Circuit Court invited summary judgment motions
on all grounds argued by all parties subject to waiver should any available ground not be raised
9 On August 13 2009 Biteo fIled a Motion for Summary Judgment requesting that the Circuit Court declare as a matter of law that Bitco owes no coverage andor duty to defend lA Street with respect to the claims asserted against JA Street in the underlying action See JA-263 IA Street filed a CrossshyMotion for Partial Summary Judgment on that issue Following oral argument the Circuit Court denied Biteos Motion and granted IA Streets Cross-Motion rmding that Biteo owes JA Street a duty to defend the underlying action until such time as the Plaintiff meets its burden of proof that no duty to defend exists See Order JA-I005 The Circuit Court concluded that it cannot definitively say at this time that under Tennessee law the plaintiff would not have a duty to defend Id On March 13 2014 1A Street filed a Third-Party Complaint pursuant to the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the Circuit Court determine that Biteo along with five (5) other insurers owe coverage to IA Street for the claims asserted against it by TlID and that no exclusions or other policy language excludes limits or defeats coverage See IA-I051 As discussed in Petitioners Brief extensive motion practice ensued regarding a host of intricate insurance issues
9
[L06957521
Accordingly on March 12 2015 Bitco filed a Second Amended Cross-Motion for Summary
Judgment arguing that there was no coverage nor any duty to defend under any of its policies
because contract claims for damages brought against construction contractors based upon defects
or deficiencies in the work do not constitute property damage caused by an occurrence are
not VIIithin the scope of the standard commercial liability or umbrella policy and are in any event
excluded See IA-8614 After briefing and argument on December 302016 the Circuit Court
entered an Order agreeing with Bitco and granting summary judgment in Bitcos favor along
with a declaration that Bitco owes no duty to defend nor any coverage of the claims asserted
against IA Street in the underlying action See Opinion JA-I0SS2 JA Street took an appeal
to this Court and filed its principal Brief on May 122017 Bitco now responds
II SUMMARY OF ARGUMENT
This Court should affirm the lower courts declaration that Bitco owes no coverage and
no duty to defend JA Street under its commercial general liability (CGL) and umbrella
insurance policies with respect to the claims asserted in the underlying action The claims
asserted by THD against JA Street in the underlying action are for breach of contract breach of
warranty and indemnity All of these claims are ex contractu they all arise out of a written
agreement between DID and 1A Street under which 1A Street agreed to construct the Merritt
Creek Shopping Center All claims in the underlying action relate to alleged breach of the
express or implied obligations of the aforesaid contract due to alleged deficiencies in
construction work that JA Street contracted to perform thereunder Pursuant to well-settled
law those claims are not covered by liability insurance policies
10
L0695752 I
All damages alleged in the underlying Amended Complaint are first-party claims alleging
economic damages directly relating to the work JA Street contracted to perform The fact that
the only claims pled are for breach of contract -- and not tort -- is dispositive to the insurance
coverage issues Well-established Tennessee authority and the decisions of a majority of other
jurisdictions across the country have explicitly recognized that contract claims precisely like
those asserted against lA Street are not within the embrace of the insuring agreement of the
standard commercial liability policy The Travelers Indemn Co of Am v Moore amp Assocs
Inc IO decision upon which the Petitioners principally rely is inapposite since it does not address
whether pure contract claims are covered The Tennessee Supreme Courts decision in Vernon
Williams amp Son Constr Inc v Continental Ins Co II which is still the law in Tennessee today
and which the Petitioners entirely ignore clearly holds that any contract-based claims for faulty
workmanship are not covered under a commercial liability policy Consequently the claims
asserted against lA Street in the underlying action are not covered under the clear and
unambiguous terms of the applicable policies initial grant of coverage because the claims
alleged are only for the recovery of economic damages based upon breach of contract In
addition the Circuit Court correctly noted the applicability of exclusion (m) relative to impaired
property Because it is clear that the policies do not afford coverage for the claims asserted in
the underlying action Bitco does not owe a duty to defend lA Street Therefore the Circuit
Courts determination that lA Street is not entitled to coverage and a defense under the Bitco
policies was entirely correct
10 216 SW3d 202 (Tenn 2007) 11 591 SW2d 760 (Tenn 1979)
11
L069S7S21 J
Finally though the issue is moot since Bitco owes no coverage at all Bitco cross-assigns
error in the Circuit Courts determinations that more than one policy and per occurrence limit
could apply under any circumstances The unambiguous policy language restricts any coverage
to only one policy period and only one applicable limit This Court should not need to reach
those issues however since there is no coverage at all
UI STATEMENT REGARDING ORAL ARGUMENT AND DECISION
Bitco does not believe the narrow issues necessary to affirm the judgment below are
particularly difficult or complex However if the Court is interested in entertaining oral
argument Bitcos counsel would of course happily oblige
IV ARGUMENT
A STANDARD OF REVIEW
Inasmuch as the summary judgment was entered with regard to a declaratory judgment
action [a] circuit courts entry of a declaratory judgment is reviewed de novo Id
(quoting Syl Pt 3 Cox v Amick 195 WVa 608 466 SE2d 459 (1995raquo See also
Blankenship v City of Charleston 223 WVa 822 824 679 SE2d 654 656 (2009) (quoting
Syi Pt 1 Painter v Peavy 192 WVa 189 451 SE2d 755 (1994raquo Moreover
[d]etermination of the proper coverage of an insurance contract when the facts are not in
dispute is a question of law Id at 825 (quoting Syi Pt 1 Tennant v Smallwood 211 WVa
703 568 SE2d 10 (2002raquo) As [t]he interpretation of an insurance contract including the
question of whether the contract is ambiguous is a legal determination like a lower courts
grant of summary judgment [it] shall be reviewed de novo on appeal Id (quoting SyI Pt 2
12
(L06957521 )
Riffe v Home Finders Associates Inc 205 WVa 216 517 SE2d 313 (1999)) Importantly as
discussed in detail immediately below since the core issue in this case merely requires a
comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies this case presents a pure matter of law that is uniquely
suitable for decision at the summary judgment stage
B THE CIRCUIT COURT CORRECTLY HELD THAT UNDER TENNESSEE LAW THE CONTRACTUAL CLAIMS ASSERTED BY THD AGAINST JA STREET ARE NOT COVERED
BY THE BITCO POLICIES
In this State a liability insurer has no duty to defend an action asserted against the
insured where it is clear from the allegations of the Complaint against the insured that there is no
coverage afforded under the relevant insurance policy See Horace Mann Ins Co v Leeber 376
SE2d 581 584 180 WVa 375 (1988) State Auto Mut Ins Co v Alpha Engg Servbull Inc
542 SE2d 876 879 208 WVa 713 (2000) (If the causes of action alleged in the plaintiffs
complaint are entirely foreign to the risks covered by the insurance policy then the insurance
company is relieved of its duties under the policy) Tennesseel2 follows exactly the same rule
See Drexel Chemical Co v Bitco Ins Co 933 SW2d 471480 1996 TennApp LEXIS 356
(1996) (holding that the insurer did not have a duty to defend where an exclusion applied to
foreclose coverage) Tenn Farmers Mut Ins Co v Brown 1990 TennApp LEXIS 812 (1990)
(The general rule in Tennessee is that an insurer is not obligated to undertake the defense of a
suit against its insured unless the allegations of the complaint show a claim for damages that
would be covered by the policy) Cincinnati Ins Co v Grand Pointe LLC 2007 US Dist
12 All parties concede that Tennessee law governs construction of the insurance policies
13
(L069S7S21 )
LEXIS 39784 (ED Tenn 2007) (If it is plain from the face of the underlying complaint the
allegations fail to state facts that bring the case within or potentially within the policy no duty to
defend exists) Am Nat Prop and Cas Ins Co v Gray 803 SW 2d 693 695-96 (Tenn Ct
App 1990) Graves v Liberty Mut Fire Ins Co 745 SW2d 282283 (Tenn Ct App 1987)
In ascertaining whether there is a duty to defend under a liability insurance policy
Tennessee adheres to a strict four comers approach See Interstate Packaging Co v Century
Indem Co bull 2013 US Dist LEXIS 45459 (MDTenn 2013) citing St Paul Fire amp Marine Ins
Co v Torpoco 879 SW2d 831 835 (Tenn 1994) Clark v Sputnicks LLC 368 SW3d 431
439 (Tenn 2012) (An insurers duty to defend is determined solely by an examination of the
allegations of the underlying complaint) Thus under Tennessee law the court must limit its
inquiry to the claims and allegations presented in the complaint against the insured [I]f the
allegations contained in the complaintare within the risk insured against and there is a
potential basis for recovery then [the insurer] must defend St Paul v Torpoco supra 879
SW2d at 835 Conversely if the claims alleged in the complaint are clearly not within the
scope of coverage then there is no duty to defend Drexel Chemical Co v Bitco Ins Co 933
SW2d 471 480 (Tenn 1996) As the United States Court of Appeals for the Sixth Circuit
stated it applying Tennessee law in Smith amp Nephew Inc v Fed Ins Co 113 FedAppx 99
(6th Cir 2004) in detennining an insurers duty to defend courts typically begin and end
their analysis with the four comers of the complaint Id at 102 Petitioner argues that there
are significant issues of material fact that exist given that there has been no final resolution of the
14
(LD09S752 I
underlying action13 but in fact clear-cut law dictates that all the Court must do is contrast the
averments of the Amended Complaint with the terms of the policies
The instant inquiry must therefore begin with the unique circumstances that the TIID
Amended Complaint against lA Street pleads only contract-based claims and not tort claims
Although the Circuit Court based its finding of no coverage solely on the Contractual Liability
exclusion as discussed in detail below courts in Tennessee and elsewhere have concluded that
there is no coverage for breach of contact claims and the damages that typically flow from such
claims on broader grounds While the Circuit Court did not subscribe to that broad view
our cases have made clear that it is permissible for us to affirm the granting of [dismissal] on bases difference or grounds other than those relief upon by the circuit court Hoover v Moran 222 WVa at 119 662 SE2d at 718 quoting Gently v Mangum 195 WVa 512519466 SE2d 171178 (1995) See also Schmehl v Helton 222 WVa 98 662 SE2d 697 705 n7 (2008) (this Court may in any event affirm the circuit court on any proper basis whether relied upon by the circuit court or not) Murphy v Smallridge 196 WVa 35 36-7 468 SE2d 167168-9 (1996) (An appellate court is not limited to the legal grounds relied upon by the circuit court but it may affirm or reverse a decision on any independently sufficient ground that has adequate support) Syl pt 3 Barnett v Wolfolk 149 WVa 246 140 SE2d 466 (1965) (This Court may on appeal affirm the judgment of the lower court when it appears that such judgment is correct on any legal ground disclosed by the record regardless of the ground reason or theory assigned by the lower court as the basis for its judgment)
Savarese v Allstate Ins Co 672 SE2d 255260 (WVa 2008)
One of the more elemental and uniformly embraced principles of corrunercial insurance
law is that the typical commercial liability insurance policy affords coverage for tort claims not
claims for breach of contract The authorities supporting that proposition are legion Dean
Henderson in his renowned and widely cited law review article makes the point emphatically
13 Petitioners Brief pp 25-27 15
(L0695752 1 J
[t]he risk intended to be insured is the possibility that the goods products or work of the insured once relinquished or completed will cause bodily injury or damage to property other than to the product or completed work itself and for which the insured may be found liable The insured as a source of goods or services may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable because it is lacking in some capacity This may even extend to an obligation to completely replace or rebuild the deficient product or work This liability however is not what the coverages in question are designed to protect against The coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb L Rev 415441 (1971)14
The overwhelming majority of courts and commentators that have addressed this issue
have held that breach of contract claims asserted against the insured are not covered under a
standard CGL policy See eg Couch on Insurance 3d sect1291-1294 (3d Ed 2005) (a
commercial general liability insurance policy is generally designed to provide coverage for tort
liability for physical damages to others and not for contractual liability of the insured for
economic loss the majority of jurisdictions have held that breach of contract is not an
14 The Henderson article has been widely relied upon by courts and commentators for over 40 years Noticeably it has been frequently cited with approval in Tennessee See Vernon (relying upon the Henderson article the Tennessee Court held that the standard comprehensive general liability policy does not provide coverage to an insured-contractor for a breach of contract action grounded upon faulty workmanship or materials where the damages claimed are the cost of correcting the work itself) Blaylock amp Brown Constr Inc v AIU Ins Co 796 SW2d 146 1990 TennApp LEXIS 338 (1990) (relying upon Henderson the Court holds bull that the language of the policy excludes liability coverage for the plaintiffs for damage to the property constructed pursuant to the contract) Standard Fire Ins Co v Chester-ODonley amp Assocs 972 SW2d 1 1998 TennApp LEXIS 65 (1998) (citing the Henderson article for the proposition that CGL policies are not intended to cover the insureds contractual liability for economic loss because its work was not that for which the damaged person bargained) Weedo v Stone-E-Brick Inc bull 81 NJ 233 405 A2d 788 (1979) (relying heavily upon the Henderson article the Court holds that a CGL policy does not provide coverage for a breach of contract action for faulty workmanship where the damages claimed are the cost ofcorrecting the work itself)
16
IL069S7S2 I
occurrencea [CGL] policy is not intended to provide coverage for the insureds contractual
liability which merely causes economic losses) Alan D Windt Insurance Claims and
Disputes sect117 (4th Ed 2001) (Finally there is the question as to whether a breach of
contract claim involves damages caused by an occurrence The answer should in general be
no) Erie Ins Prop amp Cas Co v Pioneer Home Improvement Inc 526 SE2d 28 33 206
WVa 506 513 (1999) (The coverage [under a COL policy] is for tort liability for physical
damages to others and not for contractual liability of the insured for economic loss because the
product or completed work is not that for which the damaged person bargained) Nationwide
Mutual Ins Co v CPB Intl Inc 562 F3d 591 598 2009 US App LEXIS 7795 14 (3d Cir
2009) (holding that under Pennsylvania law a CGL policy does not provide coverage for
claims in an underlying action that arise out of and relate to the contract between the parties)
Lyerla v AMCO Ins Co 536 F3d 684691-922008 US App LEXIS 164 78 (7th Cir 2008)
(applying Illinois law) (holding that underlying allegations that insured contractor did not satisfy
his contractual obligations is not property damage caused by an occurrence) L-J Inc v
Biteo Fire amp Marine Ins Co 621 SE2d 33 35 366 SC 117 (2005) (any liability that is
incurred because of faulty workmanship is part of the insureds contractual liability not an
insurable event under a CGL policy) Hotel Roanoke Conf Ctr Commn v Cincinnati Ins Co
303 FSupp2d 784 7882004 US Dist LEXIS 2539 (2004) (applying Virginia law) (damages
limited to the insureds work or product and resulting from the insureds defective perfonnance
of a contract are not covered losses under a [CGL] policy) Westfield Ins Co v Sheehan
Construction Co 580 FSupp2d 701 710 2008 US Dist LEXIS 66843 (2008) (applying
17
(L06957521
Indiana law) (a CGL policy serves to limit contractors tort liability for damage to property
caused by their work) Key Custom Homes Inc v Mid-Continent Cas Co 450 FSupp2d
1311 1317-182006 US Dist LEXIS 60355 (2006) (applying Florida law) (it is equally clear
that breach of contract claims for the recovery of money are not covered by general liability
insurance policies) Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254 1257329
Ore 620 (2000) (there can be no accident within the meaning of a commercial liability policy
when the resulting damage is merely a breach of contract) Bonded Concrete Inc v Transcon
Ins Co 12 AD3d 761 2004 NYAppDiv LEXIS 13020 (2004) (the purpose of a
commercial general liability policy is to provide coverage for tort liability for physical damage
to others and not for contractual liability of the insured for economic loss because the
product is not what the damaged [party] bargained for) United States Fire Ins Co v Milton
Co 35 FSupp2d 8386 1998 US Dist LEXIS 22116 (1998) (applying Maryland law) (there
is no occurrence under a comprehensive general liability insurance policy where and to the
extent that a contractors use of defective materials and substandard workmanship results in
economic losses that would normally be recoverable in a breach of contract action) Burlington
Ins Co v Oceanic Design amp Construction Inc 383 F3d 940 2004 US App LEXIS 18932
(9th Cir 2004) (applying Hawaii law) (holding that claims for breach of contract and negligent
breach of contract are not covered under a CGL policy) Norwalk Ready Mixed Concrete Inc v
Travelers Ins Co 246 F3d 1132 2001 US App LEXIS 7148 (8th Cir 2001) (applying Iowa
law) (holding that breach of contract and breach of warranty claims are not covered under a CGL
policy) USFampG Com v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476
18
(L06957521 l
(1989) (holding that a breach of contract claim asserted against an insured contractor is not
covered under a COL policy) Oreat Divide Ins Co v Bitterroot Timberfiames of Wyoming
LLC 2006 US Dist LEXIS 94826 (2006) (applying Wyoming law) (the allegations
demonstrate losses resulting from breach of contract and therefore cannot constitute an
accident for purposes of determining coverage) Union Ins Co v Hottenstein 83 P3d 1196
12022003 ColoApp LEXIS 1857 (2003) (poor workmanship constituting a breach of contract
is not a covered occurrence)
Tennessee lawl5 is in accord with these authorities The Tennessee Supreme Court has
defInitively held that breach of contract claims due to the insureds faulty workmanship such as
those asserted here by THD against IA Street in the underlying Amended Complaint are simply
not covered under the grant of coverage contained in a commercial liability policy See Vernon
supra Chester-ODonley supra at 6-7 (General liability policies are not all-risk policies and
only cover damages up to the policy limits for which the insured becomes liable as a result of
tort liability to a third party) (emphasis added) In Vernon the Supreme Court of Tennessee
expressly held that a standard COL policy only covers tort claims and such a policy does not
15 Under applicable Tennessee law contracts of insurance are subject to the same rules of interpretation and construction as other contracts McKimm v Bell 790 SW2d 526 527 1990 Tenn LEXIS 161 (1990) Thus [a]n insurance policy must be interpreted fairly and reasonably giving the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204 SW3d 758 2006 Tenn LEXIS 755 (2006) In the absence of fraud or mistake a contract must be interpreted and enforced as written even though it contains terms which may be thought harsh and unjust Allstate Ins Co v Wilson 856 SW2d 706 1992 TennApp LEXIS 1012 (1992) As a result the analysis of JA Streets right to coverage for the claims asserted in the underlying action are dictated by the terms of the policy The essential components of a general liability insurance policy include (1) the declarations (2) the insuring agreements and definitions (3) the exclusions (4) the conditions and (5) the endorsements See ChestershyODonley supra The insuring agreement sets the outer limits of an insurers contractual liability If coverage cannot be found in the insuring agreement it will not be found elsewhere in the policy Id 1998 TennApp LEXIS at 13-14
19
L069S7S21
afford coverage to an insured contractor for breach of contract claims Vernon 591 SW 2d at
765 Chester-ODonley supra at 6-7 Petitioner complains that the Circuit Court focused on
West Virginia cases such as Silk v Flat TOp6 but in fact the lower court expressly relied
upon a wealth of Tennessee authority17 including Vernon Cincinnati Ins Co v Grand Pointe
LLc18 and Trinity Univ Ins Co v Turner Funeral Home Inc 19 More recently Tennessee
courts have reaffirmed the rationale and holding of Vernon See State Auto Ins Cos v Gordon
Constr Inc 2001 TennApp LEXIS 349 (2001) (following Vernon and holding that the
insuring agreement of a CGL policy does not afford coverage for underlying breach of contract
and breach of warranty claims asserted against the insured contractor) Blake Indus Inc v
General Agents Ins Co of Am 2000 Tenn App LEXIS 490 (2000) (applying Vernon and
holding that claims asserted against the insured that were grounded in contract are not covered
under a CGL policy) Blaylock and Brown Constr Inc v AID Ins Co 796 SW2d 146 152shy
153 (Tenn Ct App 1990)
As the Circuit Court correctly recognized the express tenus of the insurance contract
clearly exclude contractual liability from coverage Exclusions help define and shape the scope
of coverage but they must be read in terms of the insuring agreement to which they apply
Exclusions can only decrease coverage they cannot increase it Chester-ODonley 972 SW2d
at 7-8 Moreover [e]ach exclusion reduces coverage and operates independently with reference
16 Petitioners Brief p 30 (citing 453 SE2d 356 (Wva 1994raquo 17 See See Opinion JA-I0552 ~27
18 2007 US Dist LEXIS 39784 (ED Tenn 2007) 19 2003 WL 23218046 (ED Tenn Dec 122003)
20
IL069S7S2 I I
to the insuring agreement Id at 8 The Contractual Liability exclusion specifically provides
that the insurance coverage does not apply to
Contractual liability
Bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement This exclusion does not apply to liability for damages
(1) That the insured would have in the absence of the contract or agreement or
(2) Assumed in a contract or agreement that is an insured contract provided the bodily injury or property damage occurs subsequent to the execution of the contract or agreement Solely for the purposes of liability assumed in a insured contract reasonable attorneys fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of bodily injury or property damage provided
(a) Liability to such party for or for the cost of that partys defense has also been assumed in the same insured contract and
(b) Such attorneys fees and litigation expenses are for defense of that party against the civil or alternative dispute resolution proceeding in which damages to which the insurance applies are alleged
See JA-62 Section I C[2
Even a cursory examination ofTHDs Amended Complaint reveals that all claims alleged
against JA Street were contractual There simply was no tort claim alleged In fact the claims
against JA Street were necessarily founded in contract for two reasons First the two-year
statute of limitations applicable to any tort claims elapsed long before THD first asserted its
claims against JA Street Tort claims were not pleaded and could not have been Second the
substantive law of West Virginia applies to the underlying claims asserted by THD against lA
21
(L069S7S21 I
Street20 and applicable West Virginia law plainly holds that even if THD had asserted tort
claims against JA Street the claims would still sound in contract under these circumstances for
purposes of the instant analysis since the gist of claims asserted against a contractor for deficient
work is necessarily ex contractu See Silk supra at 360 Dan Ryan Builders Inc v Crystal
Ridge Dev Inc 783 F3d 976 (4th Cir 2015) Unlike in both Silk and Dan Ryan THO did not
even assert any tort claims here Nor could it have Relevant to the precise policy language at
issue there simply was no liability for damages that [JA Street] would have in the absence of
the contract or agreement It simply cannot be contested that the claims alleged in the Amended
Complaint are and indeed necessarily were contractual in nature Given that alone the clear
holding of the Tennessee Court in Vernon mandated the Circuit Courts correct grant of
summary judgment in Biteos favor
A great majority of courts and commentators across the country that have addressed the
issue have held that the explicit unambiguous express Contractual Liability exclusion forecloses
coverage for all contract liability including breach of contract claims asserted against the
insured except where the insured has assumed the liability of another in an insured contract
See eg Silk v Flat Top Constr Inc 453 SE2d 356 359 192 WVa 522 (1994) (holding that
the contract exclusion applies to foreclose coverage for all contractual liability of the insured
except for liability assumed in an insured contract-a contract under which the insured
assumes the tort liability of another party) Gilbert Tex Constr v Underwriters at Lloyds
20 West Virginia applies the choice-of-law principle of lex loci delicti and there is no question here that the offending conduct and the loss all occurred in West Virginia such that JA Streets liability to THD would be governed by West Virginia law See State of Wva ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) (citing Syl Pt 1 Paul v Natl Life 352 SE2d 552 (WVa 1986raquo
22
(L069S7521 I
Londo 327 SW3d 118 (2010) (citing inter alia Nationwide Mut Ins Co v CPB Int Inc
No 306-CV-0363 2007 WL 4198173 at 8 (MDPa Nov26 2007) (Exclusion (b) is simply
further clarification in the policy that contract-based claims are not covered) ClM Ins Corp v
Midpac Auto Crr Inc 108 FSupp2d 1092 1099-1100 (DHaw2000) (clause in policy stating
that policy does not apply to liability assumed under any contract or agreement means that any
claim that is dependent on the existence of an underlying contract is not covered) Monticello
Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 at 2 (WDKy
Apr 3 1998) (exclusion for liability assumed by the insured under any contract or agreement
does not arise only when a party assumes the liability for another party rather the plain meaning
of the policy excludes a breach of contract claim from coverage) Silk supra (exclusion removed
coverage for breach of contract) TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 1091-92
(8th Cir1995) (exclusion for which the insured has assumed liability in a contract or agreement
plainly excluded coverage for contractual claims and not just hold-harmless or indemnity
agreements) Nationwide Mutual Ins Co v CPB Intl Inc 562 F3d 591 5992009 US App
LEXIS 7795 (3d Cir 2009) (applying Pa law) (holding that a breach of contract claim is excluded
under the Contractual Liability exclusion) Century Sur Co v Hardscape Constr Specialties Inc
578 F3d 262 2009 US App LEXIS 25300 (5th Cir 2009) (applying Texas law) (holding that the
Contractual Liability exclusion operates to exclude claims grounded primarily in breach of contract
and that no tort claims were asserted that triggered the insured contract exception) State Farm
Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 12 (2007) (applying Hawaii
law) (holding that claims arising from the insureds obligations under a contract are barred from
23
L0695152 I I
coverage under the Contractual Liability exclusion) JACO Airfield Constr Inc v National Trust
Ins Co 2007 US Dist LEXIS 100295 10 (2007) (applying Georgia law) (holding that the
Contractual Liability exclusion applies to foreclose coverage for the contractual based claims
asserted against the insured and that the insured contract exception to the Contractual Liability
exclusion does not apply because the insured did not assume the tort liability of another) Union Ins
Co v Williams Contr Inc 2006 US Dist LEXIS 35919 4-5 (2006) (holding that the
Contractual Liability exclusion precludes coverage for claims against the insured for breach of a
construction contract) Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270
GaApp 8 (2004) (affirming trial comts finding that the Contractual Liability exclusion barred
coverage for breach of contract and breach of implied warranty claims against the insured) Gibson
amp Assocs Inc v Home Ins Co 966 FSupp 468476-77 1997 US Dist LEXIS 4776 (1997)
(applying Texas law) (recognizing that the Contractual Liability exclusion precludes coverage for
breach of contract claims asserted against the insmed and that the policy only covers contractual
liability for indemnification actions ie an insured contract) James v Burlington Northern Santa
Fe Railway Co 2007 US Dist LEXIS 63282 4-5 (2007) (applying Arizona law) (holding that
the insured contract exception to the Contractual Liability exclusion does not bring ordinary
breach-of-contract claims within the scope of CGL coverage) TGA Dev Inc v Northern Ins Co
of New York 62 F3d 1089 1091-92 1995 USApp LEXIS 21700 (8th Cir 1995) (applying
Minnesota law) (holding that the Contractual Liability exclusion plainly excludes coverage for
contractual claims made for [the insmeds] failure to provide [the property owner] with a
condominium unit free from defects)
24
(lO6957521 )
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
I ST ATEMENT OF THE CASE
A INTRoDUCTION
Bitoo General Insurance Corporation (Biteo) instituted this declaratory judgment action
seeking a declaration of no coverage and no duty to defend contract claims alleging poor
workmanship asserted against Bitcos named insured in an underlying civil action pending in the
Circuit Court of Cabell County captioned at THD Development LLC a West Virginia Limited
Liability Company and THD Investors 7 LLC a West Virginia Limited Liability Company
Plaintiffs v SamplE Inc a Corporation and JA Street amp Associates Inc a Corporation
Defendants Civil Action No 03-C-0490 (hereinafter underlying action) The threshold
question presented in this declaratory judgment action is whether Bitcos standard commercial
general liability and umbrella insurance policies afford coverage for pure ex contractu claims
asserted by THD Development (THD) against JA Street amp Associates Inc (IA Street)
At an early stage Bitco moved for summary judgment on that very narrow ground toshy
wit that all of the claims pleaded against JA Street are contract-based claims for poor
workmanship and such claims are not covered by Bitcos standard oommercialliability polices
under applicable Tennessee law Unfortunately the Circuit Court found that the issue was not
susceptible to summary judgement at that time Consequently the insurance case remained
pending and Biteo continued to defend the underlying action At a later point Biteo renewed
substantially the identical argument whereupon it was again determined to be an insufficient
basis for a summary judgment Although the Circuit Court was uncertain enough at that point
that it certified the issue for interlocutory appeal the Supreme Court declined to afford review
L0695752l
Thereafter THD and lA Street immeasurably complicated the matter They devised a
theory that the case demonstrated characteristics of ongoing progressive incessant damage
typical of the asbestos-type progressive damage cases which our system of the administration of
justice has come to know On that basis lA Street sought and obtained leave of court to add
six additional insurance companies that had written commercial liability and umbrellaexcess
liability insurance over a period of years between 2001 and the present That of course
plunged the case into a maelstrom of dispute over a multitude of new insurance issues such as
trigger of coverage the accompanying loss in progress known loss rule problems
concomitant disputes over horizontalvertical exhaustion the lively debates over stacking of
per occurrence limits over successive policy periods and of course the applicability of
multiple exclusions such as the standard impaired property and earth movement exclusions
When all was said and done the Circuit Court ultimately honored Bitcos original
argument on the very narrow core issue at hand and ruled that since all of the claims asserted
against JA Street were contract-based claims for damages sustained by THD due to faulty
workmanship the commercial liability coverage provided by the policies does not apply That
determination which could have been made in 2009 is correct since the claims plainly do not
fall within the embrace of the policies as a matter of well-settled law Should this Court affirm
the judgment none of the other issues addressed by the Circuit Court affects the substantial
rights of the parties In other words they are moot
For these reasons Biteo focuses its argument on the indefatigable conclusion that there is
no coverage under the Bitco policies or any other commercial liability policies for claims ex
2
L069S7521
I
contractu for damages for poor workmanship by a construction contractor on a commercial
construction project Bitco also briefly addresses the propriety of the trial courts finding that
exclusion (m) applicable to impaired property separately operates to bar coverage
Biteo confines its cross-assignments of error to only 2 points (1) coverage if there is
any would be confmed to only one policy period either 2001-2002 or 2002-2003 because
damage first began and was known to the insured during one or the other of those periods and
(2) only one per occurrence limit applies regardless of the number of policies that are
triggered These points should in fact be moot since the Circuit Court correctly decided there is
no coverage in the fIrst instance
B STATEMENT OF FACTS
As discussed above and hereinbelow the core issue involved in this appeal requires only
a comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies themselves l To that end the Amended Complaint filed in
the underlying action alleges as follows
THD a real estate development company2 is the developer of the Merritt Creek Farm
Commercial Shopping Development located in Barboursville West Virginia See JA217-250
Amended Complaint -rl The project consisted of several sections including an anticipated site
for a Target store [d at -r7 1HD sought to prepare a pad upon which the Target store was to
Consonant with the governing standard the universe of facts that are germane to a detennination of whether a liability insurer such as Bitco has a duty to defend its insured consist of the factual allegations of the complaint flIed against the insured In this instance that would be the Amended Complaint filed by THD in the underlying case which asserted claims against 1A Street That Amended Complaint was appended as an exhibit to Bitcos Complaint in the declaratory judgment action 2 THDs principal place of business is located in Bristol Tennessee
3
(106957521 )
be constructed whereupon THD would then convey that portion of the site to Target for further
development Id TIID in turn entered into an agreement with SampME Inc (SampME) a soils
engineering firm whereby SampME agreed to perfonn a geotechnical exploration of the site and
thereafter submit a report setting forth recommendations with respect to site preparation for the
entire development Id at 10
On June 5 2001 THD entered into a written contract with IA Street for 1A Street to
serve as the general contractor on the Merritt Creek Farm Project Id at ~13 Pursuant to the
THDJA Street written agreement IA Street agreed to perform construction tasks with regard
to the Merritt Creek Farm Project including preparing the site for construction in general
preparing the Target site for construction of the Target building and constructing various
buildings and structures on the site3 Id at [13-14
In September of 2001 1A Street was perfonning grading excavation and fill work for
the portion of the site beneath which Target would eventually erect its building Id at 17 On
September 212001 the slope at the rear of the Target store site failed causing a landslide Id
During 2002 and 2003 additional slides sloughing and land movement occurred at other
locations throughout the Merritt Creek Development Id at 19 As a result THD was required
to spend substantial sums to repair the slope and address associated consequences of the
landslide Id at 18-19 THD filed the underlying action to recover those economic damages
Id generally
3 JA Street did not contract to build the Target building The Target Corporation was to perform that construction itself
4
(L069S752 I l
THD initially brought the underlying action in 2003 solely against SampME asserting
various claims for damages incurred on the project Nearly four years later on December 11
2007 THD amended its Complaint to add JA Street as a defendant By that time the two-year
tort period of limitations had long since expired Thus THDs Amended Complaint asserted
claims against JA Street were based solely upon the construction contract between THD and
JA Street -- claims for breach of contract breach of warranty and for express and implied
contractual indemnity Id at ~71-96 Therein THD alleged that JA Street failed to
perform the work in a good and workmanlike manner failed to provide competent supervision
and failed to perform the work with a high degree of expertise and workmanship thereby
breaching its agreement with THD Id at ~16 No tort claims were alleged against JA Street
in the Amended Complaint All of the claims sounded exclusively in contract
During several policy periods from 2001 to 2007 Bitco insured JA Street under very
standard commercial general liability policies4 It is undisputed that these policies were issued
by an agent located in Tennessee to JA Street a Tennessee corporation with its principal offices
located in Tennessee See JA217-219 ~4 As suc~ the policies are governed by Tennessee law
4 Policy eLP 3 107706 B was in effect fOT policy period March 12001 to March 1 2002 See JA-4 Policy eLP 3 135489 B was in effect fOT policy period March 12002 to March 12003 See JA4-216 Subsequent one-year policies issued with coverage effective through March 1 2007 See Petitioners Brief pp 9-10 JAI066 1583-2223 It is immaterial which policy applies because the relevant provisions of all of the policies are the same
5
(L06957521 )
These policies are identical they are all written on the standard Insurance Services
Office Inc (ISO) Commercial General Liability coverage forms 5 Insofar as is relevant
instantly the policies provide
1 Insuring Agreement
a We will pay those sums that the insured becomes legally obligated to pay as damages because ofbodily injury or 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 bodily injury or property damage to which this insurance does not apply We may at our discretion investigate any occurrence and settle any claim or suit that may resuIL
b This insurance applies to bodily injury and property damage only if
(1) The bodily injury or property damage is caused by an occurrence that takes place in the coverage territory
(2) The bodily injury or property damage occurs during the policy period and
(3) Prior to the policy period no insured listed under Paragraph 1 of Section II - Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part If such a listed insured or authorized middotmiddotemployee knew prior to the policy period that the bodily injury or property damage occurred then any continuation change or resumption of such bodily injury or property damage during or after the policy period will be deemed to have been known prior to the policy period
c Bodily injury or property damage which occurs during the policy period and was not prior to the policy period known to have occurred by
5 ISO has long been the predominate publisher of commercial general liability insurance policy forms in the industry The ISO Commercial General Liability Coverage Form CGOOOI has long been the most widely used form in the United States As such the policies involved in this case are typical standardized and have frequently been the subject of interpretation by state and federal courts
6
[L0695752 1 I
any insured listed under Paragraph 1 of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim includes any continuation change or resumption of that bodily injury or property damage after the end of the policy period
d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph 1 of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim Reports all or any part of the bodily injury or property damage to us or any other insurer
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or
(2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
Id Section I ~1
Property damage is defined under the policies as
(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 it 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 causes it
Id Section V ~17
Occurrence is defined as
[A]n accident including continuous or repeated exposure to substantially the same general hannful conditions
Id Section V ~13
Consonant with the well-recognized fact that commercial liability insurance covers tort
claims and not contract claims in subparagraph 6 of the Exclusions section the policies
7
(L069S7S21 I
contain a Contractual Liability exclusion The language of this familiar exclusion makes clear
that the insurance does not apply to bodily injury or property damage for which the insured
is obligated to pay damages by reason of the assumption of liability in a contract or
agreement 6 The policies also contain exclusion (m) which states that the coverage does not
apply to
m Damage to impaired property or property not physically damaged Property damage to impaired property arising out of (1) a defect deficiency inadequacy or dangerous condition in your
product or your work or (2) a delay or failure by you or anyone acting on your behalf to
perform a contract or agreement in accordance with its terms 7
In addition to the commercial liability policies Bitco also insured 1A Street under
commercial umbrella policies from March 2003 through March 2007 each of which contained
materially identical provisions as set forth above except that the insuring agreement also
included the following language We will pay on behalf of the insured the ultimate net loss in
excess of the retained limit because of property damage caused by an occurrence which
takes place during the policy period 8 Paragraph 5 of the Limits of Insurance provision
addresses the limits of property damage coverage under Coverage A The language therein
states succinctly as follows
Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of
6 The exceptions are where the liability is one ( 1) That the insured would have in the absence of the contract or agreement [or] (2) Assumed in the contract or agreement that is an insured contract As discussed fully below neither of these exceptions to the Contractual Liability exclusion apply in this case 7 The policies also each have a Limits of Liability section discussed more fully below in Biteos CrossshyAssignments ofError 8 See JA3004-3312
8
(L069S7S2 I )
(a) Damages under Coverage A (b) Because of all bodily injury and property damage arising out of any one occurrence
Bitco extended a defense to lA Street in the underlying action but did so under
reservation ofright to deny coverage
C PROCEDURAL HISTORY
As stated the insurance issues herein relate to an Amended Complaint filed in the
underlying action on December 11 2007 joining and asserting claims against JA Street See
JA-2I7 On July 14 2008 Biteo filed the instant action for declaratory judgment pursuant to
the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the
Circuit Court detennine that the previously described commercial general liability insurance
policies afford no coverage and Bitco owes no duty to defend JA Street for the claims asserted
in the Amended Complaint in the underlying action See JA-19
By Order dated February 172015 the Circuit Court invited summary judgment motions
on all grounds argued by all parties subject to waiver should any available ground not be raised
9 On August 13 2009 Biteo fIled a Motion for Summary Judgment requesting that the Circuit Court declare as a matter of law that Bitco owes no coverage andor duty to defend lA Street with respect to the claims asserted against JA Street in the underlying action See JA-263 IA Street filed a CrossshyMotion for Partial Summary Judgment on that issue Following oral argument the Circuit Court denied Biteos Motion and granted IA Streets Cross-Motion rmding that Biteo owes JA Street a duty to defend the underlying action until such time as the Plaintiff meets its burden of proof that no duty to defend exists See Order JA-I005 The Circuit Court concluded that it cannot definitively say at this time that under Tennessee law the plaintiff would not have a duty to defend Id On March 13 2014 1A Street filed a Third-Party Complaint pursuant to the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the Circuit Court determine that Biteo along with five (5) other insurers owe coverage to IA Street for the claims asserted against it by TlID and that no exclusions or other policy language excludes limits or defeats coverage See IA-I051 As discussed in Petitioners Brief extensive motion practice ensued regarding a host of intricate insurance issues
9
[L06957521
Accordingly on March 12 2015 Bitco filed a Second Amended Cross-Motion for Summary
Judgment arguing that there was no coverage nor any duty to defend under any of its policies
because contract claims for damages brought against construction contractors based upon defects
or deficiencies in the work do not constitute property damage caused by an occurrence are
not VIIithin the scope of the standard commercial liability or umbrella policy and are in any event
excluded See IA-8614 After briefing and argument on December 302016 the Circuit Court
entered an Order agreeing with Bitco and granting summary judgment in Bitcos favor along
with a declaration that Bitco owes no duty to defend nor any coverage of the claims asserted
against IA Street in the underlying action See Opinion JA-I0SS2 JA Street took an appeal
to this Court and filed its principal Brief on May 122017 Bitco now responds
II SUMMARY OF ARGUMENT
This Court should affirm the lower courts declaration that Bitco owes no coverage and
no duty to defend JA Street under its commercial general liability (CGL) and umbrella
insurance policies with respect to the claims asserted in the underlying action The claims
asserted by THD against JA Street in the underlying action are for breach of contract breach of
warranty and indemnity All of these claims are ex contractu they all arise out of a written
agreement between DID and 1A Street under which 1A Street agreed to construct the Merritt
Creek Shopping Center All claims in the underlying action relate to alleged breach of the
express or implied obligations of the aforesaid contract due to alleged deficiencies in
construction work that JA Street contracted to perform thereunder Pursuant to well-settled
law those claims are not covered by liability insurance policies
10
L0695752 I
All damages alleged in the underlying Amended Complaint are first-party claims alleging
economic damages directly relating to the work JA Street contracted to perform The fact that
the only claims pled are for breach of contract -- and not tort -- is dispositive to the insurance
coverage issues Well-established Tennessee authority and the decisions of a majority of other
jurisdictions across the country have explicitly recognized that contract claims precisely like
those asserted against lA Street are not within the embrace of the insuring agreement of the
standard commercial liability policy The Travelers Indemn Co of Am v Moore amp Assocs
Inc IO decision upon which the Petitioners principally rely is inapposite since it does not address
whether pure contract claims are covered The Tennessee Supreme Courts decision in Vernon
Williams amp Son Constr Inc v Continental Ins Co II which is still the law in Tennessee today
and which the Petitioners entirely ignore clearly holds that any contract-based claims for faulty
workmanship are not covered under a commercial liability policy Consequently the claims
asserted against lA Street in the underlying action are not covered under the clear and
unambiguous terms of the applicable policies initial grant of coverage because the claims
alleged are only for the recovery of economic damages based upon breach of contract In
addition the Circuit Court correctly noted the applicability of exclusion (m) relative to impaired
property Because it is clear that the policies do not afford coverage for the claims asserted in
the underlying action Bitco does not owe a duty to defend lA Street Therefore the Circuit
Courts determination that lA Street is not entitled to coverage and a defense under the Bitco
policies was entirely correct
10 216 SW3d 202 (Tenn 2007) 11 591 SW2d 760 (Tenn 1979)
11
L069S7S21 J
Finally though the issue is moot since Bitco owes no coverage at all Bitco cross-assigns
error in the Circuit Courts determinations that more than one policy and per occurrence limit
could apply under any circumstances The unambiguous policy language restricts any coverage
to only one policy period and only one applicable limit This Court should not need to reach
those issues however since there is no coverage at all
UI STATEMENT REGARDING ORAL ARGUMENT AND DECISION
Bitco does not believe the narrow issues necessary to affirm the judgment below are
particularly difficult or complex However if the Court is interested in entertaining oral
argument Bitcos counsel would of course happily oblige
IV ARGUMENT
A STANDARD OF REVIEW
Inasmuch as the summary judgment was entered with regard to a declaratory judgment
action [a] circuit courts entry of a declaratory judgment is reviewed de novo Id
(quoting Syl Pt 3 Cox v Amick 195 WVa 608 466 SE2d 459 (1995raquo See also
Blankenship v City of Charleston 223 WVa 822 824 679 SE2d 654 656 (2009) (quoting
Syi Pt 1 Painter v Peavy 192 WVa 189 451 SE2d 755 (1994raquo Moreover
[d]etermination of the proper coverage of an insurance contract when the facts are not in
dispute is a question of law Id at 825 (quoting Syi Pt 1 Tennant v Smallwood 211 WVa
703 568 SE2d 10 (2002raquo) As [t]he interpretation of an insurance contract including the
question of whether the contract is ambiguous is a legal determination like a lower courts
grant of summary judgment [it] shall be reviewed de novo on appeal Id (quoting SyI Pt 2
12
(L06957521 )
Riffe v Home Finders Associates Inc 205 WVa 216 517 SE2d 313 (1999)) Importantly as
discussed in detail immediately below since the core issue in this case merely requires a
comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies this case presents a pure matter of law that is uniquely
suitable for decision at the summary judgment stage
B THE CIRCUIT COURT CORRECTLY HELD THAT UNDER TENNESSEE LAW THE CONTRACTUAL CLAIMS ASSERTED BY THD AGAINST JA STREET ARE NOT COVERED
BY THE BITCO POLICIES
In this State a liability insurer has no duty to defend an action asserted against the
insured where it is clear from the allegations of the Complaint against the insured that there is no
coverage afforded under the relevant insurance policy See Horace Mann Ins Co v Leeber 376
SE2d 581 584 180 WVa 375 (1988) State Auto Mut Ins Co v Alpha Engg Servbull Inc
542 SE2d 876 879 208 WVa 713 (2000) (If the causes of action alleged in the plaintiffs
complaint are entirely foreign to the risks covered by the insurance policy then the insurance
company is relieved of its duties under the policy) Tennesseel2 follows exactly the same rule
See Drexel Chemical Co v Bitco Ins Co 933 SW2d 471480 1996 TennApp LEXIS 356
(1996) (holding that the insurer did not have a duty to defend where an exclusion applied to
foreclose coverage) Tenn Farmers Mut Ins Co v Brown 1990 TennApp LEXIS 812 (1990)
(The general rule in Tennessee is that an insurer is not obligated to undertake the defense of a
suit against its insured unless the allegations of the complaint show a claim for damages that
would be covered by the policy) Cincinnati Ins Co v Grand Pointe LLC 2007 US Dist
12 All parties concede that Tennessee law governs construction of the insurance policies
13
(L069S7S21 )
LEXIS 39784 (ED Tenn 2007) (If it is plain from the face of the underlying complaint the
allegations fail to state facts that bring the case within or potentially within the policy no duty to
defend exists) Am Nat Prop and Cas Ins Co v Gray 803 SW 2d 693 695-96 (Tenn Ct
App 1990) Graves v Liberty Mut Fire Ins Co 745 SW2d 282283 (Tenn Ct App 1987)
In ascertaining whether there is a duty to defend under a liability insurance policy
Tennessee adheres to a strict four comers approach See Interstate Packaging Co v Century
Indem Co bull 2013 US Dist LEXIS 45459 (MDTenn 2013) citing St Paul Fire amp Marine Ins
Co v Torpoco 879 SW2d 831 835 (Tenn 1994) Clark v Sputnicks LLC 368 SW3d 431
439 (Tenn 2012) (An insurers duty to defend is determined solely by an examination of the
allegations of the underlying complaint) Thus under Tennessee law the court must limit its
inquiry to the claims and allegations presented in the complaint against the insured [I]f the
allegations contained in the complaintare within the risk insured against and there is a
potential basis for recovery then [the insurer] must defend St Paul v Torpoco supra 879
SW2d at 835 Conversely if the claims alleged in the complaint are clearly not within the
scope of coverage then there is no duty to defend Drexel Chemical Co v Bitco Ins Co 933
SW2d 471 480 (Tenn 1996) As the United States Court of Appeals for the Sixth Circuit
stated it applying Tennessee law in Smith amp Nephew Inc v Fed Ins Co 113 FedAppx 99
(6th Cir 2004) in detennining an insurers duty to defend courts typically begin and end
their analysis with the four comers of the complaint Id at 102 Petitioner argues that there
are significant issues of material fact that exist given that there has been no final resolution of the
14
(LD09S752 I
underlying action13 but in fact clear-cut law dictates that all the Court must do is contrast the
averments of the Amended Complaint with the terms of the policies
The instant inquiry must therefore begin with the unique circumstances that the TIID
Amended Complaint against lA Street pleads only contract-based claims and not tort claims
Although the Circuit Court based its finding of no coverage solely on the Contractual Liability
exclusion as discussed in detail below courts in Tennessee and elsewhere have concluded that
there is no coverage for breach of contact claims and the damages that typically flow from such
claims on broader grounds While the Circuit Court did not subscribe to that broad view
our cases have made clear that it is permissible for us to affirm the granting of [dismissal] on bases difference or grounds other than those relief upon by the circuit court Hoover v Moran 222 WVa at 119 662 SE2d at 718 quoting Gently v Mangum 195 WVa 512519466 SE2d 171178 (1995) See also Schmehl v Helton 222 WVa 98 662 SE2d 697 705 n7 (2008) (this Court may in any event affirm the circuit court on any proper basis whether relied upon by the circuit court or not) Murphy v Smallridge 196 WVa 35 36-7 468 SE2d 167168-9 (1996) (An appellate court is not limited to the legal grounds relied upon by the circuit court but it may affirm or reverse a decision on any independently sufficient ground that has adequate support) Syl pt 3 Barnett v Wolfolk 149 WVa 246 140 SE2d 466 (1965) (This Court may on appeal affirm the judgment of the lower court when it appears that such judgment is correct on any legal ground disclosed by the record regardless of the ground reason or theory assigned by the lower court as the basis for its judgment)
Savarese v Allstate Ins Co 672 SE2d 255260 (WVa 2008)
One of the more elemental and uniformly embraced principles of corrunercial insurance
law is that the typical commercial liability insurance policy affords coverage for tort claims not
claims for breach of contract The authorities supporting that proposition are legion Dean
Henderson in his renowned and widely cited law review article makes the point emphatically
13 Petitioners Brief pp 25-27 15
(L0695752 1 J
[t]he risk intended to be insured is the possibility that the goods products or work of the insured once relinquished or completed will cause bodily injury or damage to property other than to the product or completed work itself and for which the insured may be found liable The insured as a source of goods or services may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable because it is lacking in some capacity This may even extend to an obligation to completely replace or rebuild the deficient product or work This liability however is not what the coverages in question are designed to protect against The coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb L Rev 415441 (1971)14
The overwhelming majority of courts and commentators that have addressed this issue
have held that breach of contract claims asserted against the insured are not covered under a
standard CGL policy See eg Couch on Insurance 3d sect1291-1294 (3d Ed 2005) (a
commercial general liability insurance policy is generally designed to provide coverage for tort
liability for physical damages to others and not for contractual liability of the insured for
economic loss the majority of jurisdictions have held that breach of contract is not an
14 The Henderson article has been widely relied upon by courts and commentators for over 40 years Noticeably it has been frequently cited with approval in Tennessee See Vernon (relying upon the Henderson article the Tennessee Court held that the standard comprehensive general liability policy does not provide coverage to an insured-contractor for a breach of contract action grounded upon faulty workmanship or materials where the damages claimed are the cost of correcting the work itself) Blaylock amp Brown Constr Inc v AIU Ins Co 796 SW2d 146 1990 TennApp LEXIS 338 (1990) (relying upon Henderson the Court holds bull that the language of the policy excludes liability coverage for the plaintiffs for damage to the property constructed pursuant to the contract) Standard Fire Ins Co v Chester-ODonley amp Assocs 972 SW2d 1 1998 TennApp LEXIS 65 (1998) (citing the Henderson article for the proposition that CGL policies are not intended to cover the insureds contractual liability for economic loss because its work was not that for which the damaged person bargained) Weedo v Stone-E-Brick Inc bull 81 NJ 233 405 A2d 788 (1979) (relying heavily upon the Henderson article the Court holds that a CGL policy does not provide coverage for a breach of contract action for faulty workmanship where the damages claimed are the cost ofcorrecting the work itself)
16
IL069S7S2 I
occurrencea [CGL] policy is not intended to provide coverage for the insureds contractual
liability which merely causes economic losses) Alan D Windt Insurance Claims and
Disputes sect117 (4th Ed 2001) (Finally there is the question as to whether a breach of
contract claim involves damages caused by an occurrence The answer should in general be
no) Erie Ins Prop amp Cas Co v Pioneer Home Improvement Inc 526 SE2d 28 33 206
WVa 506 513 (1999) (The coverage [under a COL policy] is for tort liability for physical
damages to others and not for contractual liability of the insured for economic loss because the
product or completed work is not that for which the damaged person bargained) Nationwide
Mutual Ins Co v CPB Intl Inc 562 F3d 591 598 2009 US App LEXIS 7795 14 (3d Cir
2009) (holding that under Pennsylvania law a CGL policy does not provide coverage for
claims in an underlying action that arise out of and relate to the contract between the parties)
Lyerla v AMCO Ins Co 536 F3d 684691-922008 US App LEXIS 164 78 (7th Cir 2008)
(applying Illinois law) (holding that underlying allegations that insured contractor did not satisfy
his contractual obligations is not property damage caused by an occurrence) L-J Inc v
Biteo Fire amp Marine Ins Co 621 SE2d 33 35 366 SC 117 (2005) (any liability that is
incurred because of faulty workmanship is part of the insureds contractual liability not an
insurable event under a CGL policy) Hotel Roanoke Conf Ctr Commn v Cincinnati Ins Co
303 FSupp2d 784 7882004 US Dist LEXIS 2539 (2004) (applying Virginia law) (damages
limited to the insureds work or product and resulting from the insureds defective perfonnance
of a contract are not covered losses under a [CGL] policy) Westfield Ins Co v Sheehan
Construction Co 580 FSupp2d 701 710 2008 US Dist LEXIS 66843 (2008) (applying
17
(L06957521
Indiana law) (a CGL policy serves to limit contractors tort liability for damage to property
caused by their work) Key Custom Homes Inc v Mid-Continent Cas Co 450 FSupp2d
1311 1317-182006 US Dist LEXIS 60355 (2006) (applying Florida law) (it is equally clear
that breach of contract claims for the recovery of money are not covered by general liability
insurance policies) Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254 1257329
Ore 620 (2000) (there can be no accident within the meaning of a commercial liability policy
when the resulting damage is merely a breach of contract) Bonded Concrete Inc v Transcon
Ins Co 12 AD3d 761 2004 NYAppDiv LEXIS 13020 (2004) (the purpose of a
commercial general liability policy is to provide coverage for tort liability for physical damage
to others and not for contractual liability of the insured for economic loss because the
product is not what the damaged [party] bargained for) United States Fire Ins Co v Milton
Co 35 FSupp2d 8386 1998 US Dist LEXIS 22116 (1998) (applying Maryland law) (there
is no occurrence under a comprehensive general liability insurance policy where and to the
extent that a contractors use of defective materials and substandard workmanship results in
economic losses that would normally be recoverable in a breach of contract action) Burlington
Ins Co v Oceanic Design amp Construction Inc 383 F3d 940 2004 US App LEXIS 18932
(9th Cir 2004) (applying Hawaii law) (holding that claims for breach of contract and negligent
breach of contract are not covered under a CGL policy) Norwalk Ready Mixed Concrete Inc v
Travelers Ins Co 246 F3d 1132 2001 US App LEXIS 7148 (8th Cir 2001) (applying Iowa
law) (holding that breach of contract and breach of warranty claims are not covered under a CGL
policy) USFampG Com v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476
18
(L06957521 l
(1989) (holding that a breach of contract claim asserted against an insured contractor is not
covered under a COL policy) Oreat Divide Ins Co v Bitterroot Timberfiames of Wyoming
LLC 2006 US Dist LEXIS 94826 (2006) (applying Wyoming law) (the allegations
demonstrate losses resulting from breach of contract and therefore cannot constitute an
accident for purposes of determining coverage) Union Ins Co v Hottenstein 83 P3d 1196
12022003 ColoApp LEXIS 1857 (2003) (poor workmanship constituting a breach of contract
is not a covered occurrence)
Tennessee lawl5 is in accord with these authorities The Tennessee Supreme Court has
defInitively held that breach of contract claims due to the insureds faulty workmanship such as
those asserted here by THD against IA Street in the underlying Amended Complaint are simply
not covered under the grant of coverage contained in a commercial liability policy See Vernon
supra Chester-ODonley supra at 6-7 (General liability policies are not all-risk policies and
only cover damages up to the policy limits for which the insured becomes liable as a result of
tort liability to a third party) (emphasis added) In Vernon the Supreme Court of Tennessee
expressly held that a standard COL policy only covers tort claims and such a policy does not
15 Under applicable Tennessee law contracts of insurance are subject to the same rules of interpretation and construction as other contracts McKimm v Bell 790 SW2d 526 527 1990 Tenn LEXIS 161 (1990) Thus [a]n insurance policy must be interpreted fairly and reasonably giving the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204 SW3d 758 2006 Tenn LEXIS 755 (2006) In the absence of fraud or mistake a contract must be interpreted and enforced as written even though it contains terms which may be thought harsh and unjust Allstate Ins Co v Wilson 856 SW2d 706 1992 TennApp LEXIS 1012 (1992) As a result the analysis of JA Streets right to coverage for the claims asserted in the underlying action are dictated by the terms of the policy The essential components of a general liability insurance policy include (1) the declarations (2) the insuring agreements and definitions (3) the exclusions (4) the conditions and (5) the endorsements See ChestershyODonley supra The insuring agreement sets the outer limits of an insurers contractual liability If coverage cannot be found in the insuring agreement it will not be found elsewhere in the policy Id 1998 TennApp LEXIS at 13-14
19
L069S7S21
afford coverage to an insured contractor for breach of contract claims Vernon 591 SW 2d at
765 Chester-ODonley supra at 6-7 Petitioner complains that the Circuit Court focused on
West Virginia cases such as Silk v Flat TOp6 but in fact the lower court expressly relied
upon a wealth of Tennessee authority17 including Vernon Cincinnati Ins Co v Grand Pointe
LLc18 and Trinity Univ Ins Co v Turner Funeral Home Inc 19 More recently Tennessee
courts have reaffirmed the rationale and holding of Vernon See State Auto Ins Cos v Gordon
Constr Inc 2001 TennApp LEXIS 349 (2001) (following Vernon and holding that the
insuring agreement of a CGL policy does not afford coverage for underlying breach of contract
and breach of warranty claims asserted against the insured contractor) Blake Indus Inc v
General Agents Ins Co of Am 2000 Tenn App LEXIS 490 (2000) (applying Vernon and
holding that claims asserted against the insured that were grounded in contract are not covered
under a CGL policy) Blaylock and Brown Constr Inc v AID Ins Co 796 SW2d 146 152shy
153 (Tenn Ct App 1990)
As the Circuit Court correctly recognized the express tenus of the insurance contract
clearly exclude contractual liability from coverage Exclusions help define and shape the scope
of coverage but they must be read in terms of the insuring agreement to which they apply
Exclusions can only decrease coverage they cannot increase it Chester-ODonley 972 SW2d
at 7-8 Moreover [e]ach exclusion reduces coverage and operates independently with reference
16 Petitioners Brief p 30 (citing 453 SE2d 356 (Wva 1994raquo 17 See See Opinion JA-I0552 ~27
18 2007 US Dist LEXIS 39784 (ED Tenn 2007) 19 2003 WL 23218046 (ED Tenn Dec 122003)
20
IL069S7S2 I I
to the insuring agreement Id at 8 The Contractual Liability exclusion specifically provides
that the insurance coverage does not apply to
Contractual liability
Bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement This exclusion does not apply to liability for damages
(1) That the insured would have in the absence of the contract or agreement or
(2) Assumed in a contract or agreement that is an insured contract provided the bodily injury or property damage occurs subsequent to the execution of the contract or agreement Solely for the purposes of liability assumed in a insured contract reasonable attorneys fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of bodily injury or property damage provided
(a) Liability to such party for or for the cost of that partys defense has also been assumed in the same insured contract and
(b) Such attorneys fees and litigation expenses are for defense of that party against the civil or alternative dispute resolution proceeding in which damages to which the insurance applies are alleged
See JA-62 Section I C[2
Even a cursory examination ofTHDs Amended Complaint reveals that all claims alleged
against JA Street were contractual There simply was no tort claim alleged In fact the claims
against JA Street were necessarily founded in contract for two reasons First the two-year
statute of limitations applicable to any tort claims elapsed long before THD first asserted its
claims against JA Street Tort claims were not pleaded and could not have been Second the
substantive law of West Virginia applies to the underlying claims asserted by THD against lA
21
(L069S7S21 I
Street20 and applicable West Virginia law plainly holds that even if THD had asserted tort
claims against JA Street the claims would still sound in contract under these circumstances for
purposes of the instant analysis since the gist of claims asserted against a contractor for deficient
work is necessarily ex contractu See Silk supra at 360 Dan Ryan Builders Inc v Crystal
Ridge Dev Inc 783 F3d 976 (4th Cir 2015) Unlike in both Silk and Dan Ryan THO did not
even assert any tort claims here Nor could it have Relevant to the precise policy language at
issue there simply was no liability for damages that [JA Street] would have in the absence of
the contract or agreement It simply cannot be contested that the claims alleged in the Amended
Complaint are and indeed necessarily were contractual in nature Given that alone the clear
holding of the Tennessee Court in Vernon mandated the Circuit Courts correct grant of
summary judgment in Biteos favor
A great majority of courts and commentators across the country that have addressed the
issue have held that the explicit unambiguous express Contractual Liability exclusion forecloses
coverage for all contract liability including breach of contract claims asserted against the
insured except where the insured has assumed the liability of another in an insured contract
See eg Silk v Flat Top Constr Inc 453 SE2d 356 359 192 WVa 522 (1994) (holding that
the contract exclusion applies to foreclose coverage for all contractual liability of the insured
except for liability assumed in an insured contract-a contract under which the insured
assumes the tort liability of another party) Gilbert Tex Constr v Underwriters at Lloyds
20 West Virginia applies the choice-of-law principle of lex loci delicti and there is no question here that the offending conduct and the loss all occurred in West Virginia such that JA Streets liability to THD would be governed by West Virginia law See State of Wva ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) (citing Syl Pt 1 Paul v Natl Life 352 SE2d 552 (WVa 1986raquo
22
(L069S7521 I
Londo 327 SW3d 118 (2010) (citing inter alia Nationwide Mut Ins Co v CPB Int Inc
No 306-CV-0363 2007 WL 4198173 at 8 (MDPa Nov26 2007) (Exclusion (b) is simply
further clarification in the policy that contract-based claims are not covered) ClM Ins Corp v
Midpac Auto Crr Inc 108 FSupp2d 1092 1099-1100 (DHaw2000) (clause in policy stating
that policy does not apply to liability assumed under any contract or agreement means that any
claim that is dependent on the existence of an underlying contract is not covered) Monticello
Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 at 2 (WDKy
Apr 3 1998) (exclusion for liability assumed by the insured under any contract or agreement
does not arise only when a party assumes the liability for another party rather the plain meaning
of the policy excludes a breach of contract claim from coverage) Silk supra (exclusion removed
coverage for breach of contract) TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 1091-92
(8th Cir1995) (exclusion for which the insured has assumed liability in a contract or agreement
plainly excluded coverage for contractual claims and not just hold-harmless or indemnity
agreements) Nationwide Mutual Ins Co v CPB Intl Inc 562 F3d 591 5992009 US App
LEXIS 7795 (3d Cir 2009) (applying Pa law) (holding that a breach of contract claim is excluded
under the Contractual Liability exclusion) Century Sur Co v Hardscape Constr Specialties Inc
578 F3d 262 2009 US App LEXIS 25300 (5th Cir 2009) (applying Texas law) (holding that the
Contractual Liability exclusion operates to exclude claims grounded primarily in breach of contract
and that no tort claims were asserted that triggered the insured contract exception) State Farm
Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 12 (2007) (applying Hawaii
law) (holding that claims arising from the insureds obligations under a contract are barred from
23
L0695152 I I
coverage under the Contractual Liability exclusion) JACO Airfield Constr Inc v National Trust
Ins Co 2007 US Dist LEXIS 100295 10 (2007) (applying Georgia law) (holding that the
Contractual Liability exclusion applies to foreclose coverage for the contractual based claims
asserted against the insured and that the insured contract exception to the Contractual Liability
exclusion does not apply because the insured did not assume the tort liability of another) Union Ins
Co v Williams Contr Inc 2006 US Dist LEXIS 35919 4-5 (2006) (holding that the
Contractual Liability exclusion precludes coverage for claims against the insured for breach of a
construction contract) Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270
GaApp 8 (2004) (affirming trial comts finding that the Contractual Liability exclusion barred
coverage for breach of contract and breach of implied warranty claims against the insured) Gibson
amp Assocs Inc v Home Ins Co 966 FSupp 468476-77 1997 US Dist LEXIS 4776 (1997)
(applying Texas law) (recognizing that the Contractual Liability exclusion precludes coverage for
breach of contract claims asserted against the insmed and that the policy only covers contractual
liability for indemnification actions ie an insured contract) James v Burlington Northern Santa
Fe Railway Co 2007 US Dist LEXIS 63282 4-5 (2007) (applying Arizona law) (holding that
the insured contract exception to the Contractual Liability exclusion does not bring ordinary
breach-of-contract claims within the scope of CGL coverage) TGA Dev Inc v Northern Ins Co
of New York 62 F3d 1089 1091-92 1995 USApp LEXIS 21700 (8th Cir 1995) (applying
Minnesota law) (holding that the Contractual Liability exclusion plainly excludes coverage for
contractual claims made for [the insmeds] failure to provide [the property owner] with a
condominium unit free from defects)
24
(lO6957521 )
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
Thereafter THD and lA Street immeasurably complicated the matter They devised a
theory that the case demonstrated characteristics of ongoing progressive incessant damage
typical of the asbestos-type progressive damage cases which our system of the administration of
justice has come to know On that basis lA Street sought and obtained leave of court to add
six additional insurance companies that had written commercial liability and umbrellaexcess
liability insurance over a period of years between 2001 and the present That of course
plunged the case into a maelstrom of dispute over a multitude of new insurance issues such as
trigger of coverage the accompanying loss in progress known loss rule problems
concomitant disputes over horizontalvertical exhaustion the lively debates over stacking of
per occurrence limits over successive policy periods and of course the applicability of
multiple exclusions such as the standard impaired property and earth movement exclusions
When all was said and done the Circuit Court ultimately honored Bitcos original
argument on the very narrow core issue at hand and ruled that since all of the claims asserted
against JA Street were contract-based claims for damages sustained by THD due to faulty
workmanship the commercial liability coverage provided by the policies does not apply That
determination which could have been made in 2009 is correct since the claims plainly do not
fall within the embrace of the policies as a matter of well-settled law Should this Court affirm
the judgment none of the other issues addressed by the Circuit Court affects the substantial
rights of the parties In other words they are moot
For these reasons Biteo focuses its argument on the indefatigable conclusion that there is
no coverage under the Bitco policies or any other commercial liability policies for claims ex
2
L069S7521
I
contractu for damages for poor workmanship by a construction contractor on a commercial
construction project Bitco also briefly addresses the propriety of the trial courts finding that
exclusion (m) applicable to impaired property separately operates to bar coverage
Biteo confines its cross-assignments of error to only 2 points (1) coverage if there is
any would be confmed to only one policy period either 2001-2002 or 2002-2003 because
damage first began and was known to the insured during one or the other of those periods and
(2) only one per occurrence limit applies regardless of the number of policies that are
triggered These points should in fact be moot since the Circuit Court correctly decided there is
no coverage in the fIrst instance
B STATEMENT OF FACTS
As discussed above and hereinbelow the core issue involved in this appeal requires only
a comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies themselves l To that end the Amended Complaint filed in
the underlying action alleges as follows
THD a real estate development company2 is the developer of the Merritt Creek Farm
Commercial Shopping Development located in Barboursville West Virginia See JA217-250
Amended Complaint -rl The project consisted of several sections including an anticipated site
for a Target store [d at -r7 1HD sought to prepare a pad upon which the Target store was to
Consonant with the governing standard the universe of facts that are germane to a detennination of whether a liability insurer such as Bitco has a duty to defend its insured consist of the factual allegations of the complaint flIed against the insured In this instance that would be the Amended Complaint filed by THD in the underlying case which asserted claims against 1A Street That Amended Complaint was appended as an exhibit to Bitcos Complaint in the declaratory judgment action 2 THDs principal place of business is located in Bristol Tennessee
3
(106957521 )
be constructed whereupon THD would then convey that portion of the site to Target for further
development Id TIID in turn entered into an agreement with SampME Inc (SampME) a soils
engineering firm whereby SampME agreed to perfonn a geotechnical exploration of the site and
thereafter submit a report setting forth recommendations with respect to site preparation for the
entire development Id at 10
On June 5 2001 THD entered into a written contract with IA Street for 1A Street to
serve as the general contractor on the Merritt Creek Farm Project Id at ~13 Pursuant to the
THDJA Street written agreement IA Street agreed to perform construction tasks with regard
to the Merritt Creek Farm Project including preparing the site for construction in general
preparing the Target site for construction of the Target building and constructing various
buildings and structures on the site3 Id at [13-14
In September of 2001 1A Street was perfonning grading excavation and fill work for
the portion of the site beneath which Target would eventually erect its building Id at 17 On
September 212001 the slope at the rear of the Target store site failed causing a landslide Id
During 2002 and 2003 additional slides sloughing and land movement occurred at other
locations throughout the Merritt Creek Development Id at 19 As a result THD was required
to spend substantial sums to repair the slope and address associated consequences of the
landslide Id at 18-19 THD filed the underlying action to recover those economic damages
Id generally
3 JA Street did not contract to build the Target building The Target Corporation was to perform that construction itself
4
(L069S752 I l
THD initially brought the underlying action in 2003 solely against SampME asserting
various claims for damages incurred on the project Nearly four years later on December 11
2007 THD amended its Complaint to add JA Street as a defendant By that time the two-year
tort period of limitations had long since expired Thus THDs Amended Complaint asserted
claims against JA Street were based solely upon the construction contract between THD and
JA Street -- claims for breach of contract breach of warranty and for express and implied
contractual indemnity Id at ~71-96 Therein THD alleged that JA Street failed to
perform the work in a good and workmanlike manner failed to provide competent supervision
and failed to perform the work with a high degree of expertise and workmanship thereby
breaching its agreement with THD Id at ~16 No tort claims were alleged against JA Street
in the Amended Complaint All of the claims sounded exclusively in contract
During several policy periods from 2001 to 2007 Bitco insured JA Street under very
standard commercial general liability policies4 It is undisputed that these policies were issued
by an agent located in Tennessee to JA Street a Tennessee corporation with its principal offices
located in Tennessee See JA217-219 ~4 As suc~ the policies are governed by Tennessee law
4 Policy eLP 3 107706 B was in effect fOT policy period March 12001 to March 1 2002 See JA-4 Policy eLP 3 135489 B was in effect fOT policy period March 12002 to March 12003 See JA4-216 Subsequent one-year policies issued with coverage effective through March 1 2007 See Petitioners Brief pp 9-10 JAI066 1583-2223 It is immaterial which policy applies because the relevant provisions of all of the policies are the same
5
(L06957521 )
These policies are identical they are all written on the standard Insurance Services
Office Inc (ISO) Commercial General Liability coverage forms 5 Insofar as is relevant
instantly the policies provide
1 Insuring Agreement
a We will pay those sums that the insured becomes legally obligated to pay as damages because ofbodily injury or 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 bodily injury or property damage to which this insurance does not apply We may at our discretion investigate any occurrence and settle any claim or suit that may resuIL
b This insurance applies to bodily injury and property damage only if
(1) The bodily injury or property damage is caused by an occurrence that takes place in the coverage territory
(2) The bodily injury or property damage occurs during the policy period and
(3) Prior to the policy period no insured listed under Paragraph 1 of Section II - Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part If such a listed insured or authorized middotmiddotemployee knew prior to the policy period that the bodily injury or property damage occurred then any continuation change or resumption of such bodily injury or property damage during or after the policy period will be deemed to have been known prior to the policy period
c Bodily injury or property damage which occurs during the policy period and was not prior to the policy period known to have occurred by
5 ISO has long been the predominate publisher of commercial general liability insurance policy forms in the industry The ISO Commercial General Liability Coverage Form CGOOOI has long been the most widely used form in the United States As such the policies involved in this case are typical standardized and have frequently been the subject of interpretation by state and federal courts
6
[L0695752 1 I
any insured listed under Paragraph 1 of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim includes any continuation change or resumption of that bodily injury or property damage after the end of the policy period
d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph 1 of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim Reports all or any part of the bodily injury or property damage to us or any other insurer
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or
(2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
Id Section I ~1
Property damage is defined under the policies as
(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 it 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 causes it
Id Section V ~17
Occurrence is defined as
[A]n accident including continuous or repeated exposure to substantially the same general hannful conditions
Id Section V ~13
Consonant with the well-recognized fact that commercial liability insurance covers tort
claims and not contract claims in subparagraph 6 of the Exclusions section the policies
7
(L069S7S21 I
contain a Contractual Liability exclusion The language of this familiar exclusion makes clear
that the insurance does not apply to bodily injury or property damage for which the insured
is obligated to pay damages by reason of the assumption of liability in a contract or
agreement 6 The policies also contain exclusion (m) which states that the coverage does not
apply to
m Damage to impaired property or property not physically damaged Property damage to impaired property arising out of (1) a defect deficiency inadequacy or dangerous condition in your
product or your work or (2) a delay or failure by you or anyone acting on your behalf to
perform a contract or agreement in accordance with its terms 7
In addition to the commercial liability policies Bitco also insured 1A Street under
commercial umbrella policies from March 2003 through March 2007 each of which contained
materially identical provisions as set forth above except that the insuring agreement also
included the following language We will pay on behalf of the insured the ultimate net loss in
excess of the retained limit because of property damage caused by an occurrence which
takes place during the policy period 8 Paragraph 5 of the Limits of Insurance provision
addresses the limits of property damage coverage under Coverage A The language therein
states succinctly as follows
Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of
6 The exceptions are where the liability is one ( 1) That the insured would have in the absence of the contract or agreement [or] (2) Assumed in the contract or agreement that is an insured contract As discussed fully below neither of these exceptions to the Contractual Liability exclusion apply in this case 7 The policies also each have a Limits of Liability section discussed more fully below in Biteos CrossshyAssignments ofError 8 See JA3004-3312
8
(L069S7S2 I )
(a) Damages under Coverage A (b) Because of all bodily injury and property damage arising out of any one occurrence
Bitco extended a defense to lA Street in the underlying action but did so under
reservation ofright to deny coverage
C PROCEDURAL HISTORY
As stated the insurance issues herein relate to an Amended Complaint filed in the
underlying action on December 11 2007 joining and asserting claims against JA Street See
JA-2I7 On July 14 2008 Biteo filed the instant action for declaratory judgment pursuant to
the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the
Circuit Court detennine that the previously described commercial general liability insurance
policies afford no coverage and Bitco owes no duty to defend JA Street for the claims asserted
in the Amended Complaint in the underlying action See JA-19
By Order dated February 172015 the Circuit Court invited summary judgment motions
on all grounds argued by all parties subject to waiver should any available ground not be raised
9 On August 13 2009 Biteo fIled a Motion for Summary Judgment requesting that the Circuit Court declare as a matter of law that Bitco owes no coverage andor duty to defend lA Street with respect to the claims asserted against JA Street in the underlying action See JA-263 IA Street filed a CrossshyMotion for Partial Summary Judgment on that issue Following oral argument the Circuit Court denied Biteos Motion and granted IA Streets Cross-Motion rmding that Biteo owes JA Street a duty to defend the underlying action until such time as the Plaintiff meets its burden of proof that no duty to defend exists See Order JA-I005 The Circuit Court concluded that it cannot definitively say at this time that under Tennessee law the plaintiff would not have a duty to defend Id On March 13 2014 1A Street filed a Third-Party Complaint pursuant to the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the Circuit Court determine that Biteo along with five (5) other insurers owe coverage to IA Street for the claims asserted against it by TlID and that no exclusions or other policy language excludes limits or defeats coverage See IA-I051 As discussed in Petitioners Brief extensive motion practice ensued regarding a host of intricate insurance issues
9
[L06957521
Accordingly on March 12 2015 Bitco filed a Second Amended Cross-Motion for Summary
Judgment arguing that there was no coverage nor any duty to defend under any of its policies
because contract claims for damages brought against construction contractors based upon defects
or deficiencies in the work do not constitute property damage caused by an occurrence are
not VIIithin the scope of the standard commercial liability or umbrella policy and are in any event
excluded See IA-8614 After briefing and argument on December 302016 the Circuit Court
entered an Order agreeing with Bitco and granting summary judgment in Bitcos favor along
with a declaration that Bitco owes no duty to defend nor any coverage of the claims asserted
against IA Street in the underlying action See Opinion JA-I0SS2 JA Street took an appeal
to this Court and filed its principal Brief on May 122017 Bitco now responds
II SUMMARY OF ARGUMENT
This Court should affirm the lower courts declaration that Bitco owes no coverage and
no duty to defend JA Street under its commercial general liability (CGL) and umbrella
insurance policies with respect to the claims asserted in the underlying action The claims
asserted by THD against JA Street in the underlying action are for breach of contract breach of
warranty and indemnity All of these claims are ex contractu they all arise out of a written
agreement between DID and 1A Street under which 1A Street agreed to construct the Merritt
Creek Shopping Center All claims in the underlying action relate to alleged breach of the
express or implied obligations of the aforesaid contract due to alleged deficiencies in
construction work that JA Street contracted to perform thereunder Pursuant to well-settled
law those claims are not covered by liability insurance policies
10
L0695752 I
All damages alleged in the underlying Amended Complaint are first-party claims alleging
economic damages directly relating to the work JA Street contracted to perform The fact that
the only claims pled are for breach of contract -- and not tort -- is dispositive to the insurance
coverage issues Well-established Tennessee authority and the decisions of a majority of other
jurisdictions across the country have explicitly recognized that contract claims precisely like
those asserted against lA Street are not within the embrace of the insuring agreement of the
standard commercial liability policy The Travelers Indemn Co of Am v Moore amp Assocs
Inc IO decision upon which the Petitioners principally rely is inapposite since it does not address
whether pure contract claims are covered The Tennessee Supreme Courts decision in Vernon
Williams amp Son Constr Inc v Continental Ins Co II which is still the law in Tennessee today
and which the Petitioners entirely ignore clearly holds that any contract-based claims for faulty
workmanship are not covered under a commercial liability policy Consequently the claims
asserted against lA Street in the underlying action are not covered under the clear and
unambiguous terms of the applicable policies initial grant of coverage because the claims
alleged are only for the recovery of economic damages based upon breach of contract In
addition the Circuit Court correctly noted the applicability of exclusion (m) relative to impaired
property Because it is clear that the policies do not afford coverage for the claims asserted in
the underlying action Bitco does not owe a duty to defend lA Street Therefore the Circuit
Courts determination that lA Street is not entitled to coverage and a defense under the Bitco
policies was entirely correct
10 216 SW3d 202 (Tenn 2007) 11 591 SW2d 760 (Tenn 1979)
11
L069S7S21 J
Finally though the issue is moot since Bitco owes no coverage at all Bitco cross-assigns
error in the Circuit Courts determinations that more than one policy and per occurrence limit
could apply under any circumstances The unambiguous policy language restricts any coverage
to only one policy period and only one applicable limit This Court should not need to reach
those issues however since there is no coverage at all
UI STATEMENT REGARDING ORAL ARGUMENT AND DECISION
Bitco does not believe the narrow issues necessary to affirm the judgment below are
particularly difficult or complex However if the Court is interested in entertaining oral
argument Bitcos counsel would of course happily oblige
IV ARGUMENT
A STANDARD OF REVIEW
Inasmuch as the summary judgment was entered with regard to a declaratory judgment
action [a] circuit courts entry of a declaratory judgment is reviewed de novo Id
(quoting Syl Pt 3 Cox v Amick 195 WVa 608 466 SE2d 459 (1995raquo See also
Blankenship v City of Charleston 223 WVa 822 824 679 SE2d 654 656 (2009) (quoting
Syi Pt 1 Painter v Peavy 192 WVa 189 451 SE2d 755 (1994raquo Moreover
[d]etermination of the proper coverage of an insurance contract when the facts are not in
dispute is a question of law Id at 825 (quoting Syi Pt 1 Tennant v Smallwood 211 WVa
703 568 SE2d 10 (2002raquo) As [t]he interpretation of an insurance contract including the
question of whether the contract is ambiguous is a legal determination like a lower courts
grant of summary judgment [it] shall be reviewed de novo on appeal Id (quoting SyI Pt 2
12
(L06957521 )
Riffe v Home Finders Associates Inc 205 WVa 216 517 SE2d 313 (1999)) Importantly as
discussed in detail immediately below since the core issue in this case merely requires a
comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies this case presents a pure matter of law that is uniquely
suitable for decision at the summary judgment stage
B THE CIRCUIT COURT CORRECTLY HELD THAT UNDER TENNESSEE LAW THE CONTRACTUAL CLAIMS ASSERTED BY THD AGAINST JA STREET ARE NOT COVERED
BY THE BITCO POLICIES
In this State a liability insurer has no duty to defend an action asserted against the
insured where it is clear from the allegations of the Complaint against the insured that there is no
coverage afforded under the relevant insurance policy See Horace Mann Ins Co v Leeber 376
SE2d 581 584 180 WVa 375 (1988) State Auto Mut Ins Co v Alpha Engg Servbull Inc
542 SE2d 876 879 208 WVa 713 (2000) (If the causes of action alleged in the plaintiffs
complaint are entirely foreign to the risks covered by the insurance policy then the insurance
company is relieved of its duties under the policy) Tennesseel2 follows exactly the same rule
See Drexel Chemical Co v Bitco Ins Co 933 SW2d 471480 1996 TennApp LEXIS 356
(1996) (holding that the insurer did not have a duty to defend where an exclusion applied to
foreclose coverage) Tenn Farmers Mut Ins Co v Brown 1990 TennApp LEXIS 812 (1990)
(The general rule in Tennessee is that an insurer is not obligated to undertake the defense of a
suit against its insured unless the allegations of the complaint show a claim for damages that
would be covered by the policy) Cincinnati Ins Co v Grand Pointe LLC 2007 US Dist
12 All parties concede that Tennessee law governs construction of the insurance policies
13
(L069S7S21 )
LEXIS 39784 (ED Tenn 2007) (If it is plain from the face of the underlying complaint the
allegations fail to state facts that bring the case within or potentially within the policy no duty to
defend exists) Am Nat Prop and Cas Ins Co v Gray 803 SW 2d 693 695-96 (Tenn Ct
App 1990) Graves v Liberty Mut Fire Ins Co 745 SW2d 282283 (Tenn Ct App 1987)
In ascertaining whether there is a duty to defend under a liability insurance policy
Tennessee adheres to a strict four comers approach See Interstate Packaging Co v Century
Indem Co bull 2013 US Dist LEXIS 45459 (MDTenn 2013) citing St Paul Fire amp Marine Ins
Co v Torpoco 879 SW2d 831 835 (Tenn 1994) Clark v Sputnicks LLC 368 SW3d 431
439 (Tenn 2012) (An insurers duty to defend is determined solely by an examination of the
allegations of the underlying complaint) Thus under Tennessee law the court must limit its
inquiry to the claims and allegations presented in the complaint against the insured [I]f the
allegations contained in the complaintare within the risk insured against and there is a
potential basis for recovery then [the insurer] must defend St Paul v Torpoco supra 879
SW2d at 835 Conversely if the claims alleged in the complaint are clearly not within the
scope of coverage then there is no duty to defend Drexel Chemical Co v Bitco Ins Co 933
SW2d 471 480 (Tenn 1996) As the United States Court of Appeals for the Sixth Circuit
stated it applying Tennessee law in Smith amp Nephew Inc v Fed Ins Co 113 FedAppx 99
(6th Cir 2004) in detennining an insurers duty to defend courts typically begin and end
their analysis with the four comers of the complaint Id at 102 Petitioner argues that there
are significant issues of material fact that exist given that there has been no final resolution of the
14
(LD09S752 I
underlying action13 but in fact clear-cut law dictates that all the Court must do is contrast the
averments of the Amended Complaint with the terms of the policies
The instant inquiry must therefore begin with the unique circumstances that the TIID
Amended Complaint against lA Street pleads only contract-based claims and not tort claims
Although the Circuit Court based its finding of no coverage solely on the Contractual Liability
exclusion as discussed in detail below courts in Tennessee and elsewhere have concluded that
there is no coverage for breach of contact claims and the damages that typically flow from such
claims on broader grounds While the Circuit Court did not subscribe to that broad view
our cases have made clear that it is permissible for us to affirm the granting of [dismissal] on bases difference or grounds other than those relief upon by the circuit court Hoover v Moran 222 WVa at 119 662 SE2d at 718 quoting Gently v Mangum 195 WVa 512519466 SE2d 171178 (1995) See also Schmehl v Helton 222 WVa 98 662 SE2d 697 705 n7 (2008) (this Court may in any event affirm the circuit court on any proper basis whether relied upon by the circuit court or not) Murphy v Smallridge 196 WVa 35 36-7 468 SE2d 167168-9 (1996) (An appellate court is not limited to the legal grounds relied upon by the circuit court but it may affirm or reverse a decision on any independently sufficient ground that has adequate support) Syl pt 3 Barnett v Wolfolk 149 WVa 246 140 SE2d 466 (1965) (This Court may on appeal affirm the judgment of the lower court when it appears that such judgment is correct on any legal ground disclosed by the record regardless of the ground reason or theory assigned by the lower court as the basis for its judgment)
Savarese v Allstate Ins Co 672 SE2d 255260 (WVa 2008)
One of the more elemental and uniformly embraced principles of corrunercial insurance
law is that the typical commercial liability insurance policy affords coverage for tort claims not
claims for breach of contract The authorities supporting that proposition are legion Dean
Henderson in his renowned and widely cited law review article makes the point emphatically
13 Petitioners Brief pp 25-27 15
(L0695752 1 J
[t]he risk intended to be insured is the possibility that the goods products or work of the insured once relinquished or completed will cause bodily injury or damage to property other than to the product or completed work itself and for which the insured may be found liable The insured as a source of goods or services may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable because it is lacking in some capacity This may even extend to an obligation to completely replace or rebuild the deficient product or work This liability however is not what the coverages in question are designed to protect against The coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb L Rev 415441 (1971)14
The overwhelming majority of courts and commentators that have addressed this issue
have held that breach of contract claims asserted against the insured are not covered under a
standard CGL policy See eg Couch on Insurance 3d sect1291-1294 (3d Ed 2005) (a
commercial general liability insurance policy is generally designed to provide coverage for tort
liability for physical damages to others and not for contractual liability of the insured for
economic loss the majority of jurisdictions have held that breach of contract is not an
14 The Henderson article has been widely relied upon by courts and commentators for over 40 years Noticeably it has been frequently cited with approval in Tennessee See Vernon (relying upon the Henderson article the Tennessee Court held that the standard comprehensive general liability policy does not provide coverage to an insured-contractor for a breach of contract action grounded upon faulty workmanship or materials where the damages claimed are the cost of correcting the work itself) Blaylock amp Brown Constr Inc v AIU Ins Co 796 SW2d 146 1990 TennApp LEXIS 338 (1990) (relying upon Henderson the Court holds bull that the language of the policy excludes liability coverage for the plaintiffs for damage to the property constructed pursuant to the contract) Standard Fire Ins Co v Chester-ODonley amp Assocs 972 SW2d 1 1998 TennApp LEXIS 65 (1998) (citing the Henderson article for the proposition that CGL policies are not intended to cover the insureds contractual liability for economic loss because its work was not that for which the damaged person bargained) Weedo v Stone-E-Brick Inc bull 81 NJ 233 405 A2d 788 (1979) (relying heavily upon the Henderson article the Court holds that a CGL policy does not provide coverage for a breach of contract action for faulty workmanship where the damages claimed are the cost ofcorrecting the work itself)
16
IL069S7S2 I
occurrencea [CGL] policy is not intended to provide coverage for the insureds contractual
liability which merely causes economic losses) Alan D Windt Insurance Claims and
Disputes sect117 (4th Ed 2001) (Finally there is the question as to whether a breach of
contract claim involves damages caused by an occurrence The answer should in general be
no) Erie Ins Prop amp Cas Co v Pioneer Home Improvement Inc 526 SE2d 28 33 206
WVa 506 513 (1999) (The coverage [under a COL policy] is for tort liability for physical
damages to others and not for contractual liability of the insured for economic loss because the
product or completed work is not that for which the damaged person bargained) Nationwide
Mutual Ins Co v CPB Intl Inc 562 F3d 591 598 2009 US App LEXIS 7795 14 (3d Cir
2009) (holding that under Pennsylvania law a CGL policy does not provide coverage for
claims in an underlying action that arise out of and relate to the contract between the parties)
Lyerla v AMCO Ins Co 536 F3d 684691-922008 US App LEXIS 164 78 (7th Cir 2008)
(applying Illinois law) (holding that underlying allegations that insured contractor did not satisfy
his contractual obligations is not property damage caused by an occurrence) L-J Inc v
Biteo Fire amp Marine Ins Co 621 SE2d 33 35 366 SC 117 (2005) (any liability that is
incurred because of faulty workmanship is part of the insureds contractual liability not an
insurable event under a CGL policy) Hotel Roanoke Conf Ctr Commn v Cincinnati Ins Co
303 FSupp2d 784 7882004 US Dist LEXIS 2539 (2004) (applying Virginia law) (damages
limited to the insureds work or product and resulting from the insureds defective perfonnance
of a contract are not covered losses under a [CGL] policy) Westfield Ins Co v Sheehan
Construction Co 580 FSupp2d 701 710 2008 US Dist LEXIS 66843 (2008) (applying
17
(L06957521
Indiana law) (a CGL policy serves to limit contractors tort liability for damage to property
caused by their work) Key Custom Homes Inc v Mid-Continent Cas Co 450 FSupp2d
1311 1317-182006 US Dist LEXIS 60355 (2006) (applying Florida law) (it is equally clear
that breach of contract claims for the recovery of money are not covered by general liability
insurance policies) Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254 1257329
Ore 620 (2000) (there can be no accident within the meaning of a commercial liability policy
when the resulting damage is merely a breach of contract) Bonded Concrete Inc v Transcon
Ins Co 12 AD3d 761 2004 NYAppDiv LEXIS 13020 (2004) (the purpose of a
commercial general liability policy is to provide coverage for tort liability for physical damage
to others and not for contractual liability of the insured for economic loss because the
product is not what the damaged [party] bargained for) United States Fire Ins Co v Milton
Co 35 FSupp2d 8386 1998 US Dist LEXIS 22116 (1998) (applying Maryland law) (there
is no occurrence under a comprehensive general liability insurance policy where and to the
extent that a contractors use of defective materials and substandard workmanship results in
economic losses that would normally be recoverable in a breach of contract action) Burlington
Ins Co v Oceanic Design amp Construction Inc 383 F3d 940 2004 US App LEXIS 18932
(9th Cir 2004) (applying Hawaii law) (holding that claims for breach of contract and negligent
breach of contract are not covered under a CGL policy) Norwalk Ready Mixed Concrete Inc v
Travelers Ins Co 246 F3d 1132 2001 US App LEXIS 7148 (8th Cir 2001) (applying Iowa
law) (holding that breach of contract and breach of warranty claims are not covered under a CGL
policy) USFampG Com v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476
18
(L06957521 l
(1989) (holding that a breach of contract claim asserted against an insured contractor is not
covered under a COL policy) Oreat Divide Ins Co v Bitterroot Timberfiames of Wyoming
LLC 2006 US Dist LEXIS 94826 (2006) (applying Wyoming law) (the allegations
demonstrate losses resulting from breach of contract and therefore cannot constitute an
accident for purposes of determining coverage) Union Ins Co v Hottenstein 83 P3d 1196
12022003 ColoApp LEXIS 1857 (2003) (poor workmanship constituting a breach of contract
is not a covered occurrence)
Tennessee lawl5 is in accord with these authorities The Tennessee Supreme Court has
defInitively held that breach of contract claims due to the insureds faulty workmanship such as
those asserted here by THD against IA Street in the underlying Amended Complaint are simply
not covered under the grant of coverage contained in a commercial liability policy See Vernon
supra Chester-ODonley supra at 6-7 (General liability policies are not all-risk policies and
only cover damages up to the policy limits for which the insured becomes liable as a result of
tort liability to a third party) (emphasis added) In Vernon the Supreme Court of Tennessee
expressly held that a standard COL policy only covers tort claims and such a policy does not
15 Under applicable Tennessee law contracts of insurance are subject to the same rules of interpretation and construction as other contracts McKimm v Bell 790 SW2d 526 527 1990 Tenn LEXIS 161 (1990) Thus [a]n insurance policy must be interpreted fairly and reasonably giving the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204 SW3d 758 2006 Tenn LEXIS 755 (2006) In the absence of fraud or mistake a contract must be interpreted and enforced as written even though it contains terms which may be thought harsh and unjust Allstate Ins Co v Wilson 856 SW2d 706 1992 TennApp LEXIS 1012 (1992) As a result the analysis of JA Streets right to coverage for the claims asserted in the underlying action are dictated by the terms of the policy The essential components of a general liability insurance policy include (1) the declarations (2) the insuring agreements and definitions (3) the exclusions (4) the conditions and (5) the endorsements See ChestershyODonley supra The insuring agreement sets the outer limits of an insurers contractual liability If coverage cannot be found in the insuring agreement it will not be found elsewhere in the policy Id 1998 TennApp LEXIS at 13-14
19
L069S7S21
afford coverage to an insured contractor for breach of contract claims Vernon 591 SW 2d at
765 Chester-ODonley supra at 6-7 Petitioner complains that the Circuit Court focused on
West Virginia cases such as Silk v Flat TOp6 but in fact the lower court expressly relied
upon a wealth of Tennessee authority17 including Vernon Cincinnati Ins Co v Grand Pointe
LLc18 and Trinity Univ Ins Co v Turner Funeral Home Inc 19 More recently Tennessee
courts have reaffirmed the rationale and holding of Vernon See State Auto Ins Cos v Gordon
Constr Inc 2001 TennApp LEXIS 349 (2001) (following Vernon and holding that the
insuring agreement of a CGL policy does not afford coverage for underlying breach of contract
and breach of warranty claims asserted against the insured contractor) Blake Indus Inc v
General Agents Ins Co of Am 2000 Tenn App LEXIS 490 (2000) (applying Vernon and
holding that claims asserted against the insured that were grounded in contract are not covered
under a CGL policy) Blaylock and Brown Constr Inc v AID Ins Co 796 SW2d 146 152shy
153 (Tenn Ct App 1990)
As the Circuit Court correctly recognized the express tenus of the insurance contract
clearly exclude contractual liability from coverage Exclusions help define and shape the scope
of coverage but they must be read in terms of the insuring agreement to which they apply
Exclusions can only decrease coverage they cannot increase it Chester-ODonley 972 SW2d
at 7-8 Moreover [e]ach exclusion reduces coverage and operates independently with reference
16 Petitioners Brief p 30 (citing 453 SE2d 356 (Wva 1994raquo 17 See See Opinion JA-I0552 ~27
18 2007 US Dist LEXIS 39784 (ED Tenn 2007) 19 2003 WL 23218046 (ED Tenn Dec 122003)
20
IL069S7S2 I I
to the insuring agreement Id at 8 The Contractual Liability exclusion specifically provides
that the insurance coverage does not apply to
Contractual liability
Bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement This exclusion does not apply to liability for damages
(1) That the insured would have in the absence of the contract or agreement or
(2) Assumed in a contract or agreement that is an insured contract provided the bodily injury or property damage occurs subsequent to the execution of the contract or agreement Solely for the purposes of liability assumed in a insured contract reasonable attorneys fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of bodily injury or property damage provided
(a) Liability to such party for or for the cost of that partys defense has also been assumed in the same insured contract and
(b) Such attorneys fees and litigation expenses are for defense of that party against the civil or alternative dispute resolution proceeding in which damages to which the insurance applies are alleged
See JA-62 Section I C[2
Even a cursory examination ofTHDs Amended Complaint reveals that all claims alleged
against JA Street were contractual There simply was no tort claim alleged In fact the claims
against JA Street were necessarily founded in contract for two reasons First the two-year
statute of limitations applicable to any tort claims elapsed long before THD first asserted its
claims against JA Street Tort claims were not pleaded and could not have been Second the
substantive law of West Virginia applies to the underlying claims asserted by THD against lA
21
(L069S7S21 I
Street20 and applicable West Virginia law plainly holds that even if THD had asserted tort
claims against JA Street the claims would still sound in contract under these circumstances for
purposes of the instant analysis since the gist of claims asserted against a contractor for deficient
work is necessarily ex contractu See Silk supra at 360 Dan Ryan Builders Inc v Crystal
Ridge Dev Inc 783 F3d 976 (4th Cir 2015) Unlike in both Silk and Dan Ryan THO did not
even assert any tort claims here Nor could it have Relevant to the precise policy language at
issue there simply was no liability for damages that [JA Street] would have in the absence of
the contract or agreement It simply cannot be contested that the claims alleged in the Amended
Complaint are and indeed necessarily were contractual in nature Given that alone the clear
holding of the Tennessee Court in Vernon mandated the Circuit Courts correct grant of
summary judgment in Biteos favor
A great majority of courts and commentators across the country that have addressed the
issue have held that the explicit unambiguous express Contractual Liability exclusion forecloses
coverage for all contract liability including breach of contract claims asserted against the
insured except where the insured has assumed the liability of another in an insured contract
See eg Silk v Flat Top Constr Inc 453 SE2d 356 359 192 WVa 522 (1994) (holding that
the contract exclusion applies to foreclose coverage for all contractual liability of the insured
except for liability assumed in an insured contract-a contract under which the insured
assumes the tort liability of another party) Gilbert Tex Constr v Underwriters at Lloyds
20 West Virginia applies the choice-of-law principle of lex loci delicti and there is no question here that the offending conduct and the loss all occurred in West Virginia such that JA Streets liability to THD would be governed by West Virginia law See State of Wva ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) (citing Syl Pt 1 Paul v Natl Life 352 SE2d 552 (WVa 1986raquo
22
(L069S7521 I
Londo 327 SW3d 118 (2010) (citing inter alia Nationwide Mut Ins Co v CPB Int Inc
No 306-CV-0363 2007 WL 4198173 at 8 (MDPa Nov26 2007) (Exclusion (b) is simply
further clarification in the policy that contract-based claims are not covered) ClM Ins Corp v
Midpac Auto Crr Inc 108 FSupp2d 1092 1099-1100 (DHaw2000) (clause in policy stating
that policy does not apply to liability assumed under any contract or agreement means that any
claim that is dependent on the existence of an underlying contract is not covered) Monticello
Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 at 2 (WDKy
Apr 3 1998) (exclusion for liability assumed by the insured under any contract or agreement
does not arise only when a party assumes the liability for another party rather the plain meaning
of the policy excludes a breach of contract claim from coverage) Silk supra (exclusion removed
coverage for breach of contract) TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 1091-92
(8th Cir1995) (exclusion for which the insured has assumed liability in a contract or agreement
plainly excluded coverage for contractual claims and not just hold-harmless or indemnity
agreements) Nationwide Mutual Ins Co v CPB Intl Inc 562 F3d 591 5992009 US App
LEXIS 7795 (3d Cir 2009) (applying Pa law) (holding that a breach of contract claim is excluded
under the Contractual Liability exclusion) Century Sur Co v Hardscape Constr Specialties Inc
578 F3d 262 2009 US App LEXIS 25300 (5th Cir 2009) (applying Texas law) (holding that the
Contractual Liability exclusion operates to exclude claims grounded primarily in breach of contract
and that no tort claims were asserted that triggered the insured contract exception) State Farm
Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 12 (2007) (applying Hawaii
law) (holding that claims arising from the insureds obligations under a contract are barred from
23
L0695152 I I
coverage under the Contractual Liability exclusion) JACO Airfield Constr Inc v National Trust
Ins Co 2007 US Dist LEXIS 100295 10 (2007) (applying Georgia law) (holding that the
Contractual Liability exclusion applies to foreclose coverage for the contractual based claims
asserted against the insured and that the insured contract exception to the Contractual Liability
exclusion does not apply because the insured did not assume the tort liability of another) Union Ins
Co v Williams Contr Inc 2006 US Dist LEXIS 35919 4-5 (2006) (holding that the
Contractual Liability exclusion precludes coverage for claims against the insured for breach of a
construction contract) Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270
GaApp 8 (2004) (affirming trial comts finding that the Contractual Liability exclusion barred
coverage for breach of contract and breach of implied warranty claims against the insured) Gibson
amp Assocs Inc v Home Ins Co 966 FSupp 468476-77 1997 US Dist LEXIS 4776 (1997)
(applying Texas law) (recognizing that the Contractual Liability exclusion precludes coverage for
breach of contract claims asserted against the insmed and that the policy only covers contractual
liability for indemnification actions ie an insured contract) James v Burlington Northern Santa
Fe Railway Co 2007 US Dist LEXIS 63282 4-5 (2007) (applying Arizona law) (holding that
the insured contract exception to the Contractual Liability exclusion does not bring ordinary
breach-of-contract claims within the scope of CGL coverage) TGA Dev Inc v Northern Ins Co
of New York 62 F3d 1089 1091-92 1995 USApp LEXIS 21700 (8th Cir 1995) (applying
Minnesota law) (holding that the Contractual Liability exclusion plainly excludes coverage for
contractual claims made for [the insmeds] failure to provide [the property owner] with a
condominium unit free from defects)
24
(lO6957521 )
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
I
contractu for damages for poor workmanship by a construction contractor on a commercial
construction project Bitco also briefly addresses the propriety of the trial courts finding that
exclusion (m) applicable to impaired property separately operates to bar coverage
Biteo confines its cross-assignments of error to only 2 points (1) coverage if there is
any would be confmed to only one policy period either 2001-2002 or 2002-2003 because
damage first began and was known to the insured during one or the other of those periods and
(2) only one per occurrence limit applies regardless of the number of policies that are
triggered These points should in fact be moot since the Circuit Court correctly decided there is
no coverage in the fIrst instance
B STATEMENT OF FACTS
As discussed above and hereinbelow the core issue involved in this appeal requires only
a comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies themselves l To that end the Amended Complaint filed in
the underlying action alleges as follows
THD a real estate development company2 is the developer of the Merritt Creek Farm
Commercial Shopping Development located in Barboursville West Virginia See JA217-250
Amended Complaint -rl The project consisted of several sections including an anticipated site
for a Target store [d at -r7 1HD sought to prepare a pad upon which the Target store was to
Consonant with the governing standard the universe of facts that are germane to a detennination of whether a liability insurer such as Bitco has a duty to defend its insured consist of the factual allegations of the complaint flIed against the insured In this instance that would be the Amended Complaint filed by THD in the underlying case which asserted claims against 1A Street That Amended Complaint was appended as an exhibit to Bitcos Complaint in the declaratory judgment action 2 THDs principal place of business is located in Bristol Tennessee
3
(106957521 )
be constructed whereupon THD would then convey that portion of the site to Target for further
development Id TIID in turn entered into an agreement with SampME Inc (SampME) a soils
engineering firm whereby SampME agreed to perfonn a geotechnical exploration of the site and
thereafter submit a report setting forth recommendations with respect to site preparation for the
entire development Id at 10
On June 5 2001 THD entered into a written contract with IA Street for 1A Street to
serve as the general contractor on the Merritt Creek Farm Project Id at ~13 Pursuant to the
THDJA Street written agreement IA Street agreed to perform construction tasks with regard
to the Merritt Creek Farm Project including preparing the site for construction in general
preparing the Target site for construction of the Target building and constructing various
buildings and structures on the site3 Id at [13-14
In September of 2001 1A Street was perfonning grading excavation and fill work for
the portion of the site beneath which Target would eventually erect its building Id at 17 On
September 212001 the slope at the rear of the Target store site failed causing a landslide Id
During 2002 and 2003 additional slides sloughing and land movement occurred at other
locations throughout the Merritt Creek Development Id at 19 As a result THD was required
to spend substantial sums to repair the slope and address associated consequences of the
landslide Id at 18-19 THD filed the underlying action to recover those economic damages
Id generally
3 JA Street did not contract to build the Target building The Target Corporation was to perform that construction itself
4
(L069S752 I l
THD initially brought the underlying action in 2003 solely against SampME asserting
various claims for damages incurred on the project Nearly four years later on December 11
2007 THD amended its Complaint to add JA Street as a defendant By that time the two-year
tort period of limitations had long since expired Thus THDs Amended Complaint asserted
claims against JA Street were based solely upon the construction contract between THD and
JA Street -- claims for breach of contract breach of warranty and for express and implied
contractual indemnity Id at ~71-96 Therein THD alleged that JA Street failed to
perform the work in a good and workmanlike manner failed to provide competent supervision
and failed to perform the work with a high degree of expertise and workmanship thereby
breaching its agreement with THD Id at ~16 No tort claims were alleged against JA Street
in the Amended Complaint All of the claims sounded exclusively in contract
During several policy periods from 2001 to 2007 Bitco insured JA Street under very
standard commercial general liability policies4 It is undisputed that these policies were issued
by an agent located in Tennessee to JA Street a Tennessee corporation with its principal offices
located in Tennessee See JA217-219 ~4 As suc~ the policies are governed by Tennessee law
4 Policy eLP 3 107706 B was in effect fOT policy period March 12001 to March 1 2002 See JA-4 Policy eLP 3 135489 B was in effect fOT policy period March 12002 to March 12003 See JA4-216 Subsequent one-year policies issued with coverage effective through March 1 2007 See Petitioners Brief pp 9-10 JAI066 1583-2223 It is immaterial which policy applies because the relevant provisions of all of the policies are the same
5
(L06957521 )
These policies are identical they are all written on the standard Insurance Services
Office Inc (ISO) Commercial General Liability coverage forms 5 Insofar as is relevant
instantly the policies provide
1 Insuring Agreement
a We will pay those sums that the insured becomes legally obligated to pay as damages because ofbodily injury or 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 bodily injury or property damage to which this insurance does not apply We may at our discretion investigate any occurrence and settle any claim or suit that may resuIL
b This insurance applies to bodily injury and property damage only if
(1) The bodily injury or property damage is caused by an occurrence that takes place in the coverage territory
(2) The bodily injury or property damage occurs during the policy period and
(3) Prior to the policy period no insured listed under Paragraph 1 of Section II - Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part If such a listed insured or authorized middotmiddotemployee knew prior to the policy period that the bodily injury or property damage occurred then any continuation change or resumption of such bodily injury or property damage during or after the policy period will be deemed to have been known prior to the policy period
c Bodily injury or property damage which occurs during the policy period and was not prior to the policy period known to have occurred by
5 ISO has long been the predominate publisher of commercial general liability insurance policy forms in the industry The ISO Commercial General Liability Coverage Form CGOOOI has long been the most widely used form in the United States As such the policies involved in this case are typical standardized and have frequently been the subject of interpretation by state and federal courts
6
[L0695752 1 I
any insured listed under Paragraph 1 of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim includes any continuation change or resumption of that bodily injury or property damage after the end of the policy period
d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph 1 of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim Reports all or any part of the bodily injury or property damage to us or any other insurer
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or
(2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
Id Section I ~1
Property damage is defined under the policies as
(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 it 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 causes it
Id Section V ~17
Occurrence is defined as
[A]n accident including continuous or repeated exposure to substantially the same general hannful conditions
Id Section V ~13
Consonant with the well-recognized fact that commercial liability insurance covers tort
claims and not contract claims in subparagraph 6 of the Exclusions section the policies
7
(L069S7S21 I
contain a Contractual Liability exclusion The language of this familiar exclusion makes clear
that the insurance does not apply to bodily injury or property damage for which the insured
is obligated to pay damages by reason of the assumption of liability in a contract or
agreement 6 The policies also contain exclusion (m) which states that the coverage does not
apply to
m Damage to impaired property or property not physically damaged Property damage to impaired property arising out of (1) a defect deficiency inadequacy or dangerous condition in your
product or your work or (2) a delay or failure by you or anyone acting on your behalf to
perform a contract or agreement in accordance with its terms 7
In addition to the commercial liability policies Bitco also insured 1A Street under
commercial umbrella policies from March 2003 through March 2007 each of which contained
materially identical provisions as set forth above except that the insuring agreement also
included the following language We will pay on behalf of the insured the ultimate net loss in
excess of the retained limit because of property damage caused by an occurrence which
takes place during the policy period 8 Paragraph 5 of the Limits of Insurance provision
addresses the limits of property damage coverage under Coverage A The language therein
states succinctly as follows
Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of
6 The exceptions are where the liability is one ( 1) That the insured would have in the absence of the contract or agreement [or] (2) Assumed in the contract or agreement that is an insured contract As discussed fully below neither of these exceptions to the Contractual Liability exclusion apply in this case 7 The policies also each have a Limits of Liability section discussed more fully below in Biteos CrossshyAssignments ofError 8 See JA3004-3312
8
(L069S7S2 I )
(a) Damages under Coverage A (b) Because of all bodily injury and property damage arising out of any one occurrence
Bitco extended a defense to lA Street in the underlying action but did so under
reservation ofright to deny coverage
C PROCEDURAL HISTORY
As stated the insurance issues herein relate to an Amended Complaint filed in the
underlying action on December 11 2007 joining and asserting claims against JA Street See
JA-2I7 On July 14 2008 Biteo filed the instant action for declaratory judgment pursuant to
the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the
Circuit Court detennine that the previously described commercial general liability insurance
policies afford no coverage and Bitco owes no duty to defend JA Street for the claims asserted
in the Amended Complaint in the underlying action See JA-19
By Order dated February 172015 the Circuit Court invited summary judgment motions
on all grounds argued by all parties subject to waiver should any available ground not be raised
9 On August 13 2009 Biteo fIled a Motion for Summary Judgment requesting that the Circuit Court declare as a matter of law that Bitco owes no coverage andor duty to defend lA Street with respect to the claims asserted against JA Street in the underlying action See JA-263 IA Street filed a CrossshyMotion for Partial Summary Judgment on that issue Following oral argument the Circuit Court denied Biteos Motion and granted IA Streets Cross-Motion rmding that Biteo owes JA Street a duty to defend the underlying action until such time as the Plaintiff meets its burden of proof that no duty to defend exists See Order JA-I005 The Circuit Court concluded that it cannot definitively say at this time that under Tennessee law the plaintiff would not have a duty to defend Id On March 13 2014 1A Street filed a Third-Party Complaint pursuant to the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the Circuit Court determine that Biteo along with five (5) other insurers owe coverage to IA Street for the claims asserted against it by TlID and that no exclusions or other policy language excludes limits or defeats coverage See IA-I051 As discussed in Petitioners Brief extensive motion practice ensued regarding a host of intricate insurance issues
9
[L06957521
Accordingly on March 12 2015 Bitco filed a Second Amended Cross-Motion for Summary
Judgment arguing that there was no coverage nor any duty to defend under any of its policies
because contract claims for damages brought against construction contractors based upon defects
or deficiencies in the work do not constitute property damage caused by an occurrence are
not VIIithin the scope of the standard commercial liability or umbrella policy and are in any event
excluded See IA-8614 After briefing and argument on December 302016 the Circuit Court
entered an Order agreeing with Bitco and granting summary judgment in Bitcos favor along
with a declaration that Bitco owes no duty to defend nor any coverage of the claims asserted
against IA Street in the underlying action See Opinion JA-I0SS2 JA Street took an appeal
to this Court and filed its principal Brief on May 122017 Bitco now responds
II SUMMARY OF ARGUMENT
This Court should affirm the lower courts declaration that Bitco owes no coverage and
no duty to defend JA Street under its commercial general liability (CGL) and umbrella
insurance policies with respect to the claims asserted in the underlying action The claims
asserted by THD against JA Street in the underlying action are for breach of contract breach of
warranty and indemnity All of these claims are ex contractu they all arise out of a written
agreement between DID and 1A Street under which 1A Street agreed to construct the Merritt
Creek Shopping Center All claims in the underlying action relate to alleged breach of the
express or implied obligations of the aforesaid contract due to alleged deficiencies in
construction work that JA Street contracted to perform thereunder Pursuant to well-settled
law those claims are not covered by liability insurance policies
10
L0695752 I
All damages alleged in the underlying Amended Complaint are first-party claims alleging
economic damages directly relating to the work JA Street contracted to perform The fact that
the only claims pled are for breach of contract -- and not tort -- is dispositive to the insurance
coverage issues Well-established Tennessee authority and the decisions of a majority of other
jurisdictions across the country have explicitly recognized that contract claims precisely like
those asserted against lA Street are not within the embrace of the insuring agreement of the
standard commercial liability policy The Travelers Indemn Co of Am v Moore amp Assocs
Inc IO decision upon which the Petitioners principally rely is inapposite since it does not address
whether pure contract claims are covered The Tennessee Supreme Courts decision in Vernon
Williams amp Son Constr Inc v Continental Ins Co II which is still the law in Tennessee today
and which the Petitioners entirely ignore clearly holds that any contract-based claims for faulty
workmanship are not covered under a commercial liability policy Consequently the claims
asserted against lA Street in the underlying action are not covered under the clear and
unambiguous terms of the applicable policies initial grant of coverage because the claims
alleged are only for the recovery of economic damages based upon breach of contract In
addition the Circuit Court correctly noted the applicability of exclusion (m) relative to impaired
property Because it is clear that the policies do not afford coverage for the claims asserted in
the underlying action Bitco does not owe a duty to defend lA Street Therefore the Circuit
Courts determination that lA Street is not entitled to coverage and a defense under the Bitco
policies was entirely correct
10 216 SW3d 202 (Tenn 2007) 11 591 SW2d 760 (Tenn 1979)
11
L069S7S21 J
Finally though the issue is moot since Bitco owes no coverage at all Bitco cross-assigns
error in the Circuit Courts determinations that more than one policy and per occurrence limit
could apply under any circumstances The unambiguous policy language restricts any coverage
to only one policy period and only one applicable limit This Court should not need to reach
those issues however since there is no coverage at all
UI STATEMENT REGARDING ORAL ARGUMENT AND DECISION
Bitco does not believe the narrow issues necessary to affirm the judgment below are
particularly difficult or complex However if the Court is interested in entertaining oral
argument Bitcos counsel would of course happily oblige
IV ARGUMENT
A STANDARD OF REVIEW
Inasmuch as the summary judgment was entered with regard to a declaratory judgment
action [a] circuit courts entry of a declaratory judgment is reviewed de novo Id
(quoting Syl Pt 3 Cox v Amick 195 WVa 608 466 SE2d 459 (1995raquo See also
Blankenship v City of Charleston 223 WVa 822 824 679 SE2d 654 656 (2009) (quoting
Syi Pt 1 Painter v Peavy 192 WVa 189 451 SE2d 755 (1994raquo Moreover
[d]etermination of the proper coverage of an insurance contract when the facts are not in
dispute is a question of law Id at 825 (quoting Syi Pt 1 Tennant v Smallwood 211 WVa
703 568 SE2d 10 (2002raquo) As [t]he interpretation of an insurance contract including the
question of whether the contract is ambiguous is a legal determination like a lower courts
grant of summary judgment [it] shall be reviewed de novo on appeal Id (quoting SyI Pt 2
12
(L06957521 )
Riffe v Home Finders Associates Inc 205 WVa 216 517 SE2d 313 (1999)) Importantly as
discussed in detail immediately below since the core issue in this case merely requires a
comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies this case presents a pure matter of law that is uniquely
suitable for decision at the summary judgment stage
B THE CIRCUIT COURT CORRECTLY HELD THAT UNDER TENNESSEE LAW THE CONTRACTUAL CLAIMS ASSERTED BY THD AGAINST JA STREET ARE NOT COVERED
BY THE BITCO POLICIES
In this State a liability insurer has no duty to defend an action asserted against the
insured where it is clear from the allegations of the Complaint against the insured that there is no
coverage afforded under the relevant insurance policy See Horace Mann Ins Co v Leeber 376
SE2d 581 584 180 WVa 375 (1988) State Auto Mut Ins Co v Alpha Engg Servbull Inc
542 SE2d 876 879 208 WVa 713 (2000) (If the causes of action alleged in the plaintiffs
complaint are entirely foreign to the risks covered by the insurance policy then the insurance
company is relieved of its duties under the policy) Tennesseel2 follows exactly the same rule
See Drexel Chemical Co v Bitco Ins Co 933 SW2d 471480 1996 TennApp LEXIS 356
(1996) (holding that the insurer did not have a duty to defend where an exclusion applied to
foreclose coverage) Tenn Farmers Mut Ins Co v Brown 1990 TennApp LEXIS 812 (1990)
(The general rule in Tennessee is that an insurer is not obligated to undertake the defense of a
suit against its insured unless the allegations of the complaint show a claim for damages that
would be covered by the policy) Cincinnati Ins Co v Grand Pointe LLC 2007 US Dist
12 All parties concede that Tennessee law governs construction of the insurance policies
13
(L069S7S21 )
LEXIS 39784 (ED Tenn 2007) (If it is plain from the face of the underlying complaint the
allegations fail to state facts that bring the case within or potentially within the policy no duty to
defend exists) Am Nat Prop and Cas Ins Co v Gray 803 SW 2d 693 695-96 (Tenn Ct
App 1990) Graves v Liberty Mut Fire Ins Co 745 SW2d 282283 (Tenn Ct App 1987)
In ascertaining whether there is a duty to defend under a liability insurance policy
Tennessee adheres to a strict four comers approach See Interstate Packaging Co v Century
Indem Co bull 2013 US Dist LEXIS 45459 (MDTenn 2013) citing St Paul Fire amp Marine Ins
Co v Torpoco 879 SW2d 831 835 (Tenn 1994) Clark v Sputnicks LLC 368 SW3d 431
439 (Tenn 2012) (An insurers duty to defend is determined solely by an examination of the
allegations of the underlying complaint) Thus under Tennessee law the court must limit its
inquiry to the claims and allegations presented in the complaint against the insured [I]f the
allegations contained in the complaintare within the risk insured against and there is a
potential basis for recovery then [the insurer] must defend St Paul v Torpoco supra 879
SW2d at 835 Conversely if the claims alleged in the complaint are clearly not within the
scope of coverage then there is no duty to defend Drexel Chemical Co v Bitco Ins Co 933
SW2d 471 480 (Tenn 1996) As the United States Court of Appeals for the Sixth Circuit
stated it applying Tennessee law in Smith amp Nephew Inc v Fed Ins Co 113 FedAppx 99
(6th Cir 2004) in detennining an insurers duty to defend courts typically begin and end
their analysis with the four comers of the complaint Id at 102 Petitioner argues that there
are significant issues of material fact that exist given that there has been no final resolution of the
14
(LD09S752 I
underlying action13 but in fact clear-cut law dictates that all the Court must do is contrast the
averments of the Amended Complaint with the terms of the policies
The instant inquiry must therefore begin with the unique circumstances that the TIID
Amended Complaint against lA Street pleads only contract-based claims and not tort claims
Although the Circuit Court based its finding of no coverage solely on the Contractual Liability
exclusion as discussed in detail below courts in Tennessee and elsewhere have concluded that
there is no coverage for breach of contact claims and the damages that typically flow from such
claims on broader grounds While the Circuit Court did not subscribe to that broad view
our cases have made clear that it is permissible for us to affirm the granting of [dismissal] on bases difference or grounds other than those relief upon by the circuit court Hoover v Moran 222 WVa at 119 662 SE2d at 718 quoting Gently v Mangum 195 WVa 512519466 SE2d 171178 (1995) See also Schmehl v Helton 222 WVa 98 662 SE2d 697 705 n7 (2008) (this Court may in any event affirm the circuit court on any proper basis whether relied upon by the circuit court or not) Murphy v Smallridge 196 WVa 35 36-7 468 SE2d 167168-9 (1996) (An appellate court is not limited to the legal grounds relied upon by the circuit court but it may affirm or reverse a decision on any independently sufficient ground that has adequate support) Syl pt 3 Barnett v Wolfolk 149 WVa 246 140 SE2d 466 (1965) (This Court may on appeal affirm the judgment of the lower court when it appears that such judgment is correct on any legal ground disclosed by the record regardless of the ground reason or theory assigned by the lower court as the basis for its judgment)
Savarese v Allstate Ins Co 672 SE2d 255260 (WVa 2008)
One of the more elemental and uniformly embraced principles of corrunercial insurance
law is that the typical commercial liability insurance policy affords coverage for tort claims not
claims for breach of contract The authorities supporting that proposition are legion Dean
Henderson in his renowned and widely cited law review article makes the point emphatically
13 Petitioners Brief pp 25-27 15
(L0695752 1 J
[t]he risk intended to be insured is the possibility that the goods products or work of the insured once relinquished or completed will cause bodily injury or damage to property other than to the product or completed work itself and for which the insured may be found liable The insured as a source of goods or services may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable because it is lacking in some capacity This may even extend to an obligation to completely replace or rebuild the deficient product or work This liability however is not what the coverages in question are designed to protect against The coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb L Rev 415441 (1971)14
The overwhelming majority of courts and commentators that have addressed this issue
have held that breach of contract claims asserted against the insured are not covered under a
standard CGL policy See eg Couch on Insurance 3d sect1291-1294 (3d Ed 2005) (a
commercial general liability insurance policy is generally designed to provide coverage for tort
liability for physical damages to others and not for contractual liability of the insured for
economic loss the majority of jurisdictions have held that breach of contract is not an
14 The Henderson article has been widely relied upon by courts and commentators for over 40 years Noticeably it has been frequently cited with approval in Tennessee See Vernon (relying upon the Henderson article the Tennessee Court held that the standard comprehensive general liability policy does not provide coverage to an insured-contractor for a breach of contract action grounded upon faulty workmanship or materials where the damages claimed are the cost of correcting the work itself) Blaylock amp Brown Constr Inc v AIU Ins Co 796 SW2d 146 1990 TennApp LEXIS 338 (1990) (relying upon Henderson the Court holds bull that the language of the policy excludes liability coverage for the plaintiffs for damage to the property constructed pursuant to the contract) Standard Fire Ins Co v Chester-ODonley amp Assocs 972 SW2d 1 1998 TennApp LEXIS 65 (1998) (citing the Henderson article for the proposition that CGL policies are not intended to cover the insureds contractual liability for economic loss because its work was not that for which the damaged person bargained) Weedo v Stone-E-Brick Inc bull 81 NJ 233 405 A2d 788 (1979) (relying heavily upon the Henderson article the Court holds that a CGL policy does not provide coverage for a breach of contract action for faulty workmanship where the damages claimed are the cost ofcorrecting the work itself)
16
IL069S7S2 I
occurrencea [CGL] policy is not intended to provide coverage for the insureds contractual
liability which merely causes economic losses) Alan D Windt Insurance Claims and
Disputes sect117 (4th Ed 2001) (Finally there is the question as to whether a breach of
contract claim involves damages caused by an occurrence The answer should in general be
no) Erie Ins Prop amp Cas Co v Pioneer Home Improvement Inc 526 SE2d 28 33 206
WVa 506 513 (1999) (The coverage [under a COL policy] is for tort liability for physical
damages to others and not for contractual liability of the insured for economic loss because the
product or completed work is not that for which the damaged person bargained) Nationwide
Mutual Ins Co v CPB Intl Inc 562 F3d 591 598 2009 US App LEXIS 7795 14 (3d Cir
2009) (holding that under Pennsylvania law a CGL policy does not provide coverage for
claims in an underlying action that arise out of and relate to the contract between the parties)
Lyerla v AMCO Ins Co 536 F3d 684691-922008 US App LEXIS 164 78 (7th Cir 2008)
(applying Illinois law) (holding that underlying allegations that insured contractor did not satisfy
his contractual obligations is not property damage caused by an occurrence) L-J Inc v
Biteo Fire amp Marine Ins Co 621 SE2d 33 35 366 SC 117 (2005) (any liability that is
incurred because of faulty workmanship is part of the insureds contractual liability not an
insurable event under a CGL policy) Hotel Roanoke Conf Ctr Commn v Cincinnati Ins Co
303 FSupp2d 784 7882004 US Dist LEXIS 2539 (2004) (applying Virginia law) (damages
limited to the insureds work or product and resulting from the insureds defective perfonnance
of a contract are not covered losses under a [CGL] policy) Westfield Ins Co v Sheehan
Construction Co 580 FSupp2d 701 710 2008 US Dist LEXIS 66843 (2008) (applying
17
(L06957521
Indiana law) (a CGL policy serves to limit contractors tort liability for damage to property
caused by their work) Key Custom Homes Inc v Mid-Continent Cas Co 450 FSupp2d
1311 1317-182006 US Dist LEXIS 60355 (2006) (applying Florida law) (it is equally clear
that breach of contract claims for the recovery of money are not covered by general liability
insurance policies) Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254 1257329
Ore 620 (2000) (there can be no accident within the meaning of a commercial liability policy
when the resulting damage is merely a breach of contract) Bonded Concrete Inc v Transcon
Ins Co 12 AD3d 761 2004 NYAppDiv LEXIS 13020 (2004) (the purpose of a
commercial general liability policy is to provide coverage for tort liability for physical damage
to others and not for contractual liability of the insured for economic loss because the
product is not what the damaged [party] bargained for) United States Fire Ins Co v Milton
Co 35 FSupp2d 8386 1998 US Dist LEXIS 22116 (1998) (applying Maryland law) (there
is no occurrence under a comprehensive general liability insurance policy where and to the
extent that a contractors use of defective materials and substandard workmanship results in
economic losses that would normally be recoverable in a breach of contract action) Burlington
Ins Co v Oceanic Design amp Construction Inc 383 F3d 940 2004 US App LEXIS 18932
(9th Cir 2004) (applying Hawaii law) (holding that claims for breach of contract and negligent
breach of contract are not covered under a CGL policy) Norwalk Ready Mixed Concrete Inc v
Travelers Ins Co 246 F3d 1132 2001 US App LEXIS 7148 (8th Cir 2001) (applying Iowa
law) (holding that breach of contract and breach of warranty claims are not covered under a CGL
policy) USFampG Com v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476
18
(L06957521 l
(1989) (holding that a breach of contract claim asserted against an insured contractor is not
covered under a COL policy) Oreat Divide Ins Co v Bitterroot Timberfiames of Wyoming
LLC 2006 US Dist LEXIS 94826 (2006) (applying Wyoming law) (the allegations
demonstrate losses resulting from breach of contract and therefore cannot constitute an
accident for purposes of determining coverage) Union Ins Co v Hottenstein 83 P3d 1196
12022003 ColoApp LEXIS 1857 (2003) (poor workmanship constituting a breach of contract
is not a covered occurrence)
Tennessee lawl5 is in accord with these authorities The Tennessee Supreme Court has
defInitively held that breach of contract claims due to the insureds faulty workmanship such as
those asserted here by THD against IA Street in the underlying Amended Complaint are simply
not covered under the grant of coverage contained in a commercial liability policy See Vernon
supra Chester-ODonley supra at 6-7 (General liability policies are not all-risk policies and
only cover damages up to the policy limits for which the insured becomes liable as a result of
tort liability to a third party) (emphasis added) In Vernon the Supreme Court of Tennessee
expressly held that a standard COL policy only covers tort claims and such a policy does not
15 Under applicable Tennessee law contracts of insurance are subject to the same rules of interpretation and construction as other contracts McKimm v Bell 790 SW2d 526 527 1990 Tenn LEXIS 161 (1990) Thus [a]n insurance policy must be interpreted fairly and reasonably giving the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204 SW3d 758 2006 Tenn LEXIS 755 (2006) In the absence of fraud or mistake a contract must be interpreted and enforced as written even though it contains terms which may be thought harsh and unjust Allstate Ins Co v Wilson 856 SW2d 706 1992 TennApp LEXIS 1012 (1992) As a result the analysis of JA Streets right to coverage for the claims asserted in the underlying action are dictated by the terms of the policy The essential components of a general liability insurance policy include (1) the declarations (2) the insuring agreements and definitions (3) the exclusions (4) the conditions and (5) the endorsements See ChestershyODonley supra The insuring agreement sets the outer limits of an insurers contractual liability If coverage cannot be found in the insuring agreement it will not be found elsewhere in the policy Id 1998 TennApp LEXIS at 13-14
19
L069S7S21
afford coverage to an insured contractor for breach of contract claims Vernon 591 SW 2d at
765 Chester-ODonley supra at 6-7 Petitioner complains that the Circuit Court focused on
West Virginia cases such as Silk v Flat TOp6 but in fact the lower court expressly relied
upon a wealth of Tennessee authority17 including Vernon Cincinnati Ins Co v Grand Pointe
LLc18 and Trinity Univ Ins Co v Turner Funeral Home Inc 19 More recently Tennessee
courts have reaffirmed the rationale and holding of Vernon See State Auto Ins Cos v Gordon
Constr Inc 2001 TennApp LEXIS 349 (2001) (following Vernon and holding that the
insuring agreement of a CGL policy does not afford coverage for underlying breach of contract
and breach of warranty claims asserted against the insured contractor) Blake Indus Inc v
General Agents Ins Co of Am 2000 Tenn App LEXIS 490 (2000) (applying Vernon and
holding that claims asserted against the insured that were grounded in contract are not covered
under a CGL policy) Blaylock and Brown Constr Inc v AID Ins Co 796 SW2d 146 152shy
153 (Tenn Ct App 1990)
As the Circuit Court correctly recognized the express tenus of the insurance contract
clearly exclude contractual liability from coverage Exclusions help define and shape the scope
of coverage but they must be read in terms of the insuring agreement to which they apply
Exclusions can only decrease coverage they cannot increase it Chester-ODonley 972 SW2d
at 7-8 Moreover [e]ach exclusion reduces coverage and operates independently with reference
16 Petitioners Brief p 30 (citing 453 SE2d 356 (Wva 1994raquo 17 See See Opinion JA-I0552 ~27
18 2007 US Dist LEXIS 39784 (ED Tenn 2007) 19 2003 WL 23218046 (ED Tenn Dec 122003)
20
IL069S7S2 I I
to the insuring agreement Id at 8 The Contractual Liability exclusion specifically provides
that the insurance coverage does not apply to
Contractual liability
Bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement This exclusion does not apply to liability for damages
(1) That the insured would have in the absence of the contract or agreement or
(2) Assumed in a contract or agreement that is an insured contract provided the bodily injury or property damage occurs subsequent to the execution of the contract or agreement Solely for the purposes of liability assumed in a insured contract reasonable attorneys fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of bodily injury or property damage provided
(a) Liability to such party for or for the cost of that partys defense has also been assumed in the same insured contract and
(b) Such attorneys fees and litigation expenses are for defense of that party against the civil or alternative dispute resolution proceeding in which damages to which the insurance applies are alleged
See JA-62 Section I C[2
Even a cursory examination ofTHDs Amended Complaint reveals that all claims alleged
against JA Street were contractual There simply was no tort claim alleged In fact the claims
against JA Street were necessarily founded in contract for two reasons First the two-year
statute of limitations applicable to any tort claims elapsed long before THD first asserted its
claims against JA Street Tort claims were not pleaded and could not have been Second the
substantive law of West Virginia applies to the underlying claims asserted by THD against lA
21
(L069S7S21 I
Street20 and applicable West Virginia law plainly holds that even if THD had asserted tort
claims against JA Street the claims would still sound in contract under these circumstances for
purposes of the instant analysis since the gist of claims asserted against a contractor for deficient
work is necessarily ex contractu See Silk supra at 360 Dan Ryan Builders Inc v Crystal
Ridge Dev Inc 783 F3d 976 (4th Cir 2015) Unlike in both Silk and Dan Ryan THO did not
even assert any tort claims here Nor could it have Relevant to the precise policy language at
issue there simply was no liability for damages that [JA Street] would have in the absence of
the contract or agreement It simply cannot be contested that the claims alleged in the Amended
Complaint are and indeed necessarily were contractual in nature Given that alone the clear
holding of the Tennessee Court in Vernon mandated the Circuit Courts correct grant of
summary judgment in Biteos favor
A great majority of courts and commentators across the country that have addressed the
issue have held that the explicit unambiguous express Contractual Liability exclusion forecloses
coverage for all contract liability including breach of contract claims asserted against the
insured except where the insured has assumed the liability of another in an insured contract
See eg Silk v Flat Top Constr Inc 453 SE2d 356 359 192 WVa 522 (1994) (holding that
the contract exclusion applies to foreclose coverage for all contractual liability of the insured
except for liability assumed in an insured contract-a contract under which the insured
assumes the tort liability of another party) Gilbert Tex Constr v Underwriters at Lloyds
20 West Virginia applies the choice-of-law principle of lex loci delicti and there is no question here that the offending conduct and the loss all occurred in West Virginia such that JA Streets liability to THD would be governed by West Virginia law See State of Wva ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) (citing Syl Pt 1 Paul v Natl Life 352 SE2d 552 (WVa 1986raquo
22
(L069S7521 I
Londo 327 SW3d 118 (2010) (citing inter alia Nationwide Mut Ins Co v CPB Int Inc
No 306-CV-0363 2007 WL 4198173 at 8 (MDPa Nov26 2007) (Exclusion (b) is simply
further clarification in the policy that contract-based claims are not covered) ClM Ins Corp v
Midpac Auto Crr Inc 108 FSupp2d 1092 1099-1100 (DHaw2000) (clause in policy stating
that policy does not apply to liability assumed under any contract or agreement means that any
claim that is dependent on the existence of an underlying contract is not covered) Monticello
Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 at 2 (WDKy
Apr 3 1998) (exclusion for liability assumed by the insured under any contract or agreement
does not arise only when a party assumes the liability for another party rather the plain meaning
of the policy excludes a breach of contract claim from coverage) Silk supra (exclusion removed
coverage for breach of contract) TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 1091-92
(8th Cir1995) (exclusion for which the insured has assumed liability in a contract or agreement
plainly excluded coverage for contractual claims and not just hold-harmless or indemnity
agreements) Nationwide Mutual Ins Co v CPB Intl Inc 562 F3d 591 5992009 US App
LEXIS 7795 (3d Cir 2009) (applying Pa law) (holding that a breach of contract claim is excluded
under the Contractual Liability exclusion) Century Sur Co v Hardscape Constr Specialties Inc
578 F3d 262 2009 US App LEXIS 25300 (5th Cir 2009) (applying Texas law) (holding that the
Contractual Liability exclusion operates to exclude claims grounded primarily in breach of contract
and that no tort claims were asserted that triggered the insured contract exception) State Farm
Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 12 (2007) (applying Hawaii
law) (holding that claims arising from the insureds obligations under a contract are barred from
23
L0695152 I I
coverage under the Contractual Liability exclusion) JACO Airfield Constr Inc v National Trust
Ins Co 2007 US Dist LEXIS 100295 10 (2007) (applying Georgia law) (holding that the
Contractual Liability exclusion applies to foreclose coverage for the contractual based claims
asserted against the insured and that the insured contract exception to the Contractual Liability
exclusion does not apply because the insured did not assume the tort liability of another) Union Ins
Co v Williams Contr Inc 2006 US Dist LEXIS 35919 4-5 (2006) (holding that the
Contractual Liability exclusion precludes coverage for claims against the insured for breach of a
construction contract) Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270
GaApp 8 (2004) (affirming trial comts finding that the Contractual Liability exclusion barred
coverage for breach of contract and breach of implied warranty claims against the insured) Gibson
amp Assocs Inc v Home Ins Co 966 FSupp 468476-77 1997 US Dist LEXIS 4776 (1997)
(applying Texas law) (recognizing that the Contractual Liability exclusion precludes coverage for
breach of contract claims asserted against the insmed and that the policy only covers contractual
liability for indemnification actions ie an insured contract) James v Burlington Northern Santa
Fe Railway Co 2007 US Dist LEXIS 63282 4-5 (2007) (applying Arizona law) (holding that
the insured contract exception to the Contractual Liability exclusion does not bring ordinary
breach-of-contract claims within the scope of CGL coverage) TGA Dev Inc v Northern Ins Co
of New York 62 F3d 1089 1091-92 1995 USApp LEXIS 21700 (8th Cir 1995) (applying
Minnesota law) (holding that the Contractual Liability exclusion plainly excludes coverage for
contractual claims made for [the insmeds] failure to provide [the property owner] with a
condominium unit free from defects)
24
(lO6957521 )
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
be constructed whereupon THD would then convey that portion of the site to Target for further
development Id TIID in turn entered into an agreement with SampME Inc (SampME) a soils
engineering firm whereby SampME agreed to perfonn a geotechnical exploration of the site and
thereafter submit a report setting forth recommendations with respect to site preparation for the
entire development Id at 10
On June 5 2001 THD entered into a written contract with IA Street for 1A Street to
serve as the general contractor on the Merritt Creek Farm Project Id at ~13 Pursuant to the
THDJA Street written agreement IA Street agreed to perform construction tasks with regard
to the Merritt Creek Farm Project including preparing the site for construction in general
preparing the Target site for construction of the Target building and constructing various
buildings and structures on the site3 Id at [13-14
In September of 2001 1A Street was perfonning grading excavation and fill work for
the portion of the site beneath which Target would eventually erect its building Id at 17 On
September 212001 the slope at the rear of the Target store site failed causing a landslide Id
During 2002 and 2003 additional slides sloughing and land movement occurred at other
locations throughout the Merritt Creek Development Id at 19 As a result THD was required
to spend substantial sums to repair the slope and address associated consequences of the
landslide Id at 18-19 THD filed the underlying action to recover those economic damages
Id generally
3 JA Street did not contract to build the Target building The Target Corporation was to perform that construction itself
4
(L069S752 I l
THD initially brought the underlying action in 2003 solely against SampME asserting
various claims for damages incurred on the project Nearly four years later on December 11
2007 THD amended its Complaint to add JA Street as a defendant By that time the two-year
tort period of limitations had long since expired Thus THDs Amended Complaint asserted
claims against JA Street were based solely upon the construction contract between THD and
JA Street -- claims for breach of contract breach of warranty and for express and implied
contractual indemnity Id at ~71-96 Therein THD alleged that JA Street failed to
perform the work in a good and workmanlike manner failed to provide competent supervision
and failed to perform the work with a high degree of expertise and workmanship thereby
breaching its agreement with THD Id at ~16 No tort claims were alleged against JA Street
in the Amended Complaint All of the claims sounded exclusively in contract
During several policy periods from 2001 to 2007 Bitco insured JA Street under very
standard commercial general liability policies4 It is undisputed that these policies were issued
by an agent located in Tennessee to JA Street a Tennessee corporation with its principal offices
located in Tennessee See JA217-219 ~4 As suc~ the policies are governed by Tennessee law
4 Policy eLP 3 107706 B was in effect fOT policy period March 12001 to March 1 2002 See JA-4 Policy eLP 3 135489 B was in effect fOT policy period March 12002 to March 12003 See JA4-216 Subsequent one-year policies issued with coverage effective through March 1 2007 See Petitioners Brief pp 9-10 JAI066 1583-2223 It is immaterial which policy applies because the relevant provisions of all of the policies are the same
5
(L06957521 )
These policies are identical they are all written on the standard Insurance Services
Office Inc (ISO) Commercial General Liability coverage forms 5 Insofar as is relevant
instantly the policies provide
1 Insuring Agreement
a We will pay those sums that the insured becomes legally obligated to pay as damages because ofbodily injury or 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 bodily injury or property damage to which this insurance does not apply We may at our discretion investigate any occurrence and settle any claim or suit that may resuIL
b This insurance applies to bodily injury and property damage only if
(1) The bodily injury or property damage is caused by an occurrence that takes place in the coverage territory
(2) The bodily injury or property damage occurs during the policy period and
(3) Prior to the policy period no insured listed under Paragraph 1 of Section II - Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part If such a listed insured or authorized middotmiddotemployee knew prior to the policy period that the bodily injury or property damage occurred then any continuation change or resumption of such bodily injury or property damage during or after the policy period will be deemed to have been known prior to the policy period
c Bodily injury or property damage which occurs during the policy period and was not prior to the policy period known to have occurred by
5 ISO has long been the predominate publisher of commercial general liability insurance policy forms in the industry The ISO Commercial General Liability Coverage Form CGOOOI has long been the most widely used form in the United States As such the policies involved in this case are typical standardized and have frequently been the subject of interpretation by state and federal courts
6
[L0695752 1 I
any insured listed under Paragraph 1 of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim includes any continuation change or resumption of that bodily injury or property damage after the end of the policy period
d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph 1 of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim Reports all or any part of the bodily injury or property damage to us or any other insurer
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or
(2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
Id Section I ~1
Property damage is defined under the policies as
(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 it 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 causes it
Id Section V ~17
Occurrence is defined as
[A]n accident including continuous or repeated exposure to substantially the same general hannful conditions
Id Section V ~13
Consonant with the well-recognized fact that commercial liability insurance covers tort
claims and not contract claims in subparagraph 6 of the Exclusions section the policies
7
(L069S7S21 I
contain a Contractual Liability exclusion The language of this familiar exclusion makes clear
that the insurance does not apply to bodily injury or property damage for which the insured
is obligated to pay damages by reason of the assumption of liability in a contract or
agreement 6 The policies also contain exclusion (m) which states that the coverage does not
apply to
m Damage to impaired property or property not physically damaged Property damage to impaired property arising out of (1) a defect deficiency inadequacy or dangerous condition in your
product or your work or (2) a delay or failure by you or anyone acting on your behalf to
perform a contract or agreement in accordance with its terms 7
In addition to the commercial liability policies Bitco also insured 1A Street under
commercial umbrella policies from March 2003 through March 2007 each of which contained
materially identical provisions as set forth above except that the insuring agreement also
included the following language We will pay on behalf of the insured the ultimate net loss in
excess of the retained limit because of property damage caused by an occurrence which
takes place during the policy period 8 Paragraph 5 of the Limits of Insurance provision
addresses the limits of property damage coverage under Coverage A The language therein
states succinctly as follows
Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of
6 The exceptions are where the liability is one ( 1) That the insured would have in the absence of the contract or agreement [or] (2) Assumed in the contract or agreement that is an insured contract As discussed fully below neither of these exceptions to the Contractual Liability exclusion apply in this case 7 The policies also each have a Limits of Liability section discussed more fully below in Biteos CrossshyAssignments ofError 8 See JA3004-3312
8
(L069S7S2 I )
(a) Damages under Coverage A (b) Because of all bodily injury and property damage arising out of any one occurrence
Bitco extended a defense to lA Street in the underlying action but did so under
reservation ofright to deny coverage
C PROCEDURAL HISTORY
As stated the insurance issues herein relate to an Amended Complaint filed in the
underlying action on December 11 2007 joining and asserting claims against JA Street See
JA-2I7 On July 14 2008 Biteo filed the instant action for declaratory judgment pursuant to
the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the
Circuit Court detennine that the previously described commercial general liability insurance
policies afford no coverage and Bitco owes no duty to defend JA Street for the claims asserted
in the Amended Complaint in the underlying action See JA-19
By Order dated February 172015 the Circuit Court invited summary judgment motions
on all grounds argued by all parties subject to waiver should any available ground not be raised
9 On August 13 2009 Biteo fIled a Motion for Summary Judgment requesting that the Circuit Court declare as a matter of law that Bitco owes no coverage andor duty to defend lA Street with respect to the claims asserted against JA Street in the underlying action See JA-263 IA Street filed a CrossshyMotion for Partial Summary Judgment on that issue Following oral argument the Circuit Court denied Biteos Motion and granted IA Streets Cross-Motion rmding that Biteo owes JA Street a duty to defend the underlying action until such time as the Plaintiff meets its burden of proof that no duty to defend exists See Order JA-I005 The Circuit Court concluded that it cannot definitively say at this time that under Tennessee law the plaintiff would not have a duty to defend Id On March 13 2014 1A Street filed a Third-Party Complaint pursuant to the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the Circuit Court determine that Biteo along with five (5) other insurers owe coverage to IA Street for the claims asserted against it by TlID and that no exclusions or other policy language excludes limits or defeats coverage See IA-I051 As discussed in Petitioners Brief extensive motion practice ensued regarding a host of intricate insurance issues
9
[L06957521
Accordingly on March 12 2015 Bitco filed a Second Amended Cross-Motion for Summary
Judgment arguing that there was no coverage nor any duty to defend under any of its policies
because contract claims for damages brought against construction contractors based upon defects
or deficiencies in the work do not constitute property damage caused by an occurrence are
not VIIithin the scope of the standard commercial liability or umbrella policy and are in any event
excluded See IA-8614 After briefing and argument on December 302016 the Circuit Court
entered an Order agreeing with Bitco and granting summary judgment in Bitcos favor along
with a declaration that Bitco owes no duty to defend nor any coverage of the claims asserted
against IA Street in the underlying action See Opinion JA-I0SS2 JA Street took an appeal
to this Court and filed its principal Brief on May 122017 Bitco now responds
II SUMMARY OF ARGUMENT
This Court should affirm the lower courts declaration that Bitco owes no coverage and
no duty to defend JA Street under its commercial general liability (CGL) and umbrella
insurance policies with respect to the claims asserted in the underlying action The claims
asserted by THD against JA Street in the underlying action are for breach of contract breach of
warranty and indemnity All of these claims are ex contractu they all arise out of a written
agreement between DID and 1A Street under which 1A Street agreed to construct the Merritt
Creek Shopping Center All claims in the underlying action relate to alleged breach of the
express or implied obligations of the aforesaid contract due to alleged deficiencies in
construction work that JA Street contracted to perform thereunder Pursuant to well-settled
law those claims are not covered by liability insurance policies
10
L0695752 I
All damages alleged in the underlying Amended Complaint are first-party claims alleging
economic damages directly relating to the work JA Street contracted to perform The fact that
the only claims pled are for breach of contract -- and not tort -- is dispositive to the insurance
coverage issues Well-established Tennessee authority and the decisions of a majority of other
jurisdictions across the country have explicitly recognized that contract claims precisely like
those asserted against lA Street are not within the embrace of the insuring agreement of the
standard commercial liability policy The Travelers Indemn Co of Am v Moore amp Assocs
Inc IO decision upon which the Petitioners principally rely is inapposite since it does not address
whether pure contract claims are covered The Tennessee Supreme Courts decision in Vernon
Williams amp Son Constr Inc v Continental Ins Co II which is still the law in Tennessee today
and which the Petitioners entirely ignore clearly holds that any contract-based claims for faulty
workmanship are not covered under a commercial liability policy Consequently the claims
asserted against lA Street in the underlying action are not covered under the clear and
unambiguous terms of the applicable policies initial grant of coverage because the claims
alleged are only for the recovery of economic damages based upon breach of contract In
addition the Circuit Court correctly noted the applicability of exclusion (m) relative to impaired
property Because it is clear that the policies do not afford coverage for the claims asserted in
the underlying action Bitco does not owe a duty to defend lA Street Therefore the Circuit
Courts determination that lA Street is not entitled to coverage and a defense under the Bitco
policies was entirely correct
10 216 SW3d 202 (Tenn 2007) 11 591 SW2d 760 (Tenn 1979)
11
L069S7S21 J
Finally though the issue is moot since Bitco owes no coverage at all Bitco cross-assigns
error in the Circuit Courts determinations that more than one policy and per occurrence limit
could apply under any circumstances The unambiguous policy language restricts any coverage
to only one policy period and only one applicable limit This Court should not need to reach
those issues however since there is no coverage at all
UI STATEMENT REGARDING ORAL ARGUMENT AND DECISION
Bitco does not believe the narrow issues necessary to affirm the judgment below are
particularly difficult or complex However if the Court is interested in entertaining oral
argument Bitcos counsel would of course happily oblige
IV ARGUMENT
A STANDARD OF REVIEW
Inasmuch as the summary judgment was entered with regard to a declaratory judgment
action [a] circuit courts entry of a declaratory judgment is reviewed de novo Id
(quoting Syl Pt 3 Cox v Amick 195 WVa 608 466 SE2d 459 (1995raquo See also
Blankenship v City of Charleston 223 WVa 822 824 679 SE2d 654 656 (2009) (quoting
Syi Pt 1 Painter v Peavy 192 WVa 189 451 SE2d 755 (1994raquo Moreover
[d]etermination of the proper coverage of an insurance contract when the facts are not in
dispute is a question of law Id at 825 (quoting Syi Pt 1 Tennant v Smallwood 211 WVa
703 568 SE2d 10 (2002raquo) As [t]he interpretation of an insurance contract including the
question of whether the contract is ambiguous is a legal determination like a lower courts
grant of summary judgment [it] shall be reviewed de novo on appeal Id (quoting SyI Pt 2
12
(L06957521 )
Riffe v Home Finders Associates Inc 205 WVa 216 517 SE2d 313 (1999)) Importantly as
discussed in detail immediately below since the core issue in this case merely requires a
comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies this case presents a pure matter of law that is uniquely
suitable for decision at the summary judgment stage
B THE CIRCUIT COURT CORRECTLY HELD THAT UNDER TENNESSEE LAW THE CONTRACTUAL CLAIMS ASSERTED BY THD AGAINST JA STREET ARE NOT COVERED
BY THE BITCO POLICIES
In this State a liability insurer has no duty to defend an action asserted against the
insured where it is clear from the allegations of the Complaint against the insured that there is no
coverage afforded under the relevant insurance policy See Horace Mann Ins Co v Leeber 376
SE2d 581 584 180 WVa 375 (1988) State Auto Mut Ins Co v Alpha Engg Servbull Inc
542 SE2d 876 879 208 WVa 713 (2000) (If the causes of action alleged in the plaintiffs
complaint are entirely foreign to the risks covered by the insurance policy then the insurance
company is relieved of its duties under the policy) Tennesseel2 follows exactly the same rule
See Drexel Chemical Co v Bitco Ins Co 933 SW2d 471480 1996 TennApp LEXIS 356
(1996) (holding that the insurer did not have a duty to defend where an exclusion applied to
foreclose coverage) Tenn Farmers Mut Ins Co v Brown 1990 TennApp LEXIS 812 (1990)
(The general rule in Tennessee is that an insurer is not obligated to undertake the defense of a
suit against its insured unless the allegations of the complaint show a claim for damages that
would be covered by the policy) Cincinnati Ins Co v Grand Pointe LLC 2007 US Dist
12 All parties concede that Tennessee law governs construction of the insurance policies
13
(L069S7S21 )
LEXIS 39784 (ED Tenn 2007) (If it is plain from the face of the underlying complaint the
allegations fail to state facts that bring the case within or potentially within the policy no duty to
defend exists) Am Nat Prop and Cas Ins Co v Gray 803 SW 2d 693 695-96 (Tenn Ct
App 1990) Graves v Liberty Mut Fire Ins Co 745 SW2d 282283 (Tenn Ct App 1987)
In ascertaining whether there is a duty to defend under a liability insurance policy
Tennessee adheres to a strict four comers approach See Interstate Packaging Co v Century
Indem Co bull 2013 US Dist LEXIS 45459 (MDTenn 2013) citing St Paul Fire amp Marine Ins
Co v Torpoco 879 SW2d 831 835 (Tenn 1994) Clark v Sputnicks LLC 368 SW3d 431
439 (Tenn 2012) (An insurers duty to defend is determined solely by an examination of the
allegations of the underlying complaint) Thus under Tennessee law the court must limit its
inquiry to the claims and allegations presented in the complaint against the insured [I]f the
allegations contained in the complaintare within the risk insured against and there is a
potential basis for recovery then [the insurer] must defend St Paul v Torpoco supra 879
SW2d at 835 Conversely if the claims alleged in the complaint are clearly not within the
scope of coverage then there is no duty to defend Drexel Chemical Co v Bitco Ins Co 933
SW2d 471 480 (Tenn 1996) As the United States Court of Appeals for the Sixth Circuit
stated it applying Tennessee law in Smith amp Nephew Inc v Fed Ins Co 113 FedAppx 99
(6th Cir 2004) in detennining an insurers duty to defend courts typically begin and end
their analysis with the four comers of the complaint Id at 102 Petitioner argues that there
are significant issues of material fact that exist given that there has been no final resolution of the
14
(LD09S752 I
underlying action13 but in fact clear-cut law dictates that all the Court must do is contrast the
averments of the Amended Complaint with the terms of the policies
The instant inquiry must therefore begin with the unique circumstances that the TIID
Amended Complaint against lA Street pleads only contract-based claims and not tort claims
Although the Circuit Court based its finding of no coverage solely on the Contractual Liability
exclusion as discussed in detail below courts in Tennessee and elsewhere have concluded that
there is no coverage for breach of contact claims and the damages that typically flow from such
claims on broader grounds While the Circuit Court did not subscribe to that broad view
our cases have made clear that it is permissible for us to affirm the granting of [dismissal] on bases difference or grounds other than those relief upon by the circuit court Hoover v Moran 222 WVa at 119 662 SE2d at 718 quoting Gently v Mangum 195 WVa 512519466 SE2d 171178 (1995) See also Schmehl v Helton 222 WVa 98 662 SE2d 697 705 n7 (2008) (this Court may in any event affirm the circuit court on any proper basis whether relied upon by the circuit court or not) Murphy v Smallridge 196 WVa 35 36-7 468 SE2d 167168-9 (1996) (An appellate court is not limited to the legal grounds relied upon by the circuit court but it may affirm or reverse a decision on any independently sufficient ground that has adequate support) Syl pt 3 Barnett v Wolfolk 149 WVa 246 140 SE2d 466 (1965) (This Court may on appeal affirm the judgment of the lower court when it appears that such judgment is correct on any legal ground disclosed by the record regardless of the ground reason or theory assigned by the lower court as the basis for its judgment)
Savarese v Allstate Ins Co 672 SE2d 255260 (WVa 2008)
One of the more elemental and uniformly embraced principles of corrunercial insurance
law is that the typical commercial liability insurance policy affords coverage for tort claims not
claims for breach of contract The authorities supporting that proposition are legion Dean
Henderson in his renowned and widely cited law review article makes the point emphatically
13 Petitioners Brief pp 25-27 15
(L0695752 1 J
[t]he risk intended to be insured is the possibility that the goods products or work of the insured once relinquished or completed will cause bodily injury or damage to property other than to the product or completed work itself and for which the insured may be found liable The insured as a source of goods or services may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable because it is lacking in some capacity This may even extend to an obligation to completely replace or rebuild the deficient product or work This liability however is not what the coverages in question are designed to protect against The coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb L Rev 415441 (1971)14
The overwhelming majority of courts and commentators that have addressed this issue
have held that breach of contract claims asserted against the insured are not covered under a
standard CGL policy See eg Couch on Insurance 3d sect1291-1294 (3d Ed 2005) (a
commercial general liability insurance policy is generally designed to provide coverage for tort
liability for physical damages to others and not for contractual liability of the insured for
economic loss the majority of jurisdictions have held that breach of contract is not an
14 The Henderson article has been widely relied upon by courts and commentators for over 40 years Noticeably it has been frequently cited with approval in Tennessee See Vernon (relying upon the Henderson article the Tennessee Court held that the standard comprehensive general liability policy does not provide coverage to an insured-contractor for a breach of contract action grounded upon faulty workmanship or materials where the damages claimed are the cost of correcting the work itself) Blaylock amp Brown Constr Inc v AIU Ins Co 796 SW2d 146 1990 TennApp LEXIS 338 (1990) (relying upon Henderson the Court holds bull that the language of the policy excludes liability coverage for the plaintiffs for damage to the property constructed pursuant to the contract) Standard Fire Ins Co v Chester-ODonley amp Assocs 972 SW2d 1 1998 TennApp LEXIS 65 (1998) (citing the Henderson article for the proposition that CGL policies are not intended to cover the insureds contractual liability for economic loss because its work was not that for which the damaged person bargained) Weedo v Stone-E-Brick Inc bull 81 NJ 233 405 A2d 788 (1979) (relying heavily upon the Henderson article the Court holds that a CGL policy does not provide coverage for a breach of contract action for faulty workmanship where the damages claimed are the cost ofcorrecting the work itself)
16
IL069S7S2 I
occurrencea [CGL] policy is not intended to provide coverage for the insureds contractual
liability which merely causes economic losses) Alan D Windt Insurance Claims and
Disputes sect117 (4th Ed 2001) (Finally there is the question as to whether a breach of
contract claim involves damages caused by an occurrence The answer should in general be
no) Erie Ins Prop amp Cas Co v Pioneer Home Improvement Inc 526 SE2d 28 33 206
WVa 506 513 (1999) (The coverage [under a COL policy] is for tort liability for physical
damages to others and not for contractual liability of the insured for economic loss because the
product or completed work is not that for which the damaged person bargained) Nationwide
Mutual Ins Co v CPB Intl Inc 562 F3d 591 598 2009 US App LEXIS 7795 14 (3d Cir
2009) (holding that under Pennsylvania law a CGL policy does not provide coverage for
claims in an underlying action that arise out of and relate to the contract between the parties)
Lyerla v AMCO Ins Co 536 F3d 684691-922008 US App LEXIS 164 78 (7th Cir 2008)
(applying Illinois law) (holding that underlying allegations that insured contractor did not satisfy
his contractual obligations is not property damage caused by an occurrence) L-J Inc v
Biteo Fire amp Marine Ins Co 621 SE2d 33 35 366 SC 117 (2005) (any liability that is
incurred because of faulty workmanship is part of the insureds contractual liability not an
insurable event under a CGL policy) Hotel Roanoke Conf Ctr Commn v Cincinnati Ins Co
303 FSupp2d 784 7882004 US Dist LEXIS 2539 (2004) (applying Virginia law) (damages
limited to the insureds work or product and resulting from the insureds defective perfonnance
of a contract are not covered losses under a [CGL] policy) Westfield Ins Co v Sheehan
Construction Co 580 FSupp2d 701 710 2008 US Dist LEXIS 66843 (2008) (applying
17
(L06957521
Indiana law) (a CGL policy serves to limit contractors tort liability for damage to property
caused by their work) Key Custom Homes Inc v Mid-Continent Cas Co 450 FSupp2d
1311 1317-182006 US Dist LEXIS 60355 (2006) (applying Florida law) (it is equally clear
that breach of contract claims for the recovery of money are not covered by general liability
insurance policies) Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254 1257329
Ore 620 (2000) (there can be no accident within the meaning of a commercial liability policy
when the resulting damage is merely a breach of contract) Bonded Concrete Inc v Transcon
Ins Co 12 AD3d 761 2004 NYAppDiv LEXIS 13020 (2004) (the purpose of a
commercial general liability policy is to provide coverage for tort liability for physical damage
to others and not for contractual liability of the insured for economic loss because the
product is not what the damaged [party] bargained for) United States Fire Ins Co v Milton
Co 35 FSupp2d 8386 1998 US Dist LEXIS 22116 (1998) (applying Maryland law) (there
is no occurrence under a comprehensive general liability insurance policy where and to the
extent that a contractors use of defective materials and substandard workmanship results in
economic losses that would normally be recoverable in a breach of contract action) Burlington
Ins Co v Oceanic Design amp Construction Inc 383 F3d 940 2004 US App LEXIS 18932
(9th Cir 2004) (applying Hawaii law) (holding that claims for breach of contract and negligent
breach of contract are not covered under a CGL policy) Norwalk Ready Mixed Concrete Inc v
Travelers Ins Co 246 F3d 1132 2001 US App LEXIS 7148 (8th Cir 2001) (applying Iowa
law) (holding that breach of contract and breach of warranty claims are not covered under a CGL
policy) USFampG Com v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476
18
(L06957521 l
(1989) (holding that a breach of contract claim asserted against an insured contractor is not
covered under a COL policy) Oreat Divide Ins Co v Bitterroot Timberfiames of Wyoming
LLC 2006 US Dist LEXIS 94826 (2006) (applying Wyoming law) (the allegations
demonstrate losses resulting from breach of contract and therefore cannot constitute an
accident for purposes of determining coverage) Union Ins Co v Hottenstein 83 P3d 1196
12022003 ColoApp LEXIS 1857 (2003) (poor workmanship constituting a breach of contract
is not a covered occurrence)
Tennessee lawl5 is in accord with these authorities The Tennessee Supreme Court has
defInitively held that breach of contract claims due to the insureds faulty workmanship such as
those asserted here by THD against IA Street in the underlying Amended Complaint are simply
not covered under the grant of coverage contained in a commercial liability policy See Vernon
supra Chester-ODonley supra at 6-7 (General liability policies are not all-risk policies and
only cover damages up to the policy limits for which the insured becomes liable as a result of
tort liability to a third party) (emphasis added) In Vernon the Supreme Court of Tennessee
expressly held that a standard COL policy only covers tort claims and such a policy does not
15 Under applicable Tennessee law contracts of insurance are subject to the same rules of interpretation and construction as other contracts McKimm v Bell 790 SW2d 526 527 1990 Tenn LEXIS 161 (1990) Thus [a]n insurance policy must be interpreted fairly and reasonably giving the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204 SW3d 758 2006 Tenn LEXIS 755 (2006) In the absence of fraud or mistake a contract must be interpreted and enforced as written even though it contains terms which may be thought harsh and unjust Allstate Ins Co v Wilson 856 SW2d 706 1992 TennApp LEXIS 1012 (1992) As a result the analysis of JA Streets right to coverage for the claims asserted in the underlying action are dictated by the terms of the policy The essential components of a general liability insurance policy include (1) the declarations (2) the insuring agreements and definitions (3) the exclusions (4) the conditions and (5) the endorsements See ChestershyODonley supra The insuring agreement sets the outer limits of an insurers contractual liability If coverage cannot be found in the insuring agreement it will not be found elsewhere in the policy Id 1998 TennApp LEXIS at 13-14
19
L069S7S21
afford coverage to an insured contractor for breach of contract claims Vernon 591 SW 2d at
765 Chester-ODonley supra at 6-7 Petitioner complains that the Circuit Court focused on
West Virginia cases such as Silk v Flat TOp6 but in fact the lower court expressly relied
upon a wealth of Tennessee authority17 including Vernon Cincinnati Ins Co v Grand Pointe
LLc18 and Trinity Univ Ins Co v Turner Funeral Home Inc 19 More recently Tennessee
courts have reaffirmed the rationale and holding of Vernon See State Auto Ins Cos v Gordon
Constr Inc 2001 TennApp LEXIS 349 (2001) (following Vernon and holding that the
insuring agreement of a CGL policy does not afford coverage for underlying breach of contract
and breach of warranty claims asserted against the insured contractor) Blake Indus Inc v
General Agents Ins Co of Am 2000 Tenn App LEXIS 490 (2000) (applying Vernon and
holding that claims asserted against the insured that were grounded in contract are not covered
under a CGL policy) Blaylock and Brown Constr Inc v AID Ins Co 796 SW2d 146 152shy
153 (Tenn Ct App 1990)
As the Circuit Court correctly recognized the express tenus of the insurance contract
clearly exclude contractual liability from coverage Exclusions help define and shape the scope
of coverage but they must be read in terms of the insuring agreement to which they apply
Exclusions can only decrease coverage they cannot increase it Chester-ODonley 972 SW2d
at 7-8 Moreover [e]ach exclusion reduces coverage and operates independently with reference
16 Petitioners Brief p 30 (citing 453 SE2d 356 (Wva 1994raquo 17 See See Opinion JA-I0552 ~27
18 2007 US Dist LEXIS 39784 (ED Tenn 2007) 19 2003 WL 23218046 (ED Tenn Dec 122003)
20
IL069S7S2 I I
to the insuring agreement Id at 8 The Contractual Liability exclusion specifically provides
that the insurance coverage does not apply to
Contractual liability
Bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement This exclusion does not apply to liability for damages
(1) That the insured would have in the absence of the contract or agreement or
(2) Assumed in a contract or agreement that is an insured contract provided the bodily injury or property damage occurs subsequent to the execution of the contract or agreement Solely for the purposes of liability assumed in a insured contract reasonable attorneys fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of bodily injury or property damage provided
(a) Liability to such party for or for the cost of that partys defense has also been assumed in the same insured contract and
(b) Such attorneys fees and litigation expenses are for defense of that party against the civil or alternative dispute resolution proceeding in which damages to which the insurance applies are alleged
See JA-62 Section I C[2
Even a cursory examination ofTHDs Amended Complaint reveals that all claims alleged
against JA Street were contractual There simply was no tort claim alleged In fact the claims
against JA Street were necessarily founded in contract for two reasons First the two-year
statute of limitations applicable to any tort claims elapsed long before THD first asserted its
claims against JA Street Tort claims were not pleaded and could not have been Second the
substantive law of West Virginia applies to the underlying claims asserted by THD against lA
21
(L069S7S21 I
Street20 and applicable West Virginia law plainly holds that even if THD had asserted tort
claims against JA Street the claims would still sound in contract under these circumstances for
purposes of the instant analysis since the gist of claims asserted against a contractor for deficient
work is necessarily ex contractu See Silk supra at 360 Dan Ryan Builders Inc v Crystal
Ridge Dev Inc 783 F3d 976 (4th Cir 2015) Unlike in both Silk and Dan Ryan THO did not
even assert any tort claims here Nor could it have Relevant to the precise policy language at
issue there simply was no liability for damages that [JA Street] would have in the absence of
the contract or agreement It simply cannot be contested that the claims alleged in the Amended
Complaint are and indeed necessarily were contractual in nature Given that alone the clear
holding of the Tennessee Court in Vernon mandated the Circuit Courts correct grant of
summary judgment in Biteos favor
A great majority of courts and commentators across the country that have addressed the
issue have held that the explicit unambiguous express Contractual Liability exclusion forecloses
coverage for all contract liability including breach of contract claims asserted against the
insured except where the insured has assumed the liability of another in an insured contract
See eg Silk v Flat Top Constr Inc 453 SE2d 356 359 192 WVa 522 (1994) (holding that
the contract exclusion applies to foreclose coverage for all contractual liability of the insured
except for liability assumed in an insured contract-a contract under which the insured
assumes the tort liability of another party) Gilbert Tex Constr v Underwriters at Lloyds
20 West Virginia applies the choice-of-law principle of lex loci delicti and there is no question here that the offending conduct and the loss all occurred in West Virginia such that JA Streets liability to THD would be governed by West Virginia law See State of Wva ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) (citing Syl Pt 1 Paul v Natl Life 352 SE2d 552 (WVa 1986raquo
22
(L069S7521 I
Londo 327 SW3d 118 (2010) (citing inter alia Nationwide Mut Ins Co v CPB Int Inc
No 306-CV-0363 2007 WL 4198173 at 8 (MDPa Nov26 2007) (Exclusion (b) is simply
further clarification in the policy that contract-based claims are not covered) ClM Ins Corp v
Midpac Auto Crr Inc 108 FSupp2d 1092 1099-1100 (DHaw2000) (clause in policy stating
that policy does not apply to liability assumed under any contract or agreement means that any
claim that is dependent on the existence of an underlying contract is not covered) Monticello
Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 at 2 (WDKy
Apr 3 1998) (exclusion for liability assumed by the insured under any contract or agreement
does not arise only when a party assumes the liability for another party rather the plain meaning
of the policy excludes a breach of contract claim from coverage) Silk supra (exclusion removed
coverage for breach of contract) TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 1091-92
(8th Cir1995) (exclusion for which the insured has assumed liability in a contract or agreement
plainly excluded coverage for contractual claims and not just hold-harmless or indemnity
agreements) Nationwide Mutual Ins Co v CPB Intl Inc 562 F3d 591 5992009 US App
LEXIS 7795 (3d Cir 2009) (applying Pa law) (holding that a breach of contract claim is excluded
under the Contractual Liability exclusion) Century Sur Co v Hardscape Constr Specialties Inc
578 F3d 262 2009 US App LEXIS 25300 (5th Cir 2009) (applying Texas law) (holding that the
Contractual Liability exclusion operates to exclude claims grounded primarily in breach of contract
and that no tort claims were asserted that triggered the insured contract exception) State Farm
Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 12 (2007) (applying Hawaii
law) (holding that claims arising from the insureds obligations under a contract are barred from
23
L0695152 I I
coverage under the Contractual Liability exclusion) JACO Airfield Constr Inc v National Trust
Ins Co 2007 US Dist LEXIS 100295 10 (2007) (applying Georgia law) (holding that the
Contractual Liability exclusion applies to foreclose coverage for the contractual based claims
asserted against the insured and that the insured contract exception to the Contractual Liability
exclusion does not apply because the insured did not assume the tort liability of another) Union Ins
Co v Williams Contr Inc 2006 US Dist LEXIS 35919 4-5 (2006) (holding that the
Contractual Liability exclusion precludes coverage for claims against the insured for breach of a
construction contract) Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270
GaApp 8 (2004) (affirming trial comts finding that the Contractual Liability exclusion barred
coverage for breach of contract and breach of implied warranty claims against the insured) Gibson
amp Assocs Inc v Home Ins Co 966 FSupp 468476-77 1997 US Dist LEXIS 4776 (1997)
(applying Texas law) (recognizing that the Contractual Liability exclusion precludes coverage for
breach of contract claims asserted against the insmed and that the policy only covers contractual
liability for indemnification actions ie an insured contract) James v Burlington Northern Santa
Fe Railway Co 2007 US Dist LEXIS 63282 4-5 (2007) (applying Arizona law) (holding that
the insured contract exception to the Contractual Liability exclusion does not bring ordinary
breach-of-contract claims within the scope of CGL coverage) TGA Dev Inc v Northern Ins Co
of New York 62 F3d 1089 1091-92 1995 USApp LEXIS 21700 (8th Cir 1995) (applying
Minnesota law) (holding that the Contractual Liability exclusion plainly excludes coverage for
contractual claims made for [the insmeds] failure to provide [the property owner] with a
condominium unit free from defects)
24
(lO6957521 )
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
THD initially brought the underlying action in 2003 solely against SampME asserting
various claims for damages incurred on the project Nearly four years later on December 11
2007 THD amended its Complaint to add JA Street as a defendant By that time the two-year
tort period of limitations had long since expired Thus THDs Amended Complaint asserted
claims against JA Street were based solely upon the construction contract between THD and
JA Street -- claims for breach of contract breach of warranty and for express and implied
contractual indemnity Id at ~71-96 Therein THD alleged that JA Street failed to
perform the work in a good and workmanlike manner failed to provide competent supervision
and failed to perform the work with a high degree of expertise and workmanship thereby
breaching its agreement with THD Id at ~16 No tort claims were alleged against JA Street
in the Amended Complaint All of the claims sounded exclusively in contract
During several policy periods from 2001 to 2007 Bitco insured JA Street under very
standard commercial general liability policies4 It is undisputed that these policies were issued
by an agent located in Tennessee to JA Street a Tennessee corporation with its principal offices
located in Tennessee See JA217-219 ~4 As suc~ the policies are governed by Tennessee law
4 Policy eLP 3 107706 B was in effect fOT policy period March 12001 to March 1 2002 See JA-4 Policy eLP 3 135489 B was in effect fOT policy period March 12002 to March 12003 See JA4-216 Subsequent one-year policies issued with coverage effective through March 1 2007 See Petitioners Brief pp 9-10 JAI066 1583-2223 It is immaterial which policy applies because the relevant provisions of all of the policies are the same
5
(L06957521 )
These policies are identical they are all written on the standard Insurance Services
Office Inc (ISO) Commercial General Liability coverage forms 5 Insofar as is relevant
instantly the policies provide
1 Insuring Agreement
a We will pay those sums that the insured becomes legally obligated to pay as damages because ofbodily injury or 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 bodily injury or property damage to which this insurance does not apply We may at our discretion investigate any occurrence and settle any claim or suit that may resuIL
b This insurance applies to bodily injury and property damage only if
(1) The bodily injury or property damage is caused by an occurrence that takes place in the coverage territory
(2) The bodily injury or property damage occurs during the policy period and
(3) Prior to the policy period no insured listed under Paragraph 1 of Section II - Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part If such a listed insured or authorized middotmiddotemployee knew prior to the policy period that the bodily injury or property damage occurred then any continuation change or resumption of such bodily injury or property damage during or after the policy period will be deemed to have been known prior to the policy period
c Bodily injury or property damage which occurs during the policy period and was not prior to the policy period known to have occurred by
5 ISO has long been the predominate publisher of commercial general liability insurance policy forms in the industry The ISO Commercial General Liability Coverage Form CGOOOI has long been the most widely used form in the United States As such the policies involved in this case are typical standardized and have frequently been the subject of interpretation by state and federal courts
6
[L0695752 1 I
any insured listed under Paragraph 1 of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim includes any continuation change or resumption of that bodily injury or property damage after the end of the policy period
d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph 1 of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim Reports all or any part of the bodily injury or property damage to us or any other insurer
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or
(2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
Id Section I ~1
Property damage is defined under the policies as
(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 it 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 causes it
Id Section V ~17
Occurrence is defined as
[A]n accident including continuous or repeated exposure to substantially the same general hannful conditions
Id Section V ~13
Consonant with the well-recognized fact that commercial liability insurance covers tort
claims and not contract claims in subparagraph 6 of the Exclusions section the policies
7
(L069S7S21 I
contain a Contractual Liability exclusion The language of this familiar exclusion makes clear
that the insurance does not apply to bodily injury or property damage for which the insured
is obligated to pay damages by reason of the assumption of liability in a contract or
agreement 6 The policies also contain exclusion (m) which states that the coverage does not
apply to
m Damage to impaired property or property not physically damaged Property damage to impaired property arising out of (1) a defect deficiency inadequacy or dangerous condition in your
product or your work or (2) a delay or failure by you or anyone acting on your behalf to
perform a contract or agreement in accordance with its terms 7
In addition to the commercial liability policies Bitco also insured 1A Street under
commercial umbrella policies from March 2003 through March 2007 each of which contained
materially identical provisions as set forth above except that the insuring agreement also
included the following language We will pay on behalf of the insured the ultimate net loss in
excess of the retained limit because of property damage caused by an occurrence which
takes place during the policy period 8 Paragraph 5 of the Limits of Insurance provision
addresses the limits of property damage coverage under Coverage A The language therein
states succinctly as follows
Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of
6 The exceptions are where the liability is one ( 1) That the insured would have in the absence of the contract or agreement [or] (2) Assumed in the contract or agreement that is an insured contract As discussed fully below neither of these exceptions to the Contractual Liability exclusion apply in this case 7 The policies also each have a Limits of Liability section discussed more fully below in Biteos CrossshyAssignments ofError 8 See JA3004-3312
8
(L069S7S2 I )
(a) Damages under Coverage A (b) Because of all bodily injury and property damage arising out of any one occurrence
Bitco extended a defense to lA Street in the underlying action but did so under
reservation ofright to deny coverage
C PROCEDURAL HISTORY
As stated the insurance issues herein relate to an Amended Complaint filed in the
underlying action on December 11 2007 joining and asserting claims against JA Street See
JA-2I7 On July 14 2008 Biteo filed the instant action for declaratory judgment pursuant to
the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the
Circuit Court detennine that the previously described commercial general liability insurance
policies afford no coverage and Bitco owes no duty to defend JA Street for the claims asserted
in the Amended Complaint in the underlying action See JA-19
By Order dated February 172015 the Circuit Court invited summary judgment motions
on all grounds argued by all parties subject to waiver should any available ground not be raised
9 On August 13 2009 Biteo fIled a Motion for Summary Judgment requesting that the Circuit Court declare as a matter of law that Bitco owes no coverage andor duty to defend lA Street with respect to the claims asserted against JA Street in the underlying action See JA-263 IA Street filed a CrossshyMotion for Partial Summary Judgment on that issue Following oral argument the Circuit Court denied Biteos Motion and granted IA Streets Cross-Motion rmding that Biteo owes JA Street a duty to defend the underlying action until such time as the Plaintiff meets its burden of proof that no duty to defend exists See Order JA-I005 The Circuit Court concluded that it cannot definitively say at this time that under Tennessee law the plaintiff would not have a duty to defend Id On March 13 2014 1A Street filed a Third-Party Complaint pursuant to the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the Circuit Court determine that Biteo along with five (5) other insurers owe coverage to IA Street for the claims asserted against it by TlID and that no exclusions or other policy language excludes limits or defeats coverage See IA-I051 As discussed in Petitioners Brief extensive motion practice ensued regarding a host of intricate insurance issues
9
[L06957521
Accordingly on March 12 2015 Bitco filed a Second Amended Cross-Motion for Summary
Judgment arguing that there was no coverage nor any duty to defend under any of its policies
because contract claims for damages brought against construction contractors based upon defects
or deficiencies in the work do not constitute property damage caused by an occurrence are
not VIIithin the scope of the standard commercial liability or umbrella policy and are in any event
excluded See IA-8614 After briefing and argument on December 302016 the Circuit Court
entered an Order agreeing with Bitco and granting summary judgment in Bitcos favor along
with a declaration that Bitco owes no duty to defend nor any coverage of the claims asserted
against IA Street in the underlying action See Opinion JA-I0SS2 JA Street took an appeal
to this Court and filed its principal Brief on May 122017 Bitco now responds
II SUMMARY OF ARGUMENT
This Court should affirm the lower courts declaration that Bitco owes no coverage and
no duty to defend JA Street under its commercial general liability (CGL) and umbrella
insurance policies with respect to the claims asserted in the underlying action The claims
asserted by THD against JA Street in the underlying action are for breach of contract breach of
warranty and indemnity All of these claims are ex contractu they all arise out of a written
agreement between DID and 1A Street under which 1A Street agreed to construct the Merritt
Creek Shopping Center All claims in the underlying action relate to alleged breach of the
express or implied obligations of the aforesaid contract due to alleged deficiencies in
construction work that JA Street contracted to perform thereunder Pursuant to well-settled
law those claims are not covered by liability insurance policies
10
L0695752 I
All damages alleged in the underlying Amended Complaint are first-party claims alleging
economic damages directly relating to the work JA Street contracted to perform The fact that
the only claims pled are for breach of contract -- and not tort -- is dispositive to the insurance
coverage issues Well-established Tennessee authority and the decisions of a majority of other
jurisdictions across the country have explicitly recognized that contract claims precisely like
those asserted against lA Street are not within the embrace of the insuring agreement of the
standard commercial liability policy The Travelers Indemn Co of Am v Moore amp Assocs
Inc IO decision upon which the Petitioners principally rely is inapposite since it does not address
whether pure contract claims are covered The Tennessee Supreme Courts decision in Vernon
Williams amp Son Constr Inc v Continental Ins Co II which is still the law in Tennessee today
and which the Petitioners entirely ignore clearly holds that any contract-based claims for faulty
workmanship are not covered under a commercial liability policy Consequently the claims
asserted against lA Street in the underlying action are not covered under the clear and
unambiguous terms of the applicable policies initial grant of coverage because the claims
alleged are only for the recovery of economic damages based upon breach of contract In
addition the Circuit Court correctly noted the applicability of exclusion (m) relative to impaired
property Because it is clear that the policies do not afford coverage for the claims asserted in
the underlying action Bitco does not owe a duty to defend lA Street Therefore the Circuit
Courts determination that lA Street is not entitled to coverage and a defense under the Bitco
policies was entirely correct
10 216 SW3d 202 (Tenn 2007) 11 591 SW2d 760 (Tenn 1979)
11
L069S7S21 J
Finally though the issue is moot since Bitco owes no coverage at all Bitco cross-assigns
error in the Circuit Courts determinations that more than one policy and per occurrence limit
could apply under any circumstances The unambiguous policy language restricts any coverage
to only one policy period and only one applicable limit This Court should not need to reach
those issues however since there is no coverage at all
UI STATEMENT REGARDING ORAL ARGUMENT AND DECISION
Bitco does not believe the narrow issues necessary to affirm the judgment below are
particularly difficult or complex However if the Court is interested in entertaining oral
argument Bitcos counsel would of course happily oblige
IV ARGUMENT
A STANDARD OF REVIEW
Inasmuch as the summary judgment was entered with regard to a declaratory judgment
action [a] circuit courts entry of a declaratory judgment is reviewed de novo Id
(quoting Syl Pt 3 Cox v Amick 195 WVa 608 466 SE2d 459 (1995raquo See also
Blankenship v City of Charleston 223 WVa 822 824 679 SE2d 654 656 (2009) (quoting
Syi Pt 1 Painter v Peavy 192 WVa 189 451 SE2d 755 (1994raquo Moreover
[d]etermination of the proper coverage of an insurance contract when the facts are not in
dispute is a question of law Id at 825 (quoting Syi Pt 1 Tennant v Smallwood 211 WVa
703 568 SE2d 10 (2002raquo) As [t]he interpretation of an insurance contract including the
question of whether the contract is ambiguous is a legal determination like a lower courts
grant of summary judgment [it] shall be reviewed de novo on appeal Id (quoting SyI Pt 2
12
(L06957521 )
Riffe v Home Finders Associates Inc 205 WVa 216 517 SE2d 313 (1999)) Importantly as
discussed in detail immediately below since the core issue in this case merely requires a
comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies this case presents a pure matter of law that is uniquely
suitable for decision at the summary judgment stage
B THE CIRCUIT COURT CORRECTLY HELD THAT UNDER TENNESSEE LAW THE CONTRACTUAL CLAIMS ASSERTED BY THD AGAINST JA STREET ARE NOT COVERED
BY THE BITCO POLICIES
In this State a liability insurer has no duty to defend an action asserted against the
insured where it is clear from the allegations of the Complaint against the insured that there is no
coverage afforded under the relevant insurance policy See Horace Mann Ins Co v Leeber 376
SE2d 581 584 180 WVa 375 (1988) State Auto Mut Ins Co v Alpha Engg Servbull Inc
542 SE2d 876 879 208 WVa 713 (2000) (If the causes of action alleged in the plaintiffs
complaint are entirely foreign to the risks covered by the insurance policy then the insurance
company is relieved of its duties under the policy) Tennesseel2 follows exactly the same rule
See Drexel Chemical Co v Bitco Ins Co 933 SW2d 471480 1996 TennApp LEXIS 356
(1996) (holding that the insurer did not have a duty to defend where an exclusion applied to
foreclose coverage) Tenn Farmers Mut Ins Co v Brown 1990 TennApp LEXIS 812 (1990)
(The general rule in Tennessee is that an insurer is not obligated to undertake the defense of a
suit against its insured unless the allegations of the complaint show a claim for damages that
would be covered by the policy) Cincinnati Ins Co v Grand Pointe LLC 2007 US Dist
12 All parties concede that Tennessee law governs construction of the insurance policies
13
(L069S7S21 )
LEXIS 39784 (ED Tenn 2007) (If it is plain from the face of the underlying complaint the
allegations fail to state facts that bring the case within or potentially within the policy no duty to
defend exists) Am Nat Prop and Cas Ins Co v Gray 803 SW 2d 693 695-96 (Tenn Ct
App 1990) Graves v Liberty Mut Fire Ins Co 745 SW2d 282283 (Tenn Ct App 1987)
In ascertaining whether there is a duty to defend under a liability insurance policy
Tennessee adheres to a strict four comers approach See Interstate Packaging Co v Century
Indem Co bull 2013 US Dist LEXIS 45459 (MDTenn 2013) citing St Paul Fire amp Marine Ins
Co v Torpoco 879 SW2d 831 835 (Tenn 1994) Clark v Sputnicks LLC 368 SW3d 431
439 (Tenn 2012) (An insurers duty to defend is determined solely by an examination of the
allegations of the underlying complaint) Thus under Tennessee law the court must limit its
inquiry to the claims and allegations presented in the complaint against the insured [I]f the
allegations contained in the complaintare within the risk insured against and there is a
potential basis for recovery then [the insurer] must defend St Paul v Torpoco supra 879
SW2d at 835 Conversely if the claims alleged in the complaint are clearly not within the
scope of coverage then there is no duty to defend Drexel Chemical Co v Bitco Ins Co 933
SW2d 471 480 (Tenn 1996) As the United States Court of Appeals for the Sixth Circuit
stated it applying Tennessee law in Smith amp Nephew Inc v Fed Ins Co 113 FedAppx 99
(6th Cir 2004) in detennining an insurers duty to defend courts typically begin and end
their analysis with the four comers of the complaint Id at 102 Petitioner argues that there
are significant issues of material fact that exist given that there has been no final resolution of the
14
(LD09S752 I
underlying action13 but in fact clear-cut law dictates that all the Court must do is contrast the
averments of the Amended Complaint with the terms of the policies
The instant inquiry must therefore begin with the unique circumstances that the TIID
Amended Complaint against lA Street pleads only contract-based claims and not tort claims
Although the Circuit Court based its finding of no coverage solely on the Contractual Liability
exclusion as discussed in detail below courts in Tennessee and elsewhere have concluded that
there is no coverage for breach of contact claims and the damages that typically flow from such
claims on broader grounds While the Circuit Court did not subscribe to that broad view
our cases have made clear that it is permissible for us to affirm the granting of [dismissal] on bases difference or grounds other than those relief upon by the circuit court Hoover v Moran 222 WVa at 119 662 SE2d at 718 quoting Gently v Mangum 195 WVa 512519466 SE2d 171178 (1995) See also Schmehl v Helton 222 WVa 98 662 SE2d 697 705 n7 (2008) (this Court may in any event affirm the circuit court on any proper basis whether relied upon by the circuit court or not) Murphy v Smallridge 196 WVa 35 36-7 468 SE2d 167168-9 (1996) (An appellate court is not limited to the legal grounds relied upon by the circuit court but it may affirm or reverse a decision on any independently sufficient ground that has adequate support) Syl pt 3 Barnett v Wolfolk 149 WVa 246 140 SE2d 466 (1965) (This Court may on appeal affirm the judgment of the lower court when it appears that such judgment is correct on any legal ground disclosed by the record regardless of the ground reason or theory assigned by the lower court as the basis for its judgment)
Savarese v Allstate Ins Co 672 SE2d 255260 (WVa 2008)
One of the more elemental and uniformly embraced principles of corrunercial insurance
law is that the typical commercial liability insurance policy affords coverage for tort claims not
claims for breach of contract The authorities supporting that proposition are legion Dean
Henderson in his renowned and widely cited law review article makes the point emphatically
13 Petitioners Brief pp 25-27 15
(L0695752 1 J
[t]he risk intended to be insured is the possibility that the goods products or work of the insured once relinquished or completed will cause bodily injury or damage to property other than to the product or completed work itself and for which the insured may be found liable The insured as a source of goods or services may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable because it is lacking in some capacity This may even extend to an obligation to completely replace or rebuild the deficient product or work This liability however is not what the coverages in question are designed to protect against The coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb L Rev 415441 (1971)14
The overwhelming majority of courts and commentators that have addressed this issue
have held that breach of contract claims asserted against the insured are not covered under a
standard CGL policy See eg Couch on Insurance 3d sect1291-1294 (3d Ed 2005) (a
commercial general liability insurance policy is generally designed to provide coverage for tort
liability for physical damages to others and not for contractual liability of the insured for
economic loss the majority of jurisdictions have held that breach of contract is not an
14 The Henderson article has been widely relied upon by courts and commentators for over 40 years Noticeably it has been frequently cited with approval in Tennessee See Vernon (relying upon the Henderson article the Tennessee Court held that the standard comprehensive general liability policy does not provide coverage to an insured-contractor for a breach of contract action grounded upon faulty workmanship or materials where the damages claimed are the cost of correcting the work itself) Blaylock amp Brown Constr Inc v AIU Ins Co 796 SW2d 146 1990 TennApp LEXIS 338 (1990) (relying upon Henderson the Court holds bull that the language of the policy excludes liability coverage for the plaintiffs for damage to the property constructed pursuant to the contract) Standard Fire Ins Co v Chester-ODonley amp Assocs 972 SW2d 1 1998 TennApp LEXIS 65 (1998) (citing the Henderson article for the proposition that CGL policies are not intended to cover the insureds contractual liability for economic loss because its work was not that for which the damaged person bargained) Weedo v Stone-E-Brick Inc bull 81 NJ 233 405 A2d 788 (1979) (relying heavily upon the Henderson article the Court holds that a CGL policy does not provide coverage for a breach of contract action for faulty workmanship where the damages claimed are the cost ofcorrecting the work itself)
16
IL069S7S2 I
occurrencea [CGL] policy is not intended to provide coverage for the insureds contractual
liability which merely causes economic losses) Alan D Windt Insurance Claims and
Disputes sect117 (4th Ed 2001) (Finally there is the question as to whether a breach of
contract claim involves damages caused by an occurrence The answer should in general be
no) Erie Ins Prop amp Cas Co v Pioneer Home Improvement Inc 526 SE2d 28 33 206
WVa 506 513 (1999) (The coverage [under a COL policy] is for tort liability for physical
damages to others and not for contractual liability of the insured for economic loss because the
product or completed work is not that for which the damaged person bargained) Nationwide
Mutual Ins Co v CPB Intl Inc 562 F3d 591 598 2009 US App LEXIS 7795 14 (3d Cir
2009) (holding that under Pennsylvania law a CGL policy does not provide coverage for
claims in an underlying action that arise out of and relate to the contract between the parties)
Lyerla v AMCO Ins Co 536 F3d 684691-922008 US App LEXIS 164 78 (7th Cir 2008)
(applying Illinois law) (holding that underlying allegations that insured contractor did not satisfy
his contractual obligations is not property damage caused by an occurrence) L-J Inc v
Biteo Fire amp Marine Ins Co 621 SE2d 33 35 366 SC 117 (2005) (any liability that is
incurred because of faulty workmanship is part of the insureds contractual liability not an
insurable event under a CGL policy) Hotel Roanoke Conf Ctr Commn v Cincinnati Ins Co
303 FSupp2d 784 7882004 US Dist LEXIS 2539 (2004) (applying Virginia law) (damages
limited to the insureds work or product and resulting from the insureds defective perfonnance
of a contract are not covered losses under a [CGL] policy) Westfield Ins Co v Sheehan
Construction Co 580 FSupp2d 701 710 2008 US Dist LEXIS 66843 (2008) (applying
17
(L06957521
Indiana law) (a CGL policy serves to limit contractors tort liability for damage to property
caused by their work) Key Custom Homes Inc v Mid-Continent Cas Co 450 FSupp2d
1311 1317-182006 US Dist LEXIS 60355 (2006) (applying Florida law) (it is equally clear
that breach of contract claims for the recovery of money are not covered by general liability
insurance policies) Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254 1257329
Ore 620 (2000) (there can be no accident within the meaning of a commercial liability policy
when the resulting damage is merely a breach of contract) Bonded Concrete Inc v Transcon
Ins Co 12 AD3d 761 2004 NYAppDiv LEXIS 13020 (2004) (the purpose of a
commercial general liability policy is to provide coverage for tort liability for physical damage
to others and not for contractual liability of the insured for economic loss because the
product is not what the damaged [party] bargained for) United States Fire Ins Co v Milton
Co 35 FSupp2d 8386 1998 US Dist LEXIS 22116 (1998) (applying Maryland law) (there
is no occurrence under a comprehensive general liability insurance policy where and to the
extent that a contractors use of defective materials and substandard workmanship results in
economic losses that would normally be recoverable in a breach of contract action) Burlington
Ins Co v Oceanic Design amp Construction Inc 383 F3d 940 2004 US App LEXIS 18932
(9th Cir 2004) (applying Hawaii law) (holding that claims for breach of contract and negligent
breach of contract are not covered under a CGL policy) Norwalk Ready Mixed Concrete Inc v
Travelers Ins Co 246 F3d 1132 2001 US App LEXIS 7148 (8th Cir 2001) (applying Iowa
law) (holding that breach of contract and breach of warranty claims are not covered under a CGL
policy) USFampG Com v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476
18
(L06957521 l
(1989) (holding that a breach of contract claim asserted against an insured contractor is not
covered under a COL policy) Oreat Divide Ins Co v Bitterroot Timberfiames of Wyoming
LLC 2006 US Dist LEXIS 94826 (2006) (applying Wyoming law) (the allegations
demonstrate losses resulting from breach of contract and therefore cannot constitute an
accident for purposes of determining coverage) Union Ins Co v Hottenstein 83 P3d 1196
12022003 ColoApp LEXIS 1857 (2003) (poor workmanship constituting a breach of contract
is not a covered occurrence)
Tennessee lawl5 is in accord with these authorities The Tennessee Supreme Court has
defInitively held that breach of contract claims due to the insureds faulty workmanship such as
those asserted here by THD against IA Street in the underlying Amended Complaint are simply
not covered under the grant of coverage contained in a commercial liability policy See Vernon
supra Chester-ODonley supra at 6-7 (General liability policies are not all-risk policies and
only cover damages up to the policy limits for which the insured becomes liable as a result of
tort liability to a third party) (emphasis added) In Vernon the Supreme Court of Tennessee
expressly held that a standard COL policy only covers tort claims and such a policy does not
15 Under applicable Tennessee law contracts of insurance are subject to the same rules of interpretation and construction as other contracts McKimm v Bell 790 SW2d 526 527 1990 Tenn LEXIS 161 (1990) Thus [a]n insurance policy must be interpreted fairly and reasonably giving the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204 SW3d 758 2006 Tenn LEXIS 755 (2006) In the absence of fraud or mistake a contract must be interpreted and enforced as written even though it contains terms which may be thought harsh and unjust Allstate Ins Co v Wilson 856 SW2d 706 1992 TennApp LEXIS 1012 (1992) As a result the analysis of JA Streets right to coverage for the claims asserted in the underlying action are dictated by the terms of the policy The essential components of a general liability insurance policy include (1) the declarations (2) the insuring agreements and definitions (3) the exclusions (4) the conditions and (5) the endorsements See ChestershyODonley supra The insuring agreement sets the outer limits of an insurers contractual liability If coverage cannot be found in the insuring agreement it will not be found elsewhere in the policy Id 1998 TennApp LEXIS at 13-14
19
L069S7S21
afford coverage to an insured contractor for breach of contract claims Vernon 591 SW 2d at
765 Chester-ODonley supra at 6-7 Petitioner complains that the Circuit Court focused on
West Virginia cases such as Silk v Flat TOp6 but in fact the lower court expressly relied
upon a wealth of Tennessee authority17 including Vernon Cincinnati Ins Co v Grand Pointe
LLc18 and Trinity Univ Ins Co v Turner Funeral Home Inc 19 More recently Tennessee
courts have reaffirmed the rationale and holding of Vernon See State Auto Ins Cos v Gordon
Constr Inc 2001 TennApp LEXIS 349 (2001) (following Vernon and holding that the
insuring agreement of a CGL policy does not afford coverage for underlying breach of contract
and breach of warranty claims asserted against the insured contractor) Blake Indus Inc v
General Agents Ins Co of Am 2000 Tenn App LEXIS 490 (2000) (applying Vernon and
holding that claims asserted against the insured that were grounded in contract are not covered
under a CGL policy) Blaylock and Brown Constr Inc v AID Ins Co 796 SW2d 146 152shy
153 (Tenn Ct App 1990)
As the Circuit Court correctly recognized the express tenus of the insurance contract
clearly exclude contractual liability from coverage Exclusions help define and shape the scope
of coverage but they must be read in terms of the insuring agreement to which they apply
Exclusions can only decrease coverage they cannot increase it Chester-ODonley 972 SW2d
at 7-8 Moreover [e]ach exclusion reduces coverage and operates independently with reference
16 Petitioners Brief p 30 (citing 453 SE2d 356 (Wva 1994raquo 17 See See Opinion JA-I0552 ~27
18 2007 US Dist LEXIS 39784 (ED Tenn 2007) 19 2003 WL 23218046 (ED Tenn Dec 122003)
20
IL069S7S2 I I
to the insuring agreement Id at 8 The Contractual Liability exclusion specifically provides
that the insurance coverage does not apply to
Contractual liability
Bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement This exclusion does not apply to liability for damages
(1) That the insured would have in the absence of the contract or agreement or
(2) Assumed in a contract or agreement that is an insured contract provided the bodily injury or property damage occurs subsequent to the execution of the contract or agreement Solely for the purposes of liability assumed in a insured contract reasonable attorneys fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of bodily injury or property damage provided
(a) Liability to such party for or for the cost of that partys defense has also been assumed in the same insured contract and
(b) Such attorneys fees and litigation expenses are for defense of that party against the civil or alternative dispute resolution proceeding in which damages to which the insurance applies are alleged
See JA-62 Section I C[2
Even a cursory examination ofTHDs Amended Complaint reveals that all claims alleged
against JA Street were contractual There simply was no tort claim alleged In fact the claims
against JA Street were necessarily founded in contract for two reasons First the two-year
statute of limitations applicable to any tort claims elapsed long before THD first asserted its
claims against JA Street Tort claims were not pleaded and could not have been Second the
substantive law of West Virginia applies to the underlying claims asserted by THD against lA
21
(L069S7S21 I
Street20 and applicable West Virginia law plainly holds that even if THD had asserted tort
claims against JA Street the claims would still sound in contract under these circumstances for
purposes of the instant analysis since the gist of claims asserted against a contractor for deficient
work is necessarily ex contractu See Silk supra at 360 Dan Ryan Builders Inc v Crystal
Ridge Dev Inc 783 F3d 976 (4th Cir 2015) Unlike in both Silk and Dan Ryan THO did not
even assert any tort claims here Nor could it have Relevant to the precise policy language at
issue there simply was no liability for damages that [JA Street] would have in the absence of
the contract or agreement It simply cannot be contested that the claims alleged in the Amended
Complaint are and indeed necessarily were contractual in nature Given that alone the clear
holding of the Tennessee Court in Vernon mandated the Circuit Courts correct grant of
summary judgment in Biteos favor
A great majority of courts and commentators across the country that have addressed the
issue have held that the explicit unambiguous express Contractual Liability exclusion forecloses
coverage for all contract liability including breach of contract claims asserted against the
insured except where the insured has assumed the liability of another in an insured contract
See eg Silk v Flat Top Constr Inc 453 SE2d 356 359 192 WVa 522 (1994) (holding that
the contract exclusion applies to foreclose coverage for all contractual liability of the insured
except for liability assumed in an insured contract-a contract under which the insured
assumes the tort liability of another party) Gilbert Tex Constr v Underwriters at Lloyds
20 West Virginia applies the choice-of-law principle of lex loci delicti and there is no question here that the offending conduct and the loss all occurred in West Virginia such that JA Streets liability to THD would be governed by West Virginia law See State of Wva ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) (citing Syl Pt 1 Paul v Natl Life 352 SE2d 552 (WVa 1986raquo
22
(L069S7521 I
Londo 327 SW3d 118 (2010) (citing inter alia Nationwide Mut Ins Co v CPB Int Inc
No 306-CV-0363 2007 WL 4198173 at 8 (MDPa Nov26 2007) (Exclusion (b) is simply
further clarification in the policy that contract-based claims are not covered) ClM Ins Corp v
Midpac Auto Crr Inc 108 FSupp2d 1092 1099-1100 (DHaw2000) (clause in policy stating
that policy does not apply to liability assumed under any contract or agreement means that any
claim that is dependent on the existence of an underlying contract is not covered) Monticello
Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 at 2 (WDKy
Apr 3 1998) (exclusion for liability assumed by the insured under any contract or agreement
does not arise only when a party assumes the liability for another party rather the plain meaning
of the policy excludes a breach of contract claim from coverage) Silk supra (exclusion removed
coverage for breach of contract) TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 1091-92
(8th Cir1995) (exclusion for which the insured has assumed liability in a contract or agreement
plainly excluded coverage for contractual claims and not just hold-harmless or indemnity
agreements) Nationwide Mutual Ins Co v CPB Intl Inc 562 F3d 591 5992009 US App
LEXIS 7795 (3d Cir 2009) (applying Pa law) (holding that a breach of contract claim is excluded
under the Contractual Liability exclusion) Century Sur Co v Hardscape Constr Specialties Inc
578 F3d 262 2009 US App LEXIS 25300 (5th Cir 2009) (applying Texas law) (holding that the
Contractual Liability exclusion operates to exclude claims grounded primarily in breach of contract
and that no tort claims were asserted that triggered the insured contract exception) State Farm
Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 12 (2007) (applying Hawaii
law) (holding that claims arising from the insureds obligations under a contract are barred from
23
L0695152 I I
coverage under the Contractual Liability exclusion) JACO Airfield Constr Inc v National Trust
Ins Co 2007 US Dist LEXIS 100295 10 (2007) (applying Georgia law) (holding that the
Contractual Liability exclusion applies to foreclose coverage for the contractual based claims
asserted against the insured and that the insured contract exception to the Contractual Liability
exclusion does not apply because the insured did not assume the tort liability of another) Union Ins
Co v Williams Contr Inc 2006 US Dist LEXIS 35919 4-5 (2006) (holding that the
Contractual Liability exclusion precludes coverage for claims against the insured for breach of a
construction contract) Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270
GaApp 8 (2004) (affirming trial comts finding that the Contractual Liability exclusion barred
coverage for breach of contract and breach of implied warranty claims against the insured) Gibson
amp Assocs Inc v Home Ins Co 966 FSupp 468476-77 1997 US Dist LEXIS 4776 (1997)
(applying Texas law) (recognizing that the Contractual Liability exclusion precludes coverage for
breach of contract claims asserted against the insmed and that the policy only covers contractual
liability for indemnification actions ie an insured contract) James v Burlington Northern Santa
Fe Railway Co 2007 US Dist LEXIS 63282 4-5 (2007) (applying Arizona law) (holding that
the insured contract exception to the Contractual Liability exclusion does not bring ordinary
breach-of-contract claims within the scope of CGL coverage) TGA Dev Inc v Northern Ins Co
of New York 62 F3d 1089 1091-92 1995 USApp LEXIS 21700 (8th Cir 1995) (applying
Minnesota law) (holding that the Contractual Liability exclusion plainly excludes coverage for
contractual claims made for [the insmeds] failure to provide [the property owner] with a
condominium unit free from defects)
24
(lO6957521 )
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
These policies are identical they are all written on the standard Insurance Services
Office Inc (ISO) Commercial General Liability coverage forms 5 Insofar as is relevant
instantly the policies provide
1 Insuring Agreement
a We will pay those sums that the insured becomes legally obligated to pay as damages because ofbodily injury or 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 bodily injury or property damage to which this insurance does not apply We may at our discretion investigate any occurrence and settle any claim or suit that may resuIL
b This insurance applies to bodily injury and property damage only if
(1) The bodily injury or property damage is caused by an occurrence that takes place in the coverage territory
(2) The bodily injury or property damage occurs during the policy period and
(3) Prior to the policy period no insured listed under Paragraph 1 of Section II - Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part If such a listed insured or authorized middotmiddotemployee knew prior to the policy period that the bodily injury or property damage occurred then any continuation change or resumption of such bodily injury or property damage during or after the policy period will be deemed to have been known prior to the policy period
c Bodily injury or property damage which occurs during the policy period and was not prior to the policy period known to have occurred by
5 ISO has long been the predominate publisher of commercial general liability insurance policy forms in the industry The ISO Commercial General Liability Coverage Form CGOOOI has long been the most widely used form in the United States As such the policies involved in this case are typical standardized and have frequently been the subject of interpretation by state and federal courts
6
[L0695752 1 I
any insured listed under Paragraph 1 of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim includes any continuation change or resumption of that bodily injury or property damage after the end of the policy period
d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph 1 of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim Reports all or any part of the bodily injury or property damage to us or any other insurer
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or
(2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
Id Section I ~1
Property damage is defined under the policies as
(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 it 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 causes it
Id Section V ~17
Occurrence is defined as
[A]n accident including continuous or repeated exposure to substantially the same general hannful conditions
Id Section V ~13
Consonant with the well-recognized fact that commercial liability insurance covers tort
claims and not contract claims in subparagraph 6 of the Exclusions section the policies
7
(L069S7S21 I
contain a Contractual Liability exclusion The language of this familiar exclusion makes clear
that the insurance does not apply to bodily injury or property damage for which the insured
is obligated to pay damages by reason of the assumption of liability in a contract or
agreement 6 The policies also contain exclusion (m) which states that the coverage does not
apply to
m Damage to impaired property or property not physically damaged Property damage to impaired property arising out of (1) a defect deficiency inadequacy or dangerous condition in your
product or your work or (2) a delay or failure by you or anyone acting on your behalf to
perform a contract or agreement in accordance with its terms 7
In addition to the commercial liability policies Bitco also insured 1A Street under
commercial umbrella policies from March 2003 through March 2007 each of which contained
materially identical provisions as set forth above except that the insuring agreement also
included the following language We will pay on behalf of the insured the ultimate net loss in
excess of the retained limit because of property damage caused by an occurrence which
takes place during the policy period 8 Paragraph 5 of the Limits of Insurance provision
addresses the limits of property damage coverage under Coverage A The language therein
states succinctly as follows
Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of
6 The exceptions are where the liability is one ( 1) That the insured would have in the absence of the contract or agreement [or] (2) Assumed in the contract or agreement that is an insured contract As discussed fully below neither of these exceptions to the Contractual Liability exclusion apply in this case 7 The policies also each have a Limits of Liability section discussed more fully below in Biteos CrossshyAssignments ofError 8 See JA3004-3312
8
(L069S7S2 I )
(a) Damages under Coverage A (b) Because of all bodily injury and property damage arising out of any one occurrence
Bitco extended a defense to lA Street in the underlying action but did so under
reservation ofright to deny coverage
C PROCEDURAL HISTORY
As stated the insurance issues herein relate to an Amended Complaint filed in the
underlying action on December 11 2007 joining and asserting claims against JA Street See
JA-2I7 On July 14 2008 Biteo filed the instant action for declaratory judgment pursuant to
the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the
Circuit Court detennine that the previously described commercial general liability insurance
policies afford no coverage and Bitco owes no duty to defend JA Street for the claims asserted
in the Amended Complaint in the underlying action See JA-19
By Order dated February 172015 the Circuit Court invited summary judgment motions
on all grounds argued by all parties subject to waiver should any available ground not be raised
9 On August 13 2009 Biteo fIled a Motion for Summary Judgment requesting that the Circuit Court declare as a matter of law that Bitco owes no coverage andor duty to defend lA Street with respect to the claims asserted against JA Street in the underlying action See JA-263 IA Street filed a CrossshyMotion for Partial Summary Judgment on that issue Following oral argument the Circuit Court denied Biteos Motion and granted IA Streets Cross-Motion rmding that Biteo owes JA Street a duty to defend the underlying action until such time as the Plaintiff meets its burden of proof that no duty to defend exists See Order JA-I005 The Circuit Court concluded that it cannot definitively say at this time that under Tennessee law the plaintiff would not have a duty to defend Id On March 13 2014 1A Street filed a Third-Party Complaint pursuant to the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the Circuit Court determine that Biteo along with five (5) other insurers owe coverage to IA Street for the claims asserted against it by TlID and that no exclusions or other policy language excludes limits or defeats coverage See IA-I051 As discussed in Petitioners Brief extensive motion practice ensued regarding a host of intricate insurance issues
9
[L06957521
Accordingly on March 12 2015 Bitco filed a Second Amended Cross-Motion for Summary
Judgment arguing that there was no coverage nor any duty to defend under any of its policies
because contract claims for damages brought against construction contractors based upon defects
or deficiencies in the work do not constitute property damage caused by an occurrence are
not VIIithin the scope of the standard commercial liability or umbrella policy and are in any event
excluded See IA-8614 After briefing and argument on December 302016 the Circuit Court
entered an Order agreeing with Bitco and granting summary judgment in Bitcos favor along
with a declaration that Bitco owes no duty to defend nor any coverage of the claims asserted
against IA Street in the underlying action See Opinion JA-I0SS2 JA Street took an appeal
to this Court and filed its principal Brief on May 122017 Bitco now responds
II SUMMARY OF ARGUMENT
This Court should affirm the lower courts declaration that Bitco owes no coverage and
no duty to defend JA Street under its commercial general liability (CGL) and umbrella
insurance policies with respect to the claims asserted in the underlying action The claims
asserted by THD against JA Street in the underlying action are for breach of contract breach of
warranty and indemnity All of these claims are ex contractu they all arise out of a written
agreement between DID and 1A Street under which 1A Street agreed to construct the Merritt
Creek Shopping Center All claims in the underlying action relate to alleged breach of the
express or implied obligations of the aforesaid contract due to alleged deficiencies in
construction work that JA Street contracted to perform thereunder Pursuant to well-settled
law those claims are not covered by liability insurance policies
10
L0695752 I
All damages alleged in the underlying Amended Complaint are first-party claims alleging
economic damages directly relating to the work JA Street contracted to perform The fact that
the only claims pled are for breach of contract -- and not tort -- is dispositive to the insurance
coverage issues Well-established Tennessee authority and the decisions of a majority of other
jurisdictions across the country have explicitly recognized that contract claims precisely like
those asserted against lA Street are not within the embrace of the insuring agreement of the
standard commercial liability policy The Travelers Indemn Co of Am v Moore amp Assocs
Inc IO decision upon which the Petitioners principally rely is inapposite since it does not address
whether pure contract claims are covered The Tennessee Supreme Courts decision in Vernon
Williams amp Son Constr Inc v Continental Ins Co II which is still the law in Tennessee today
and which the Petitioners entirely ignore clearly holds that any contract-based claims for faulty
workmanship are not covered under a commercial liability policy Consequently the claims
asserted against lA Street in the underlying action are not covered under the clear and
unambiguous terms of the applicable policies initial grant of coverage because the claims
alleged are only for the recovery of economic damages based upon breach of contract In
addition the Circuit Court correctly noted the applicability of exclusion (m) relative to impaired
property Because it is clear that the policies do not afford coverage for the claims asserted in
the underlying action Bitco does not owe a duty to defend lA Street Therefore the Circuit
Courts determination that lA Street is not entitled to coverage and a defense under the Bitco
policies was entirely correct
10 216 SW3d 202 (Tenn 2007) 11 591 SW2d 760 (Tenn 1979)
11
L069S7S21 J
Finally though the issue is moot since Bitco owes no coverage at all Bitco cross-assigns
error in the Circuit Courts determinations that more than one policy and per occurrence limit
could apply under any circumstances The unambiguous policy language restricts any coverage
to only one policy period and only one applicable limit This Court should not need to reach
those issues however since there is no coverage at all
UI STATEMENT REGARDING ORAL ARGUMENT AND DECISION
Bitco does not believe the narrow issues necessary to affirm the judgment below are
particularly difficult or complex However if the Court is interested in entertaining oral
argument Bitcos counsel would of course happily oblige
IV ARGUMENT
A STANDARD OF REVIEW
Inasmuch as the summary judgment was entered with regard to a declaratory judgment
action [a] circuit courts entry of a declaratory judgment is reviewed de novo Id
(quoting Syl Pt 3 Cox v Amick 195 WVa 608 466 SE2d 459 (1995raquo See also
Blankenship v City of Charleston 223 WVa 822 824 679 SE2d 654 656 (2009) (quoting
Syi Pt 1 Painter v Peavy 192 WVa 189 451 SE2d 755 (1994raquo Moreover
[d]etermination of the proper coverage of an insurance contract when the facts are not in
dispute is a question of law Id at 825 (quoting Syi Pt 1 Tennant v Smallwood 211 WVa
703 568 SE2d 10 (2002raquo) As [t]he interpretation of an insurance contract including the
question of whether the contract is ambiguous is a legal determination like a lower courts
grant of summary judgment [it] shall be reviewed de novo on appeal Id (quoting SyI Pt 2
12
(L06957521 )
Riffe v Home Finders Associates Inc 205 WVa 216 517 SE2d 313 (1999)) Importantly as
discussed in detail immediately below since the core issue in this case merely requires a
comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies this case presents a pure matter of law that is uniquely
suitable for decision at the summary judgment stage
B THE CIRCUIT COURT CORRECTLY HELD THAT UNDER TENNESSEE LAW THE CONTRACTUAL CLAIMS ASSERTED BY THD AGAINST JA STREET ARE NOT COVERED
BY THE BITCO POLICIES
In this State a liability insurer has no duty to defend an action asserted against the
insured where it is clear from the allegations of the Complaint against the insured that there is no
coverage afforded under the relevant insurance policy See Horace Mann Ins Co v Leeber 376
SE2d 581 584 180 WVa 375 (1988) State Auto Mut Ins Co v Alpha Engg Servbull Inc
542 SE2d 876 879 208 WVa 713 (2000) (If the causes of action alleged in the plaintiffs
complaint are entirely foreign to the risks covered by the insurance policy then the insurance
company is relieved of its duties under the policy) Tennesseel2 follows exactly the same rule
See Drexel Chemical Co v Bitco Ins Co 933 SW2d 471480 1996 TennApp LEXIS 356
(1996) (holding that the insurer did not have a duty to defend where an exclusion applied to
foreclose coverage) Tenn Farmers Mut Ins Co v Brown 1990 TennApp LEXIS 812 (1990)
(The general rule in Tennessee is that an insurer is not obligated to undertake the defense of a
suit against its insured unless the allegations of the complaint show a claim for damages that
would be covered by the policy) Cincinnati Ins Co v Grand Pointe LLC 2007 US Dist
12 All parties concede that Tennessee law governs construction of the insurance policies
13
(L069S7S21 )
LEXIS 39784 (ED Tenn 2007) (If it is plain from the face of the underlying complaint the
allegations fail to state facts that bring the case within or potentially within the policy no duty to
defend exists) Am Nat Prop and Cas Ins Co v Gray 803 SW 2d 693 695-96 (Tenn Ct
App 1990) Graves v Liberty Mut Fire Ins Co 745 SW2d 282283 (Tenn Ct App 1987)
In ascertaining whether there is a duty to defend under a liability insurance policy
Tennessee adheres to a strict four comers approach See Interstate Packaging Co v Century
Indem Co bull 2013 US Dist LEXIS 45459 (MDTenn 2013) citing St Paul Fire amp Marine Ins
Co v Torpoco 879 SW2d 831 835 (Tenn 1994) Clark v Sputnicks LLC 368 SW3d 431
439 (Tenn 2012) (An insurers duty to defend is determined solely by an examination of the
allegations of the underlying complaint) Thus under Tennessee law the court must limit its
inquiry to the claims and allegations presented in the complaint against the insured [I]f the
allegations contained in the complaintare within the risk insured against and there is a
potential basis for recovery then [the insurer] must defend St Paul v Torpoco supra 879
SW2d at 835 Conversely if the claims alleged in the complaint are clearly not within the
scope of coverage then there is no duty to defend Drexel Chemical Co v Bitco Ins Co 933
SW2d 471 480 (Tenn 1996) As the United States Court of Appeals for the Sixth Circuit
stated it applying Tennessee law in Smith amp Nephew Inc v Fed Ins Co 113 FedAppx 99
(6th Cir 2004) in detennining an insurers duty to defend courts typically begin and end
their analysis with the four comers of the complaint Id at 102 Petitioner argues that there
are significant issues of material fact that exist given that there has been no final resolution of the
14
(LD09S752 I
underlying action13 but in fact clear-cut law dictates that all the Court must do is contrast the
averments of the Amended Complaint with the terms of the policies
The instant inquiry must therefore begin with the unique circumstances that the TIID
Amended Complaint against lA Street pleads only contract-based claims and not tort claims
Although the Circuit Court based its finding of no coverage solely on the Contractual Liability
exclusion as discussed in detail below courts in Tennessee and elsewhere have concluded that
there is no coverage for breach of contact claims and the damages that typically flow from such
claims on broader grounds While the Circuit Court did not subscribe to that broad view
our cases have made clear that it is permissible for us to affirm the granting of [dismissal] on bases difference or grounds other than those relief upon by the circuit court Hoover v Moran 222 WVa at 119 662 SE2d at 718 quoting Gently v Mangum 195 WVa 512519466 SE2d 171178 (1995) See also Schmehl v Helton 222 WVa 98 662 SE2d 697 705 n7 (2008) (this Court may in any event affirm the circuit court on any proper basis whether relied upon by the circuit court or not) Murphy v Smallridge 196 WVa 35 36-7 468 SE2d 167168-9 (1996) (An appellate court is not limited to the legal grounds relied upon by the circuit court but it may affirm or reverse a decision on any independently sufficient ground that has adequate support) Syl pt 3 Barnett v Wolfolk 149 WVa 246 140 SE2d 466 (1965) (This Court may on appeal affirm the judgment of the lower court when it appears that such judgment is correct on any legal ground disclosed by the record regardless of the ground reason or theory assigned by the lower court as the basis for its judgment)
Savarese v Allstate Ins Co 672 SE2d 255260 (WVa 2008)
One of the more elemental and uniformly embraced principles of corrunercial insurance
law is that the typical commercial liability insurance policy affords coverage for tort claims not
claims for breach of contract The authorities supporting that proposition are legion Dean
Henderson in his renowned and widely cited law review article makes the point emphatically
13 Petitioners Brief pp 25-27 15
(L0695752 1 J
[t]he risk intended to be insured is the possibility that the goods products or work of the insured once relinquished or completed will cause bodily injury or damage to property other than to the product or completed work itself and for which the insured may be found liable The insured as a source of goods or services may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable because it is lacking in some capacity This may even extend to an obligation to completely replace or rebuild the deficient product or work This liability however is not what the coverages in question are designed to protect against The coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb L Rev 415441 (1971)14
The overwhelming majority of courts and commentators that have addressed this issue
have held that breach of contract claims asserted against the insured are not covered under a
standard CGL policy See eg Couch on Insurance 3d sect1291-1294 (3d Ed 2005) (a
commercial general liability insurance policy is generally designed to provide coverage for tort
liability for physical damages to others and not for contractual liability of the insured for
economic loss the majority of jurisdictions have held that breach of contract is not an
14 The Henderson article has been widely relied upon by courts and commentators for over 40 years Noticeably it has been frequently cited with approval in Tennessee See Vernon (relying upon the Henderson article the Tennessee Court held that the standard comprehensive general liability policy does not provide coverage to an insured-contractor for a breach of contract action grounded upon faulty workmanship or materials where the damages claimed are the cost of correcting the work itself) Blaylock amp Brown Constr Inc v AIU Ins Co 796 SW2d 146 1990 TennApp LEXIS 338 (1990) (relying upon Henderson the Court holds bull that the language of the policy excludes liability coverage for the plaintiffs for damage to the property constructed pursuant to the contract) Standard Fire Ins Co v Chester-ODonley amp Assocs 972 SW2d 1 1998 TennApp LEXIS 65 (1998) (citing the Henderson article for the proposition that CGL policies are not intended to cover the insureds contractual liability for economic loss because its work was not that for which the damaged person bargained) Weedo v Stone-E-Brick Inc bull 81 NJ 233 405 A2d 788 (1979) (relying heavily upon the Henderson article the Court holds that a CGL policy does not provide coverage for a breach of contract action for faulty workmanship where the damages claimed are the cost ofcorrecting the work itself)
16
IL069S7S2 I
occurrencea [CGL] policy is not intended to provide coverage for the insureds contractual
liability which merely causes economic losses) Alan D Windt Insurance Claims and
Disputes sect117 (4th Ed 2001) (Finally there is the question as to whether a breach of
contract claim involves damages caused by an occurrence The answer should in general be
no) Erie Ins Prop amp Cas Co v Pioneer Home Improvement Inc 526 SE2d 28 33 206
WVa 506 513 (1999) (The coverage [under a COL policy] is for tort liability for physical
damages to others and not for contractual liability of the insured for economic loss because the
product or completed work is not that for which the damaged person bargained) Nationwide
Mutual Ins Co v CPB Intl Inc 562 F3d 591 598 2009 US App LEXIS 7795 14 (3d Cir
2009) (holding that under Pennsylvania law a CGL policy does not provide coverage for
claims in an underlying action that arise out of and relate to the contract between the parties)
Lyerla v AMCO Ins Co 536 F3d 684691-922008 US App LEXIS 164 78 (7th Cir 2008)
(applying Illinois law) (holding that underlying allegations that insured contractor did not satisfy
his contractual obligations is not property damage caused by an occurrence) L-J Inc v
Biteo Fire amp Marine Ins Co 621 SE2d 33 35 366 SC 117 (2005) (any liability that is
incurred because of faulty workmanship is part of the insureds contractual liability not an
insurable event under a CGL policy) Hotel Roanoke Conf Ctr Commn v Cincinnati Ins Co
303 FSupp2d 784 7882004 US Dist LEXIS 2539 (2004) (applying Virginia law) (damages
limited to the insureds work or product and resulting from the insureds defective perfonnance
of a contract are not covered losses under a [CGL] policy) Westfield Ins Co v Sheehan
Construction Co 580 FSupp2d 701 710 2008 US Dist LEXIS 66843 (2008) (applying
17
(L06957521
Indiana law) (a CGL policy serves to limit contractors tort liability for damage to property
caused by their work) Key Custom Homes Inc v Mid-Continent Cas Co 450 FSupp2d
1311 1317-182006 US Dist LEXIS 60355 (2006) (applying Florida law) (it is equally clear
that breach of contract claims for the recovery of money are not covered by general liability
insurance policies) Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254 1257329
Ore 620 (2000) (there can be no accident within the meaning of a commercial liability policy
when the resulting damage is merely a breach of contract) Bonded Concrete Inc v Transcon
Ins Co 12 AD3d 761 2004 NYAppDiv LEXIS 13020 (2004) (the purpose of a
commercial general liability policy is to provide coverage for tort liability for physical damage
to others and not for contractual liability of the insured for economic loss because the
product is not what the damaged [party] bargained for) United States Fire Ins Co v Milton
Co 35 FSupp2d 8386 1998 US Dist LEXIS 22116 (1998) (applying Maryland law) (there
is no occurrence under a comprehensive general liability insurance policy where and to the
extent that a contractors use of defective materials and substandard workmanship results in
economic losses that would normally be recoverable in a breach of contract action) Burlington
Ins Co v Oceanic Design amp Construction Inc 383 F3d 940 2004 US App LEXIS 18932
(9th Cir 2004) (applying Hawaii law) (holding that claims for breach of contract and negligent
breach of contract are not covered under a CGL policy) Norwalk Ready Mixed Concrete Inc v
Travelers Ins Co 246 F3d 1132 2001 US App LEXIS 7148 (8th Cir 2001) (applying Iowa
law) (holding that breach of contract and breach of warranty claims are not covered under a CGL
policy) USFampG Com v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476
18
(L06957521 l
(1989) (holding that a breach of contract claim asserted against an insured contractor is not
covered under a COL policy) Oreat Divide Ins Co v Bitterroot Timberfiames of Wyoming
LLC 2006 US Dist LEXIS 94826 (2006) (applying Wyoming law) (the allegations
demonstrate losses resulting from breach of contract and therefore cannot constitute an
accident for purposes of determining coverage) Union Ins Co v Hottenstein 83 P3d 1196
12022003 ColoApp LEXIS 1857 (2003) (poor workmanship constituting a breach of contract
is not a covered occurrence)
Tennessee lawl5 is in accord with these authorities The Tennessee Supreme Court has
defInitively held that breach of contract claims due to the insureds faulty workmanship such as
those asserted here by THD against IA Street in the underlying Amended Complaint are simply
not covered under the grant of coverage contained in a commercial liability policy See Vernon
supra Chester-ODonley supra at 6-7 (General liability policies are not all-risk policies and
only cover damages up to the policy limits for which the insured becomes liable as a result of
tort liability to a third party) (emphasis added) In Vernon the Supreme Court of Tennessee
expressly held that a standard COL policy only covers tort claims and such a policy does not
15 Under applicable Tennessee law contracts of insurance are subject to the same rules of interpretation and construction as other contracts McKimm v Bell 790 SW2d 526 527 1990 Tenn LEXIS 161 (1990) Thus [a]n insurance policy must be interpreted fairly and reasonably giving the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204 SW3d 758 2006 Tenn LEXIS 755 (2006) In the absence of fraud or mistake a contract must be interpreted and enforced as written even though it contains terms which may be thought harsh and unjust Allstate Ins Co v Wilson 856 SW2d 706 1992 TennApp LEXIS 1012 (1992) As a result the analysis of JA Streets right to coverage for the claims asserted in the underlying action are dictated by the terms of the policy The essential components of a general liability insurance policy include (1) the declarations (2) the insuring agreements and definitions (3) the exclusions (4) the conditions and (5) the endorsements See ChestershyODonley supra The insuring agreement sets the outer limits of an insurers contractual liability If coverage cannot be found in the insuring agreement it will not be found elsewhere in the policy Id 1998 TennApp LEXIS at 13-14
19
L069S7S21
afford coverage to an insured contractor for breach of contract claims Vernon 591 SW 2d at
765 Chester-ODonley supra at 6-7 Petitioner complains that the Circuit Court focused on
West Virginia cases such as Silk v Flat TOp6 but in fact the lower court expressly relied
upon a wealth of Tennessee authority17 including Vernon Cincinnati Ins Co v Grand Pointe
LLc18 and Trinity Univ Ins Co v Turner Funeral Home Inc 19 More recently Tennessee
courts have reaffirmed the rationale and holding of Vernon See State Auto Ins Cos v Gordon
Constr Inc 2001 TennApp LEXIS 349 (2001) (following Vernon and holding that the
insuring agreement of a CGL policy does not afford coverage for underlying breach of contract
and breach of warranty claims asserted against the insured contractor) Blake Indus Inc v
General Agents Ins Co of Am 2000 Tenn App LEXIS 490 (2000) (applying Vernon and
holding that claims asserted against the insured that were grounded in contract are not covered
under a CGL policy) Blaylock and Brown Constr Inc v AID Ins Co 796 SW2d 146 152shy
153 (Tenn Ct App 1990)
As the Circuit Court correctly recognized the express tenus of the insurance contract
clearly exclude contractual liability from coverage Exclusions help define and shape the scope
of coverage but they must be read in terms of the insuring agreement to which they apply
Exclusions can only decrease coverage they cannot increase it Chester-ODonley 972 SW2d
at 7-8 Moreover [e]ach exclusion reduces coverage and operates independently with reference
16 Petitioners Brief p 30 (citing 453 SE2d 356 (Wva 1994raquo 17 See See Opinion JA-I0552 ~27
18 2007 US Dist LEXIS 39784 (ED Tenn 2007) 19 2003 WL 23218046 (ED Tenn Dec 122003)
20
IL069S7S2 I I
to the insuring agreement Id at 8 The Contractual Liability exclusion specifically provides
that the insurance coverage does not apply to
Contractual liability
Bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement This exclusion does not apply to liability for damages
(1) That the insured would have in the absence of the contract or agreement or
(2) Assumed in a contract or agreement that is an insured contract provided the bodily injury or property damage occurs subsequent to the execution of the contract or agreement Solely for the purposes of liability assumed in a insured contract reasonable attorneys fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of bodily injury or property damage provided
(a) Liability to such party for or for the cost of that partys defense has also been assumed in the same insured contract and
(b) Such attorneys fees and litigation expenses are for defense of that party against the civil or alternative dispute resolution proceeding in which damages to which the insurance applies are alleged
See JA-62 Section I C[2
Even a cursory examination ofTHDs Amended Complaint reveals that all claims alleged
against JA Street were contractual There simply was no tort claim alleged In fact the claims
against JA Street were necessarily founded in contract for two reasons First the two-year
statute of limitations applicable to any tort claims elapsed long before THD first asserted its
claims against JA Street Tort claims were not pleaded and could not have been Second the
substantive law of West Virginia applies to the underlying claims asserted by THD against lA
21
(L069S7S21 I
Street20 and applicable West Virginia law plainly holds that even if THD had asserted tort
claims against JA Street the claims would still sound in contract under these circumstances for
purposes of the instant analysis since the gist of claims asserted against a contractor for deficient
work is necessarily ex contractu See Silk supra at 360 Dan Ryan Builders Inc v Crystal
Ridge Dev Inc 783 F3d 976 (4th Cir 2015) Unlike in both Silk and Dan Ryan THO did not
even assert any tort claims here Nor could it have Relevant to the precise policy language at
issue there simply was no liability for damages that [JA Street] would have in the absence of
the contract or agreement It simply cannot be contested that the claims alleged in the Amended
Complaint are and indeed necessarily were contractual in nature Given that alone the clear
holding of the Tennessee Court in Vernon mandated the Circuit Courts correct grant of
summary judgment in Biteos favor
A great majority of courts and commentators across the country that have addressed the
issue have held that the explicit unambiguous express Contractual Liability exclusion forecloses
coverage for all contract liability including breach of contract claims asserted against the
insured except where the insured has assumed the liability of another in an insured contract
See eg Silk v Flat Top Constr Inc 453 SE2d 356 359 192 WVa 522 (1994) (holding that
the contract exclusion applies to foreclose coverage for all contractual liability of the insured
except for liability assumed in an insured contract-a contract under which the insured
assumes the tort liability of another party) Gilbert Tex Constr v Underwriters at Lloyds
20 West Virginia applies the choice-of-law principle of lex loci delicti and there is no question here that the offending conduct and the loss all occurred in West Virginia such that JA Streets liability to THD would be governed by West Virginia law See State of Wva ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) (citing Syl Pt 1 Paul v Natl Life 352 SE2d 552 (WVa 1986raquo
22
(L069S7521 I
Londo 327 SW3d 118 (2010) (citing inter alia Nationwide Mut Ins Co v CPB Int Inc
No 306-CV-0363 2007 WL 4198173 at 8 (MDPa Nov26 2007) (Exclusion (b) is simply
further clarification in the policy that contract-based claims are not covered) ClM Ins Corp v
Midpac Auto Crr Inc 108 FSupp2d 1092 1099-1100 (DHaw2000) (clause in policy stating
that policy does not apply to liability assumed under any contract or agreement means that any
claim that is dependent on the existence of an underlying contract is not covered) Monticello
Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 at 2 (WDKy
Apr 3 1998) (exclusion for liability assumed by the insured under any contract or agreement
does not arise only when a party assumes the liability for another party rather the plain meaning
of the policy excludes a breach of contract claim from coverage) Silk supra (exclusion removed
coverage for breach of contract) TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 1091-92
(8th Cir1995) (exclusion for which the insured has assumed liability in a contract or agreement
plainly excluded coverage for contractual claims and not just hold-harmless or indemnity
agreements) Nationwide Mutual Ins Co v CPB Intl Inc 562 F3d 591 5992009 US App
LEXIS 7795 (3d Cir 2009) (applying Pa law) (holding that a breach of contract claim is excluded
under the Contractual Liability exclusion) Century Sur Co v Hardscape Constr Specialties Inc
578 F3d 262 2009 US App LEXIS 25300 (5th Cir 2009) (applying Texas law) (holding that the
Contractual Liability exclusion operates to exclude claims grounded primarily in breach of contract
and that no tort claims were asserted that triggered the insured contract exception) State Farm
Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 12 (2007) (applying Hawaii
law) (holding that claims arising from the insureds obligations under a contract are barred from
23
L0695152 I I
coverage under the Contractual Liability exclusion) JACO Airfield Constr Inc v National Trust
Ins Co 2007 US Dist LEXIS 100295 10 (2007) (applying Georgia law) (holding that the
Contractual Liability exclusion applies to foreclose coverage for the contractual based claims
asserted against the insured and that the insured contract exception to the Contractual Liability
exclusion does not apply because the insured did not assume the tort liability of another) Union Ins
Co v Williams Contr Inc 2006 US Dist LEXIS 35919 4-5 (2006) (holding that the
Contractual Liability exclusion precludes coverage for claims against the insured for breach of a
construction contract) Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270
GaApp 8 (2004) (affirming trial comts finding that the Contractual Liability exclusion barred
coverage for breach of contract and breach of implied warranty claims against the insured) Gibson
amp Assocs Inc v Home Ins Co 966 FSupp 468476-77 1997 US Dist LEXIS 4776 (1997)
(applying Texas law) (recognizing that the Contractual Liability exclusion precludes coverage for
breach of contract claims asserted against the insmed and that the policy only covers contractual
liability for indemnification actions ie an insured contract) James v Burlington Northern Santa
Fe Railway Co 2007 US Dist LEXIS 63282 4-5 (2007) (applying Arizona law) (holding that
the insured contract exception to the Contractual Liability exclusion does not bring ordinary
breach-of-contract claims within the scope of CGL coverage) TGA Dev Inc v Northern Ins Co
of New York 62 F3d 1089 1091-92 1995 USApp LEXIS 21700 (8th Cir 1995) (applying
Minnesota law) (holding that the Contractual Liability exclusion plainly excludes coverage for
contractual claims made for [the insmeds] failure to provide [the property owner] with a
condominium unit free from defects)
24
(lO6957521 )
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
any insured listed under Paragraph 1 of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim includes any continuation change or resumption of that bodily injury or property damage after the end of the policy period
d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph 1 of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim Reports all or any part of the bodily injury or property damage to us or any other insurer
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or
(2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
Id Section I ~1
Property damage is defined under the policies as
(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 it 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 causes it
Id Section V ~17
Occurrence is defined as
[A]n accident including continuous or repeated exposure to substantially the same general hannful conditions
Id Section V ~13
Consonant with the well-recognized fact that commercial liability insurance covers tort
claims and not contract claims in subparagraph 6 of the Exclusions section the policies
7
(L069S7S21 I
contain a Contractual Liability exclusion The language of this familiar exclusion makes clear
that the insurance does not apply to bodily injury or property damage for which the insured
is obligated to pay damages by reason of the assumption of liability in a contract or
agreement 6 The policies also contain exclusion (m) which states that the coverage does not
apply to
m Damage to impaired property or property not physically damaged Property damage to impaired property arising out of (1) a defect deficiency inadequacy or dangerous condition in your
product or your work or (2) a delay or failure by you or anyone acting on your behalf to
perform a contract or agreement in accordance with its terms 7
In addition to the commercial liability policies Bitco also insured 1A Street under
commercial umbrella policies from March 2003 through March 2007 each of which contained
materially identical provisions as set forth above except that the insuring agreement also
included the following language We will pay on behalf of the insured the ultimate net loss in
excess of the retained limit because of property damage caused by an occurrence which
takes place during the policy period 8 Paragraph 5 of the Limits of Insurance provision
addresses the limits of property damage coverage under Coverage A The language therein
states succinctly as follows
Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of
6 The exceptions are where the liability is one ( 1) That the insured would have in the absence of the contract or agreement [or] (2) Assumed in the contract or agreement that is an insured contract As discussed fully below neither of these exceptions to the Contractual Liability exclusion apply in this case 7 The policies also each have a Limits of Liability section discussed more fully below in Biteos CrossshyAssignments ofError 8 See JA3004-3312
8
(L069S7S2 I )
(a) Damages under Coverage A (b) Because of all bodily injury and property damage arising out of any one occurrence
Bitco extended a defense to lA Street in the underlying action but did so under
reservation ofright to deny coverage
C PROCEDURAL HISTORY
As stated the insurance issues herein relate to an Amended Complaint filed in the
underlying action on December 11 2007 joining and asserting claims against JA Street See
JA-2I7 On July 14 2008 Biteo filed the instant action for declaratory judgment pursuant to
the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the
Circuit Court detennine that the previously described commercial general liability insurance
policies afford no coverage and Bitco owes no duty to defend JA Street for the claims asserted
in the Amended Complaint in the underlying action See JA-19
By Order dated February 172015 the Circuit Court invited summary judgment motions
on all grounds argued by all parties subject to waiver should any available ground not be raised
9 On August 13 2009 Biteo fIled a Motion for Summary Judgment requesting that the Circuit Court declare as a matter of law that Bitco owes no coverage andor duty to defend lA Street with respect to the claims asserted against JA Street in the underlying action See JA-263 IA Street filed a CrossshyMotion for Partial Summary Judgment on that issue Following oral argument the Circuit Court denied Biteos Motion and granted IA Streets Cross-Motion rmding that Biteo owes JA Street a duty to defend the underlying action until such time as the Plaintiff meets its burden of proof that no duty to defend exists See Order JA-I005 The Circuit Court concluded that it cannot definitively say at this time that under Tennessee law the plaintiff would not have a duty to defend Id On March 13 2014 1A Street filed a Third-Party Complaint pursuant to the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the Circuit Court determine that Biteo along with five (5) other insurers owe coverage to IA Street for the claims asserted against it by TlID and that no exclusions or other policy language excludes limits or defeats coverage See IA-I051 As discussed in Petitioners Brief extensive motion practice ensued regarding a host of intricate insurance issues
9
[L06957521
Accordingly on March 12 2015 Bitco filed a Second Amended Cross-Motion for Summary
Judgment arguing that there was no coverage nor any duty to defend under any of its policies
because contract claims for damages brought against construction contractors based upon defects
or deficiencies in the work do not constitute property damage caused by an occurrence are
not VIIithin the scope of the standard commercial liability or umbrella policy and are in any event
excluded See IA-8614 After briefing and argument on December 302016 the Circuit Court
entered an Order agreeing with Bitco and granting summary judgment in Bitcos favor along
with a declaration that Bitco owes no duty to defend nor any coverage of the claims asserted
against IA Street in the underlying action See Opinion JA-I0SS2 JA Street took an appeal
to this Court and filed its principal Brief on May 122017 Bitco now responds
II SUMMARY OF ARGUMENT
This Court should affirm the lower courts declaration that Bitco owes no coverage and
no duty to defend JA Street under its commercial general liability (CGL) and umbrella
insurance policies with respect to the claims asserted in the underlying action The claims
asserted by THD against JA Street in the underlying action are for breach of contract breach of
warranty and indemnity All of these claims are ex contractu they all arise out of a written
agreement between DID and 1A Street under which 1A Street agreed to construct the Merritt
Creek Shopping Center All claims in the underlying action relate to alleged breach of the
express or implied obligations of the aforesaid contract due to alleged deficiencies in
construction work that JA Street contracted to perform thereunder Pursuant to well-settled
law those claims are not covered by liability insurance policies
10
L0695752 I
All damages alleged in the underlying Amended Complaint are first-party claims alleging
economic damages directly relating to the work JA Street contracted to perform The fact that
the only claims pled are for breach of contract -- and not tort -- is dispositive to the insurance
coverage issues Well-established Tennessee authority and the decisions of a majority of other
jurisdictions across the country have explicitly recognized that contract claims precisely like
those asserted against lA Street are not within the embrace of the insuring agreement of the
standard commercial liability policy The Travelers Indemn Co of Am v Moore amp Assocs
Inc IO decision upon which the Petitioners principally rely is inapposite since it does not address
whether pure contract claims are covered The Tennessee Supreme Courts decision in Vernon
Williams amp Son Constr Inc v Continental Ins Co II which is still the law in Tennessee today
and which the Petitioners entirely ignore clearly holds that any contract-based claims for faulty
workmanship are not covered under a commercial liability policy Consequently the claims
asserted against lA Street in the underlying action are not covered under the clear and
unambiguous terms of the applicable policies initial grant of coverage because the claims
alleged are only for the recovery of economic damages based upon breach of contract In
addition the Circuit Court correctly noted the applicability of exclusion (m) relative to impaired
property Because it is clear that the policies do not afford coverage for the claims asserted in
the underlying action Bitco does not owe a duty to defend lA Street Therefore the Circuit
Courts determination that lA Street is not entitled to coverage and a defense under the Bitco
policies was entirely correct
10 216 SW3d 202 (Tenn 2007) 11 591 SW2d 760 (Tenn 1979)
11
L069S7S21 J
Finally though the issue is moot since Bitco owes no coverage at all Bitco cross-assigns
error in the Circuit Courts determinations that more than one policy and per occurrence limit
could apply under any circumstances The unambiguous policy language restricts any coverage
to only one policy period and only one applicable limit This Court should not need to reach
those issues however since there is no coverage at all
UI STATEMENT REGARDING ORAL ARGUMENT AND DECISION
Bitco does not believe the narrow issues necessary to affirm the judgment below are
particularly difficult or complex However if the Court is interested in entertaining oral
argument Bitcos counsel would of course happily oblige
IV ARGUMENT
A STANDARD OF REVIEW
Inasmuch as the summary judgment was entered with regard to a declaratory judgment
action [a] circuit courts entry of a declaratory judgment is reviewed de novo Id
(quoting Syl Pt 3 Cox v Amick 195 WVa 608 466 SE2d 459 (1995raquo See also
Blankenship v City of Charleston 223 WVa 822 824 679 SE2d 654 656 (2009) (quoting
Syi Pt 1 Painter v Peavy 192 WVa 189 451 SE2d 755 (1994raquo Moreover
[d]etermination of the proper coverage of an insurance contract when the facts are not in
dispute is a question of law Id at 825 (quoting Syi Pt 1 Tennant v Smallwood 211 WVa
703 568 SE2d 10 (2002raquo) As [t]he interpretation of an insurance contract including the
question of whether the contract is ambiguous is a legal determination like a lower courts
grant of summary judgment [it] shall be reviewed de novo on appeal Id (quoting SyI Pt 2
12
(L06957521 )
Riffe v Home Finders Associates Inc 205 WVa 216 517 SE2d 313 (1999)) Importantly as
discussed in detail immediately below since the core issue in this case merely requires a
comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies this case presents a pure matter of law that is uniquely
suitable for decision at the summary judgment stage
B THE CIRCUIT COURT CORRECTLY HELD THAT UNDER TENNESSEE LAW THE CONTRACTUAL CLAIMS ASSERTED BY THD AGAINST JA STREET ARE NOT COVERED
BY THE BITCO POLICIES
In this State a liability insurer has no duty to defend an action asserted against the
insured where it is clear from the allegations of the Complaint against the insured that there is no
coverage afforded under the relevant insurance policy See Horace Mann Ins Co v Leeber 376
SE2d 581 584 180 WVa 375 (1988) State Auto Mut Ins Co v Alpha Engg Servbull Inc
542 SE2d 876 879 208 WVa 713 (2000) (If the causes of action alleged in the plaintiffs
complaint are entirely foreign to the risks covered by the insurance policy then the insurance
company is relieved of its duties under the policy) Tennesseel2 follows exactly the same rule
See Drexel Chemical Co v Bitco Ins Co 933 SW2d 471480 1996 TennApp LEXIS 356
(1996) (holding that the insurer did not have a duty to defend where an exclusion applied to
foreclose coverage) Tenn Farmers Mut Ins Co v Brown 1990 TennApp LEXIS 812 (1990)
(The general rule in Tennessee is that an insurer is not obligated to undertake the defense of a
suit against its insured unless the allegations of the complaint show a claim for damages that
would be covered by the policy) Cincinnati Ins Co v Grand Pointe LLC 2007 US Dist
12 All parties concede that Tennessee law governs construction of the insurance policies
13
(L069S7S21 )
LEXIS 39784 (ED Tenn 2007) (If it is plain from the face of the underlying complaint the
allegations fail to state facts that bring the case within or potentially within the policy no duty to
defend exists) Am Nat Prop and Cas Ins Co v Gray 803 SW 2d 693 695-96 (Tenn Ct
App 1990) Graves v Liberty Mut Fire Ins Co 745 SW2d 282283 (Tenn Ct App 1987)
In ascertaining whether there is a duty to defend under a liability insurance policy
Tennessee adheres to a strict four comers approach See Interstate Packaging Co v Century
Indem Co bull 2013 US Dist LEXIS 45459 (MDTenn 2013) citing St Paul Fire amp Marine Ins
Co v Torpoco 879 SW2d 831 835 (Tenn 1994) Clark v Sputnicks LLC 368 SW3d 431
439 (Tenn 2012) (An insurers duty to defend is determined solely by an examination of the
allegations of the underlying complaint) Thus under Tennessee law the court must limit its
inquiry to the claims and allegations presented in the complaint against the insured [I]f the
allegations contained in the complaintare within the risk insured against and there is a
potential basis for recovery then [the insurer] must defend St Paul v Torpoco supra 879
SW2d at 835 Conversely if the claims alleged in the complaint are clearly not within the
scope of coverage then there is no duty to defend Drexel Chemical Co v Bitco Ins Co 933
SW2d 471 480 (Tenn 1996) As the United States Court of Appeals for the Sixth Circuit
stated it applying Tennessee law in Smith amp Nephew Inc v Fed Ins Co 113 FedAppx 99
(6th Cir 2004) in detennining an insurers duty to defend courts typically begin and end
their analysis with the four comers of the complaint Id at 102 Petitioner argues that there
are significant issues of material fact that exist given that there has been no final resolution of the
14
(LD09S752 I
underlying action13 but in fact clear-cut law dictates that all the Court must do is contrast the
averments of the Amended Complaint with the terms of the policies
The instant inquiry must therefore begin with the unique circumstances that the TIID
Amended Complaint against lA Street pleads only contract-based claims and not tort claims
Although the Circuit Court based its finding of no coverage solely on the Contractual Liability
exclusion as discussed in detail below courts in Tennessee and elsewhere have concluded that
there is no coverage for breach of contact claims and the damages that typically flow from such
claims on broader grounds While the Circuit Court did not subscribe to that broad view
our cases have made clear that it is permissible for us to affirm the granting of [dismissal] on bases difference or grounds other than those relief upon by the circuit court Hoover v Moran 222 WVa at 119 662 SE2d at 718 quoting Gently v Mangum 195 WVa 512519466 SE2d 171178 (1995) See also Schmehl v Helton 222 WVa 98 662 SE2d 697 705 n7 (2008) (this Court may in any event affirm the circuit court on any proper basis whether relied upon by the circuit court or not) Murphy v Smallridge 196 WVa 35 36-7 468 SE2d 167168-9 (1996) (An appellate court is not limited to the legal grounds relied upon by the circuit court but it may affirm or reverse a decision on any independently sufficient ground that has adequate support) Syl pt 3 Barnett v Wolfolk 149 WVa 246 140 SE2d 466 (1965) (This Court may on appeal affirm the judgment of the lower court when it appears that such judgment is correct on any legal ground disclosed by the record regardless of the ground reason or theory assigned by the lower court as the basis for its judgment)
Savarese v Allstate Ins Co 672 SE2d 255260 (WVa 2008)
One of the more elemental and uniformly embraced principles of corrunercial insurance
law is that the typical commercial liability insurance policy affords coverage for tort claims not
claims for breach of contract The authorities supporting that proposition are legion Dean
Henderson in his renowned and widely cited law review article makes the point emphatically
13 Petitioners Brief pp 25-27 15
(L0695752 1 J
[t]he risk intended to be insured is the possibility that the goods products or work of the insured once relinquished or completed will cause bodily injury or damage to property other than to the product or completed work itself and for which the insured may be found liable The insured as a source of goods or services may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable because it is lacking in some capacity This may even extend to an obligation to completely replace or rebuild the deficient product or work This liability however is not what the coverages in question are designed to protect against The coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb L Rev 415441 (1971)14
The overwhelming majority of courts and commentators that have addressed this issue
have held that breach of contract claims asserted against the insured are not covered under a
standard CGL policy See eg Couch on Insurance 3d sect1291-1294 (3d Ed 2005) (a
commercial general liability insurance policy is generally designed to provide coverage for tort
liability for physical damages to others and not for contractual liability of the insured for
economic loss the majority of jurisdictions have held that breach of contract is not an
14 The Henderson article has been widely relied upon by courts and commentators for over 40 years Noticeably it has been frequently cited with approval in Tennessee See Vernon (relying upon the Henderson article the Tennessee Court held that the standard comprehensive general liability policy does not provide coverage to an insured-contractor for a breach of contract action grounded upon faulty workmanship or materials where the damages claimed are the cost of correcting the work itself) Blaylock amp Brown Constr Inc v AIU Ins Co 796 SW2d 146 1990 TennApp LEXIS 338 (1990) (relying upon Henderson the Court holds bull that the language of the policy excludes liability coverage for the plaintiffs for damage to the property constructed pursuant to the contract) Standard Fire Ins Co v Chester-ODonley amp Assocs 972 SW2d 1 1998 TennApp LEXIS 65 (1998) (citing the Henderson article for the proposition that CGL policies are not intended to cover the insureds contractual liability for economic loss because its work was not that for which the damaged person bargained) Weedo v Stone-E-Brick Inc bull 81 NJ 233 405 A2d 788 (1979) (relying heavily upon the Henderson article the Court holds that a CGL policy does not provide coverage for a breach of contract action for faulty workmanship where the damages claimed are the cost ofcorrecting the work itself)
16
IL069S7S2 I
occurrencea [CGL] policy is not intended to provide coverage for the insureds contractual
liability which merely causes economic losses) Alan D Windt Insurance Claims and
Disputes sect117 (4th Ed 2001) (Finally there is the question as to whether a breach of
contract claim involves damages caused by an occurrence The answer should in general be
no) Erie Ins Prop amp Cas Co v Pioneer Home Improvement Inc 526 SE2d 28 33 206
WVa 506 513 (1999) (The coverage [under a COL policy] is for tort liability for physical
damages to others and not for contractual liability of the insured for economic loss because the
product or completed work is not that for which the damaged person bargained) Nationwide
Mutual Ins Co v CPB Intl Inc 562 F3d 591 598 2009 US App LEXIS 7795 14 (3d Cir
2009) (holding that under Pennsylvania law a CGL policy does not provide coverage for
claims in an underlying action that arise out of and relate to the contract between the parties)
Lyerla v AMCO Ins Co 536 F3d 684691-922008 US App LEXIS 164 78 (7th Cir 2008)
(applying Illinois law) (holding that underlying allegations that insured contractor did not satisfy
his contractual obligations is not property damage caused by an occurrence) L-J Inc v
Biteo Fire amp Marine Ins Co 621 SE2d 33 35 366 SC 117 (2005) (any liability that is
incurred because of faulty workmanship is part of the insureds contractual liability not an
insurable event under a CGL policy) Hotel Roanoke Conf Ctr Commn v Cincinnati Ins Co
303 FSupp2d 784 7882004 US Dist LEXIS 2539 (2004) (applying Virginia law) (damages
limited to the insureds work or product and resulting from the insureds defective perfonnance
of a contract are not covered losses under a [CGL] policy) Westfield Ins Co v Sheehan
Construction Co 580 FSupp2d 701 710 2008 US Dist LEXIS 66843 (2008) (applying
17
(L06957521
Indiana law) (a CGL policy serves to limit contractors tort liability for damage to property
caused by their work) Key Custom Homes Inc v Mid-Continent Cas Co 450 FSupp2d
1311 1317-182006 US Dist LEXIS 60355 (2006) (applying Florida law) (it is equally clear
that breach of contract claims for the recovery of money are not covered by general liability
insurance policies) Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254 1257329
Ore 620 (2000) (there can be no accident within the meaning of a commercial liability policy
when the resulting damage is merely a breach of contract) Bonded Concrete Inc v Transcon
Ins Co 12 AD3d 761 2004 NYAppDiv LEXIS 13020 (2004) (the purpose of a
commercial general liability policy is to provide coverage for tort liability for physical damage
to others and not for contractual liability of the insured for economic loss because the
product is not what the damaged [party] bargained for) United States Fire Ins Co v Milton
Co 35 FSupp2d 8386 1998 US Dist LEXIS 22116 (1998) (applying Maryland law) (there
is no occurrence under a comprehensive general liability insurance policy where and to the
extent that a contractors use of defective materials and substandard workmanship results in
economic losses that would normally be recoverable in a breach of contract action) Burlington
Ins Co v Oceanic Design amp Construction Inc 383 F3d 940 2004 US App LEXIS 18932
(9th Cir 2004) (applying Hawaii law) (holding that claims for breach of contract and negligent
breach of contract are not covered under a CGL policy) Norwalk Ready Mixed Concrete Inc v
Travelers Ins Co 246 F3d 1132 2001 US App LEXIS 7148 (8th Cir 2001) (applying Iowa
law) (holding that breach of contract and breach of warranty claims are not covered under a CGL
policy) USFampG Com v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476
18
(L06957521 l
(1989) (holding that a breach of contract claim asserted against an insured contractor is not
covered under a COL policy) Oreat Divide Ins Co v Bitterroot Timberfiames of Wyoming
LLC 2006 US Dist LEXIS 94826 (2006) (applying Wyoming law) (the allegations
demonstrate losses resulting from breach of contract and therefore cannot constitute an
accident for purposes of determining coverage) Union Ins Co v Hottenstein 83 P3d 1196
12022003 ColoApp LEXIS 1857 (2003) (poor workmanship constituting a breach of contract
is not a covered occurrence)
Tennessee lawl5 is in accord with these authorities The Tennessee Supreme Court has
defInitively held that breach of contract claims due to the insureds faulty workmanship such as
those asserted here by THD against IA Street in the underlying Amended Complaint are simply
not covered under the grant of coverage contained in a commercial liability policy See Vernon
supra Chester-ODonley supra at 6-7 (General liability policies are not all-risk policies and
only cover damages up to the policy limits for which the insured becomes liable as a result of
tort liability to a third party) (emphasis added) In Vernon the Supreme Court of Tennessee
expressly held that a standard COL policy only covers tort claims and such a policy does not
15 Under applicable Tennessee law contracts of insurance are subject to the same rules of interpretation and construction as other contracts McKimm v Bell 790 SW2d 526 527 1990 Tenn LEXIS 161 (1990) Thus [a]n insurance policy must be interpreted fairly and reasonably giving the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204 SW3d 758 2006 Tenn LEXIS 755 (2006) In the absence of fraud or mistake a contract must be interpreted and enforced as written even though it contains terms which may be thought harsh and unjust Allstate Ins Co v Wilson 856 SW2d 706 1992 TennApp LEXIS 1012 (1992) As a result the analysis of JA Streets right to coverage for the claims asserted in the underlying action are dictated by the terms of the policy The essential components of a general liability insurance policy include (1) the declarations (2) the insuring agreements and definitions (3) the exclusions (4) the conditions and (5) the endorsements See ChestershyODonley supra The insuring agreement sets the outer limits of an insurers contractual liability If coverage cannot be found in the insuring agreement it will not be found elsewhere in the policy Id 1998 TennApp LEXIS at 13-14
19
L069S7S21
afford coverage to an insured contractor for breach of contract claims Vernon 591 SW 2d at
765 Chester-ODonley supra at 6-7 Petitioner complains that the Circuit Court focused on
West Virginia cases such as Silk v Flat TOp6 but in fact the lower court expressly relied
upon a wealth of Tennessee authority17 including Vernon Cincinnati Ins Co v Grand Pointe
LLc18 and Trinity Univ Ins Co v Turner Funeral Home Inc 19 More recently Tennessee
courts have reaffirmed the rationale and holding of Vernon See State Auto Ins Cos v Gordon
Constr Inc 2001 TennApp LEXIS 349 (2001) (following Vernon and holding that the
insuring agreement of a CGL policy does not afford coverage for underlying breach of contract
and breach of warranty claims asserted against the insured contractor) Blake Indus Inc v
General Agents Ins Co of Am 2000 Tenn App LEXIS 490 (2000) (applying Vernon and
holding that claims asserted against the insured that were grounded in contract are not covered
under a CGL policy) Blaylock and Brown Constr Inc v AID Ins Co 796 SW2d 146 152shy
153 (Tenn Ct App 1990)
As the Circuit Court correctly recognized the express tenus of the insurance contract
clearly exclude contractual liability from coverage Exclusions help define and shape the scope
of coverage but they must be read in terms of the insuring agreement to which they apply
Exclusions can only decrease coverage they cannot increase it Chester-ODonley 972 SW2d
at 7-8 Moreover [e]ach exclusion reduces coverage and operates independently with reference
16 Petitioners Brief p 30 (citing 453 SE2d 356 (Wva 1994raquo 17 See See Opinion JA-I0552 ~27
18 2007 US Dist LEXIS 39784 (ED Tenn 2007) 19 2003 WL 23218046 (ED Tenn Dec 122003)
20
IL069S7S2 I I
to the insuring agreement Id at 8 The Contractual Liability exclusion specifically provides
that the insurance coverage does not apply to
Contractual liability
Bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement This exclusion does not apply to liability for damages
(1) That the insured would have in the absence of the contract or agreement or
(2) Assumed in a contract or agreement that is an insured contract provided the bodily injury or property damage occurs subsequent to the execution of the contract or agreement Solely for the purposes of liability assumed in a insured contract reasonable attorneys fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of bodily injury or property damage provided
(a) Liability to such party for or for the cost of that partys defense has also been assumed in the same insured contract and
(b) Such attorneys fees and litigation expenses are for defense of that party against the civil or alternative dispute resolution proceeding in which damages to which the insurance applies are alleged
See JA-62 Section I C[2
Even a cursory examination ofTHDs Amended Complaint reveals that all claims alleged
against JA Street were contractual There simply was no tort claim alleged In fact the claims
against JA Street were necessarily founded in contract for two reasons First the two-year
statute of limitations applicable to any tort claims elapsed long before THD first asserted its
claims against JA Street Tort claims were not pleaded and could not have been Second the
substantive law of West Virginia applies to the underlying claims asserted by THD against lA
21
(L069S7S21 I
Street20 and applicable West Virginia law plainly holds that even if THD had asserted tort
claims against JA Street the claims would still sound in contract under these circumstances for
purposes of the instant analysis since the gist of claims asserted against a contractor for deficient
work is necessarily ex contractu See Silk supra at 360 Dan Ryan Builders Inc v Crystal
Ridge Dev Inc 783 F3d 976 (4th Cir 2015) Unlike in both Silk and Dan Ryan THO did not
even assert any tort claims here Nor could it have Relevant to the precise policy language at
issue there simply was no liability for damages that [JA Street] would have in the absence of
the contract or agreement It simply cannot be contested that the claims alleged in the Amended
Complaint are and indeed necessarily were contractual in nature Given that alone the clear
holding of the Tennessee Court in Vernon mandated the Circuit Courts correct grant of
summary judgment in Biteos favor
A great majority of courts and commentators across the country that have addressed the
issue have held that the explicit unambiguous express Contractual Liability exclusion forecloses
coverage for all contract liability including breach of contract claims asserted against the
insured except where the insured has assumed the liability of another in an insured contract
See eg Silk v Flat Top Constr Inc 453 SE2d 356 359 192 WVa 522 (1994) (holding that
the contract exclusion applies to foreclose coverage for all contractual liability of the insured
except for liability assumed in an insured contract-a contract under which the insured
assumes the tort liability of another party) Gilbert Tex Constr v Underwriters at Lloyds
20 West Virginia applies the choice-of-law principle of lex loci delicti and there is no question here that the offending conduct and the loss all occurred in West Virginia such that JA Streets liability to THD would be governed by West Virginia law See State of Wva ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) (citing Syl Pt 1 Paul v Natl Life 352 SE2d 552 (WVa 1986raquo
22
(L069S7521 I
Londo 327 SW3d 118 (2010) (citing inter alia Nationwide Mut Ins Co v CPB Int Inc
No 306-CV-0363 2007 WL 4198173 at 8 (MDPa Nov26 2007) (Exclusion (b) is simply
further clarification in the policy that contract-based claims are not covered) ClM Ins Corp v
Midpac Auto Crr Inc 108 FSupp2d 1092 1099-1100 (DHaw2000) (clause in policy stating
that policy does not apply to liability assumed under any contract or agreement means that any
claim that is dependent on the existence of an underlying contract is not covered) Monticello
Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 at 2 (WDKy
Apr 3 1998) (exclusion for liability assumed by the insured under any contract or agreement
does not arise only when a party assumes the liability for another party rather the plain meaning
of the policy excludes a breach of contract claim from coverage) Silk supra (exclusion removed
coverage for breach of contract) TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 1091-92
(8th Cir1995) (exclusion for which the insured has assumed liability in a contract or agreement
plainly excluded coverage for contractual claims and not just hold-harmless or indemnity
agreements) Nationwide Mutual Ins Co v CPB Intl Inc 562 F3d 591 5992009 US App
LEXIS 7795 (3d Cir 2009) (applying Pa law) (holding that a breach of contract claim is excluded
under the Contractual Liability exclusion) Century Sur Co v Hardscape Constr Specialties Inc
578 F3d 262 2009 US App LEXIS 25300 (5th Cir 2009) (applying Texas law) (holding that the
Contractual Liability exclusion operates to exclude claims grounded primarily in breach of contract
and that no tort claims were asserted that triggered the insured contract exception) State Farm
Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 12 (2007) (applying Hawaii
law) (holding that claims arising from the insureds obligations under a contract are barred from
23
L0695152 I I
coverage under the Contractual Liability exclusion) JACO Airfield Constr Inc v National Trust
Ins Co 2007 US Dist LEXIS 100295 10 (2007) (applying Georgia law) (holding that the
Contractual Liability exclusion applies to foreclose coverage for the contractual based claims
asserted against the insured and that the insured contract exception to the Contractual Liability
exclusion does not apply because the insured did not assume the tort liability of another) Union Ins
Co v Williams Contr Inc 2006 US Dist LEXIS 35919 4-5 (2006) (holding that the
Contractual Liability exclusion precludes coverage for claims against the insured for breach of a
construction contract) Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270
GaApp 8 (2004) (affirming trial comts finding that the Contractual Liability exclusion barred
coverage for breach of contract and breach of implied warranty claims against the insured) Gibson
amp Assocs Inc v Home Ins Co 966 FSupp 468476-77 1997 US Dist LEXIS 4776 (1997)
(applying Texas law) (recognizing that the Contractual Liability exclusion precludes coverage for
breach of contract claims asserted against the insmed and that the policy only covers contractual
liability for indemnification actions ie an insured contract) James v Burlington Northern Santa
Fe Railway Co 2007 US Dist LEXIS 63282 4-5 (2007) (applying Arizona law) (holding that
the insured contract exception to the Contractual Liability exclusion does not bring ordinary
breach-of-contract claims within the scope of CGL coverage) TGA Dev Inc v Northern Ins Co
of New York 62 F3d 1089 1091-92 1995 USApp LEXIS 21700 (8th Cir 1995) (applying
Minnesota law) (holding that the Contractual Liability exclusion plainly excludes coverage for
contractual claims made for [the insmeds] failure to provide [the property owner] with a
condominium unit free from defects)
24
(lO6957521 )
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
contain a Contractual Liability exclusion The language of this familiar exclusion makes clear
that the insurance does not apply to bodily injury or property damage for which the insured
is obligated to pay damages by reason of the assumption of liability in a contract or
agreement 6 The policies also contain exclusion (m) which states that the coverage does not
apply to
m Damage to impaired property or property not physically damaged Property damage to impaired property arising out of (1) a defect deficiency inadequacy or dangerous condition in your
product or your work or (2) a delay or failure by you or anyone acting on your behalf to
perform a contract or agreement in accordance with its terms 7
In addition to the commercial liability policies Bitco also insured 1A Street under
commercial umbrella policies from March 2003 through March 2007 each of which contained
materially identical provisions as set forth above except that the insuring agreement also
included the following language We will pay on behalf of the insured the ultimate net loss in
excess of the retained limit because of property damage caused by an occurrence which
takes place during the policy period 8 Paragraph 5 of the Limits of Insurance provision
addresses the limits of property damage coverage under Coverage A The language therein
states succinctly as follows
Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of
6 The exceptions are where the liability is one ( 1) That the insured would have in the absence of the contract or agreement [or] (2) Assumed in the contract or agreement that is an insured contract As discussed fully below neither of these exceptions to the Contractual Liability exclusion apply in this case 7 The policies also each have a Limits of Liability section discussed more fully below in Biteos CrossshyAssignments ofError 8 See JA3004-3312
8
(L069S7S2 I )
(a) Damages under Coverage A (b) Because of all bodily injury and property damage arising out of any one occurrence
Bitco extended a defense to lA Street in the underlying action but did so under
reservation ofright to deny coverage
C PROCEDURAL HISTORY
As stated the insurance issues herein relate to an Amended Complaint filed in the
underlying action on December 11 2007 joining and asserting claims against JA Street See
JA-2I7 On July 14 2008 Biteo filed the instant action for declaratory judgment pursuant to
the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the
Circuit Court detennine that the previously described commercial general liability insurance
policies afford no coverage and Bitco owes no duty to defend JA Street for the claims asserted
in the Amended Complaint in the underlying action See JA-19
By Order dated February 172015 the Circuit Court invited summary judgment motions
on all grounds argued by all parties subject to waiver should any available ground not be raised
9 On August 13 2009 Biteo fIled a Motion for Summary Judgment requesting that the Circuit Court declare as a matter of law that Bitco owes no coverage andor duty to defend lA Street with respect to the claims asserted against JA Street in the underlying action See JA-263 IA Street filed a CrossshyMotion for Partial Summary Judgment on that issue Following oral argument the Circuit Court denied Biteos Motion and granted IA Streets Cross-Motion rmding that Biteo owes JA Street a duty to defend the underlying action until such time as the Plaintiff meets its burden of proof that no duty to defend exists See Order JA-I005 The Circuit Court concluded that it cannot definitively say at this time that under Tennessee law the plaintiff would not have a duty to defend Id On March 13 2014 1A Street filed a Third-Party Complaint pursuant to the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the Circuit Court determine that Biteo along with five (5) other insurers owe coverage to IA Street for the claims asserted against it by TlID and that no exclusions or other policy language excludes limits or defeats coverage See IA-I051 As discussed in Petitioners Brief extensive motion practice ensued regarding a host of intricate insurance issues
9
[L06957521
Accordingly on March 12 2015 Bitco filed a Second Amended Cross-Motion for Summary
Judgment arguing that there was no coverage nor any duty to defend under any of its policies
because contract claims for damages brought against construction contractors based upon defects
or deficiencies in the work do not constitute property damage caused by an occurrence are
not VIIithin the scope of the standard commercial liability or umbrella policy and are in any event
excluded See IA-8614 After briefing and argument on December 302016 the Circuit Court
entered an Order agreeing with Bitco and granting summary judgment in Bitcos favor along
with a declaration that Bitco owes no duty to defend nor any coverage of the claims asserted
against IA Street in the underlying action See Opinion JA-I0SS2 JA Street took an appeal
to this Court and filed its principal Brief on May 122017 Bitco now responds
II SUMMARY OF ARGUMENT
This Court should affirm the lower courts declaration that Bitco owes no coverage and
no duty to defend JA Street under its commercial general liability (CGL) and umbrella
insurance policies with respect to the claims asserted in the underlying action The claims
asserted by THD against JA Street in the underlying action are for breach of contract breach of
warranty and indemnity All of these claims are ex contractu they all arise out of a written
agreement between DID and 1A Street under which 1A Street agreed to construct the Merritt
Creek Shopping Center All claims in the underlying action relate to alleged breach of the
express or implied obligations of the aforesaid contract due to alleged deficiencies in
construction work that JA Street contracted to perform thereunder Pursuant to well-settled
law those claims are not covered by liability insurance policies
10
L0695752 I
All damages alleged in the underlying Amended Complaint are first-party claims alleging
economic damages directly relating to the work JA Street contracted to perform The fact that
the only claims pled are for breach of contract -- and not tort -- is dispositive to the insurance
coverage issues Well-established Tennessee authority and the decisions of a majority of other
jurisdictions across the country have explicitly recognized that contract claims precisely like
those asserted against lA Street are not within the embrace of the insuring agreement of the
standard commercial liability policy The Travelers Indemn Co of Am v Moore amp Assocs
Inc IO decision upon which the Petitioners principally rely is inapposite since it does not address
whether pure contract claims are covered The Tennessee Supreme Courts decision in Vernon
Williams amp Son Constr Inc v Continental Ins Co II which is still the law in Tennessee today
and which the Petitioners entirely ignore clearly holds that any contract-based claims for faulty
workmanship are not covered under a commercial liability policy Consequently the claims
asserted against lA Street in the underlying action are not covered under the clear and
unambiguous terms of the applicable policies initial grant of coverage because the claims
alleged are only for the recovery of economic damages based upon breach of contract In
addition the Circuit Court correctly noted the applicability of exclusion (m) relative to impaired
property Because it is clear that the policies do not afford coverage for the claims asserted in
the underlying action Bitco does not owe a duty to defend lA Street Therefore the Circuit
Courts determination that lA Street is not entitled to coverage and a defense under the Bitco
policies was entirely correct
10 216 SW3d 202 (Tenn 2007) 11 591 SW2d 760 (Tenn 1979)
11
L069S7S21 J
Finally though the issue is moot since Bitco owes no coverage at all Bitco cross-assigns
error in the Circuit Courts determinations that more than one policy and per occurrence limit
could apply under any circumstances The unambiguous policy language restricts any coverage
to only one policy period and only one applicable limit This Court should not need to reach
those issues however since there is no coverage at all
UI STATEMENT REGARDING ORAL ARGUMENT AND DECISION
Bitco does not believe the narrow issues necessary to affirm the judgment below are
particularly difficult or complex However if the Court is interested in entertaining oral
argument Bitcos counsel would of course happily oblige
IV ARGUMENT
A STANDARD OF REVIEW
Inasmuch as the summary judgment was entered with regard to a declaratory judgment
action [a] circuit courts entry of a declaratory judgment is reviewed de novo Id
(quoting Syl Pt 3 Cox v Amick 195 WVa 608 466 SE2d 459 (1995raquo See also
Blankenship v City of Charleston 223 WVa 822 824 679 SE2d 654 656 (2009) (quoting
Syi Pt 1 Painter v Peavy 192 WVa 189 451 SE2d 755 (1994raquo Moreover
[d]etermination of the proper coverage of an insurance contract when the facts are not in
dispute is a question of law Id at 825 (quoting Syi Pt 1 Tennant v Smallwood 211 WVa
703 568 SE2d 10 (2002raquo) As [t]he interpretation of an insurance contract including the
question of whether the contract is ambiguous is a legal determination like a lower courts
grant of summary judgment [it] shall be reviewed de novo on appeal Id (quoting SyI Pt 2
12
(L06957521 )
Riffe v Home Finders Associates Inc 205 WVa 216 517 SE2d 313 (1999)) Importantly as
discussed in detail immediately below since the core issue in this case merely requires a
comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies this case presents a pure matter of law that is uniquely
suitable for decision at the summary judgment stage
B THE CIRCUIT COURT CORRECTLY HELD THAT UNDER TENNESSEE LAW THE CONTRACTUAL CLAIMS ASSERTED BY THD AGAINST JA STREET ARE NOT COVERED
BY THE BITCO POLICIES
In this State a liability insurer has no duty to defend an action asserted against the
insured where it is clear from the allegations of the Complaint against the insured that there is no
coverage afforded under the relevant insurance policy See Horace Mann Ins Co v Leeber 376
SE2d 581 584 180 WVa 375 (1988) State Auto Mut Ins Co v Alpha Engg Servbull Inc
542 SE2d 876 879 208 WVa 713 (2000) (If the causes of action alleged in the plaintiffs
complaint are entirely foreign to the risks covered by the insurance policy then the insurance
company is relieved of its duties under the policy) Tennesseel2 follows exactly the same rule
See Drexel Chemical Co v Bitco Ins Co 933 SW2d 471480 1996 TennApp LEXIS 356
(1996) (holding that the insurer did not have a duty to defend where an exclusion applied to
foreclose coverage) Tenn Farmers Mut Ins Co v Brown 1990 TennApp LEXIS 812 (1990)
(The general rule in Tennessee is that an insurer is not obligated to undertake the defense of a
suit against its insured unless the allegations of the complaint show a claim for damages that
would be covered by the policy) Cincinnati Ins Co v Grand Pointe LLC 2007 US Dist
12 All parties concede that Tennessee law governs construction of the insurance policies
13
(L069S7S21 )
LEXIS 39784 (ED Tenn 2007) (If it is plain from the face of the underlying complaint the
allegations fail to state facts that bring the case within or potentially within the policy no duty to
defend exists) Am Nat Prop and Cas Ins Co v Gray 803 SW 2d 693 695-96 (Tenn Ct
App 1990) Graves v Liberty Mut Fire Ins Co 745 SW2d 282283 (Tenn Ct App 1987)
In ascertaining whether there is a duty to defend under a liability insurance policy
Tennessee adheres to a strict four comers approach See Interstate Packaging Co v Century
Indem Co bull 2013 US Dist LEXIS 45459 (MDTenn 2013) citing St Paul Fire amp Marine Ins
Co v Torpoco 879 SW2d 831 835 (Tenn 1994) Clark v Sputnicks LLC 368 SW3d 431
439 (Tenn 2012) (An insurers duty to defend is determined solely by an examination of the
allegations of the underlying complaint) Thus under Tennessee law the court must limit its
inquiry to the claims and allegations presented in the complaint against the insured [I]f the
allegations contained in the complaintare within the risk insured against and there is a
potential basis for recovery then [the insurer] must defend St Paul v Torpoco supra 879
SW2d at 835 Conversely if the claims alleged in the complaint are clearly not within the
scope of coverage then there is no duty to defend Drexel Chemical Co v Bitco Ins Co 933
SW2d 471 480 (Tenn 1996) As the United States Court of Appeals for the Sixth Circuit
stated it applying Tennessee law in Smith amp Nephew Inc v Fed Ins Co 113 FedAppx 99
(6th Cir 2004) in detennining an insurers duty to defend courts typically begin and end
their analysis with the four comers of the complaint Id at 102 Petitioner argues that there
are significant issues of material fact that exist given that there has been no final resolution of the
14
(LD09S752 I
underlying action13 but in fact clear-cut law dictates that all the Court must do is contrast the
averments of the Amended Complaint with the terms of the policies
The instant inquiry must therefore begin with the unique circumstances that the TIID
Amended Complaint against lA Street pleads only contract-based claims and not tort claims
Although the Circuit Court based its finding of no coverage solely on the Contractual Liability
exclusion as discussed in detail below courts in Tennessee and elsewhere have concluded that
there is no coverage for breach of contact claims and the damages that typically flow from such
claims on broader grounds While the Circuit Court did not subscribe to that broad view
our cases have made clear that it is permissible for us to affirm the granting of [dismissal] on bases difference or grounds other than those relief upon by the circuit court Hoover v Moran 222 WVa at 119 662 SE2d at 718 quoting Gently v Mangum 195 WVa 512519466 SE2d 171178 (1995) See also Schmehl v Helton 222 WVa 98 662 SE2d 697 705 n7 (2008) (this Court may in any event affirm the circuit court on any proper basis whether relied upon by the circuit court or not) Murphy v Smallridge 196 WVa 35 36-7 468 SE2d 167168-9 (1996) (An appellate court is not limited to the legal grounds relied upon by the circuit court but it may affirm or reverse a decision on any independently sufficient ground that has adequate support) Syl pt 3 Barnett v Wolfolk 149 WVa 246 140 SE2d 466 (1965) (This Court may on appeal affirm the judgment of the lower court when it appears that such judgment is correct on any legal ground disclosed by the record regardless of the ground reason or theory assigned by the lower court as the basis for its judgment)
Savarese v Allstate Ins Co 672 SE2d 255260 (WVa 2008)
One of the more elemental and uniformly embraced principles of corrunercial insurance
law is that the typical commercial liability insurance policy affords coverage for tort claims not
claims for breach of contract The authorities supporting that proposition are legion Dean
Henderson in his renowned and widely cited law review article makes the point emphatically
13 Petitioners Brief pp 25-27 15
(L0695752 1 J
[t]he risk intended to be insured is the possibility that the goods products or work of the insured once relinquished or completed will cause bodily injury or damage to property other than to the product or completed work itself and for which the insured may be found liable The insured as a source of goods or services may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable because it is lacking in some capacity This may even extend to an obligation to completely replace or rebuild the deficient product or work This liability however is not what the coverages in question are designed to protect against The coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb L Rev 415441 (1971)14
The overwhelming majority of courts and commentators that have addressed this issue
have held that breach of contract claims asserted against the insured are not covered under a
standard CGL policy See eg Couch on Insurance 3d sect1291-1294 (3d Ed 2005) (a
commercial general liability insurance policy is generally designed to provide coverage for tort
liability for physical damages to others and not for contractual liability of the insured for
economic loss the majority of jurisdictions have held that breach of contract is not an
14 The Henderson article has been widely relied upon by courts and commentators for over 40 years Noticeably it has been frequently cited with approval in Tennessee See Vernon (relying upon the Henderson article the Tennessee Court held that the standard comprehensive general liability policy does not provide coverage to an insured-contractor for a breach of contract action grounded upon faulty workmanship or materials where the damages claimed are the cost of correcting the work itself) Blaylock amp Brown Constr Inc v AIU Ins Co 796 SW2d 146 1990 TennApp LEXIS 338 (1990) (relying upon Henderson the Court holds bull that the language of the policy excludes liability coverage for the plaintiffs for damage to the property constructed pursuant to the contract) Standard Fire Ins Co v Chester-ODonley amp Assocs 972 SW2d 1 1998 TennApp LEXIS 65 (1998) (citing the Henderson article for the proposition that CGL policies are not intended to cover the insureds contractual liability for economic loss because its work was not that for which the damaged person bargained) Weedo v Stone-E-Brick Inc bull 81 NJ 233 405 A2d 788 (1979) (relying heavily upon the Henderson article the Court holds that a CGL policy does not provide coverage for a breach of contract action for faulty workmanship where the damages claimed are the cost ofcorrecting the work itself)
16
IL069S7S2 I
occurrencea [CGL] policy is not intended to provide coverage for the insureds contractual
liability which merely causes economic losses) Alan D Windt Insurance Claims and
Disputes sect117 (4th Ed 2001) (Finally there is the question as to whether a breach of
contract claim involves damages caused by an occurrence The answer should in general be
no) Erie Ins Prop amp Cas Co v Pioneer Home Improvement Inc 526 SE2d 28 33 206
WVa 506 513 (1999) (The coverage [under a COL policy] is for tort liability for physical
damages to others and not for contractual liability of the insured for economic loss because the
product or completed work is not that for which the damaged person bargained) Nationwide
Mutual Ins Co v CPB Intl Inc 562 F3d 591 598 2009 US App LEXIS 7795 14 (3d Cir
2009) (holding that under Pennsylvania law a CGL policy does not provide coverage for
claims in an underlying action that arise out of and relate to the contract between the parties)
Lyerla v AMCO Ins Co 536 F3d 684691-922008 US App LEXIS 164 78 (7th Cir 2008)
(applying Illinois law) (holding that underlying allegations that insured contractor did not satisfy
his contractual obligations is not property damage caused by an occurrence) L-J Inc v
Biteo Fire amp Marine Ins Co 621 SE2d 33 35 366 SC 117 (2005) (any liability that is
incurred because of faulty workmanship is part of the insureds contractual liability not an
insurable event under a CGL policy) Hotel Roanoke Conf Ctr Commn v Cincinnati Ins Co
303 FSupp2d 784 7882004 US Dist LEXIS 2539 (2004) (applying Virginia law) (damages
limited to the insureds work or product and resulting from the insureds defective perfonnance
of a contract are not covered losses under a [CGL] policy) Westfield Ins Co v Sheehan
Construction Co 580 FSupp2d 701 710 2008 US Dist LEXIS 66843 (2008) (applying
17
(L06957521
Indiana law) (a CGL policy serves to limit contractors tort liability for damage to property
caused by their work) Key Custom Homes Inc v Mid-Continent Cas Co 450 FSupp2d
1311 1317-182006 US Dist LEXIS 60355 (2006) (applying Florida law) (it is equally clear
that breach of contract claims for the recovery of money are not covered by general liability
insurance policies) Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254 1257329
Ore 620 (2000) (there can be no accident within the meaning of a commercial liability policy
when the resulting damage is merely a breach of contract) Bonded Concrete Inc v Transcon
Ins Co 12 AD3d 761 2004 NYAppDiv LEXIS 13020 (2004) (the purpose of a
commercial general liability policy is to provide coverage for tort liability for physical damage
to others and not for contractual liability of the insured for economic loss because the
product is not what the damaged [party] bargained for) United States Fire Ins Co v Milton
Co 35 FSupp2d 8386 1998 US Dist LEXIS 22116 (1998) (applying Maryland law) (there
is no occurrence under a comprehensive general liability insurance policy where and to the
extent that a contractors use of defective materials and substandard workmanship results in
economic losses that would normally be recoverable in a breach of contract action) Burlington
Ins Co v Oceanic Design amp Construction Inc 383 F3d 940 2004 US App LEXIS 18932
(9th Cir 2004) (applying Hawaii law) (holding that claims for breach of contract and negligent
breach of contract are not covered under a CGL policy) Norwalk Ready Mixed Concrete Inc v
Travelers Ins Co 246 F3d 1132 2001 US App LEXIS 7148 (8th Cir 2001) (applying Iowa
law) (holding that breach of contract and breach of warranty claims are not covered under a CGL
policy) USFampG Com v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476
18
(L06957521 l
(1989) (holding that a breach of contract claim asserted against an insured contractor is not
covered under a COL policy) Oreat Divide Ins Co v Bitterroot Timberfiames of Wyoming
LLC 2006 US Dist LEXIS 94826 (2006) (applying Wyoming law) (the allegations
demonstrate losses resulting from breach of contract and therefore cannot constitute an
accident for purposes of determining coverage) Union Ins Co v Hottenstein 83 P3d 1196
12022003 ColoApp LEXIS 1857 (2003) (poor workmanship constituting a breach of contract
is not a covered occurrence)
Tennessee lawl5 is in accord with these authorities The Tennessee Supreme Court has
defInitively held that breach of contract claims due to the insureds faulty workmanship such as
those asserted here by THD against IA Street in the underlying Amended Complaint are simply
not covered under the grant of coverage contained in a commercial liability policy See Vernon
supra Chester-ODonley supra at 6-7 (General liability policies are not all-risk policies and
only cover damages up to the policy limits for which the insured becomes liable as a result of
tort liability to a third party) (emphasis added) In Vernon the Supreme Court of Tennessee
expressly held that a standard COL policy only covers tort claims and such a policy does not
15 Under applicable Tennessee law contracts of insurance are subject to the same rules of interpretation and construction as other contracts McKimm v Bell 790 SW2d 526 527 1990 Tenn LEXIS 161 (1990) Thus [a]n insurance policy must be interpreted fairly and reasonably giving the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204 SW3d 758 2006 Tenn LEXIS 755 (2006) In the absence of fraud or mistake a contract must be interpreted and enforced as written even though it contains terms which may be thought harsh and unjust Allstate Ins Co v Wilson 856 SW2d 706 1992 TennApp LEXIS 1012 (1992) As a result the analysis of JA Streets right to coverage for the claims asserted in the underlying action are dictated by the terms of the policy The essential components of a general liability insurance policy include (1) the declarations (2) the insuring agreements and definitions (3) the exclusions (4) the conditions and (5) the endorsements See ChestershyODonley supra The insuring agreement sets the outer limits of an insurers contractual liability If coverage cannot be found in the insuring agreement it will not be found elsewhere in the policy Id 1998 TennApp LEXIS at 13-14
19
L069S7S21
afford coverage to an insured contractor for breach of contract claims Vernon 591 SW 2d at
765 Chester-ODonley supra at 6-7 Petitioner complains that the Circuit Court focused on
West Virginia cases such as Silk v Flat TOp6 but in fact the lower court expressly relied
upon a wealth of Tennessee authority17 including Vernon Cincinnati Ins Co v Grand Pointe
LLc18 and Trinity Univ Ins Co v Turner Funeral Home Inc 19 More recently Tennessee
courts have reaffirmed the rationale and holding of Vernon See State Auto Ins Cos v Gordon
Constr Inc 2001 TennApp LEXIS 349 (2001) (following Vernon and holding that the
insuring agreement of a CGL policy does not afford coverage for underlying breach of contract
and breach of warranty claims asserted against the insured contractor) Blake Indus Inc v
General Agents Ins Co of Am 2000 Tenn App LEXIS 490 (2000) (applying Vernon and
holding that claims asserted against the insured that were grounded in contract are not covered
under a CGL policy) Blaylock and Brown Constr Inc v AID Ins Co 796 SW2d 146 152shy
153 (Tenn Ct App 1990)
As the Circuit Court correctly recognized the express tenus of the insurance contract
clearly exclude contractual liability from coverage Exclusions help define and shape the scope
of coverage but they must be read in terms of the insuring agreement to which they apply
Exclusions can only decrease coverage they cannot increase it Chester-ODonley 972 SW2d
at 7-8 Moreover [e]ach exclusion reduces coverage and operates independently with reference
16 Petitioners Brief p 30 (citing 453 SE2d 356 (Wva 1994raquo 17 See See Opinion JA-I0552 ~27
18 2007 US Dist LEXIS 39784 (ED Tenn 2007) 19 2003 WL 23218046 (ED Tenn Dec 122003)
20
IL069S7S2 I I
to the insuring agreement Id at 8 The Contractual Liability exclusion specifically provides
that the insurance coverage does not apply to
Contractual liability
Bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement This exclusion does not apply to liability for damages
(1) That the insured would have in the absence of the contract or agreement or
(2) Assumed in a contract or agreement that is an insured contract provided the bodily injury or property damage occurs subsequent to the execution of the contract or agreement Solely for the purposes of liability assumed in a insured contract reasonable attorneys fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of bodily injury or property damage provided
(a) Liability to such party for or for the cost of that partys defense has also been assumed in the same insured contract and
(b) Such attorneys fees and litigation expenses are for defense of that party against the civil or alternative dispute resolution proceeding in which damages to which the insurance applies are alleged
See JA-62 Section I C[2
Even a cursory examination ofTHDs Amended Complaint reveals that all claims alleged
against JA Street were contractual There simply was no tort claim alleged In fact the claims
against JA Street were necessarily founded in contract for two reasons First the two-year
statute of limitations applicable to any tort claims elapsed long before THD first asserted its
claims against JA Street Tort claims were not pleaded and could not have been Second the
substantive law of West Virginia applies to the underlying claims asserted by THD against lA
21
(L069S7S21 I
Street20 and applicable West Virginia law plainly holds that even if THD had asserted tort
claims against JA Street the claims would still sound in contract under these circumstances for
purposes of the instant analysis since the gist of claims asserted against a contractor for deficient
work is necessarily ex contractu See Silk supra at 360 Dan Ryan Builders Inc v Crystal
Ridge Dev Inc 783 F3d 976 (4th Cir 2015) Unlike in both Silk and Dan Ryan THO did not
even assert any tort claims here Nor could it have Relevant to the precise policy language at
issue there simply was no liability for damages that [JA Street] would have in the absence of
the contract or agreement It simply cannot be contested that the claims alleged in the Amended
Complaint are and indeed necessarily were contractual in nature Given that alone the clear
holding of the Tennessee Court in Vernon mandated the Circuit Courts correct grant of
summary judgment in Biteos favor
A great majority of courts and commentators across the country that have addressed the
issue have held that the explicit unambiguous express Contractual Liability exclusion forecloses
coverage for all contract liability including breach of contract claims asserted against the
insured except where the insured has assumed the liability of another in an insured contract
See eg Silk v Flat Top Constr Inc 453 SE2d 356 359 192 WVa 522 (1994) (holding that
the contract exclusion applies to foreclose coverage for all contractual liability of the insured
except for liability assumed in an insured contract-a contract under which the insured
assumes the tort liability of another party) Gilbert Tex Constr v Underwriters at Lloyds
20 West Virginia applies the choice-of-law principle of lex loci delicti and there is no question here that the offending conduct and the loss all occurred in West Virginia such that JA Streets liability to THD would be governed by West Virginia law See State of Wva ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) (citing Syl Pt 1 Paul v Natl Life 352 SE2d 552 (WVa 1986raquo
22
(L069S7521 I
Londo 327 SW3d 118 (2010) (citing inter alia Nationwide Mut Ins Co v CPB Int Inc
No 306-CV-0363 2007 WL 4198173 at 8 (MDPa Nov26 2007) (Exclusion (b) is simply
further clarification in the policy that contract-based claims are not covered) ClM Ins Corp v
Midpac Auto Crr Inc 108 FSupp2d 1092 1099-1100 (DHaw2000) (clause in policy stating
that policy does not apply to liability assumed under any contract or agreement means that any
claim that is dependent on the existence of an underlying contract is not covered) Monticello
Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 at 2 (WDKy
Apr 3 1998) (exclusion for liability assumed by the insured under any contract or agreement
does not arise only when a party assumes the liability for another party rather the plain meaning
of the policy excludes a breach of contract claim from coverage) Silk supra (exclusion removed
coverage for breach of contract) TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 1091-92
(8th Cir1995) (exclusion for which the insured has assumed liability in a contract or agreement
plainly excluded coverage for contractual claims and not just hold-harmless or indemnity
agreements) Nationwide Mutual Ins Co v CPB Intl Inc 562 F3d 591 5992009 US App
LEXIS 7795 (3d Cir 2009) (applying Pa law) (holding that a breach of contract claim is excluded
under the Contractual Liability exclusion) Century Sur Co v Hardscape Constr Specialties Inc
578 F3d 262 2009 US App LEXIS 25300 (5th Cir 2009) (applying Texas law) (holding that the
Contractual Liability exclusion operates to exclude claims grounded primarily in breach of contract
and that no tort claims were asserted that triggered the insured contract exception) State Farm
Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 12 (2007) (applying Hawaii
law) (holding that claims arising from the insureds obligations under a contract are barred from
23
L0695152 I I
coverage under the Contractual Liability exclusion) JACO Airfield Constr Inc v National Trust
Ins Co 2007 US Dist LEXIS 100295 10 (2007) (applying Georgia law) (holding that the
Contractual Liability exclusion applies to foreclose coverage for the contractual based claims
asserted against the insured and that the insured contract exception to the Contractual Liability
exclusion does not apply because the insured did not assume the tort liability of another) Union Ins
Co v Williams Contr Inc 2006 US Dist LEXIS 35919 4-5 (2006) (holding that the
Contractual Liability exclusion precludes coverage for claims against the insured for breach of a
construction contract) Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270
GaApp 8 (2004) (affirming trial comts finding that the Contractual Liability exclusion barred
coverage for breach of contract and breach of implied warranty claims against the insured) Gibson
amp Assocs Inc v Home Ins Co 966 FSupp 468476-77 1997 US Dist LEXIS 4776 (1997)
(applying Texas law) (recognizing that the Contractual Liability exclusion precludes coverage for
breach of contract claims asserted against the insmed and that the policy only covers contractual
liability for indemnification actions ie an insured contract) James v Burlington Northern Santa
Fe Railway Co 2007 US Dist LEXIS 63282 4-5 (2007) (applying Arizona law) (holding that
the insured contract exception to the Contractual Liability exclusion does not bring ordinary
breach-of-contract claims within the scope of CGL coverage) TGA Dev Inc v Northern Ins Co
of New York 62 F3d 1089 1091-92 1995 USApp LEXIS 21700 (8th Cir 1995) (applying
Minnesota law) (holding that the Contractual Liability exclusion plainly excludes coverage for
contractual claims made for [the insmeds] failure to provide [the property owner] with a
condominium unit free from defects)
24
(lO6957521 )
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
(a) Damages under Coverage A (b) Because of all bodily injury and property damage arising out of any one occurrence
Bitco extended a defense to lA Street in the underlying action but did so under
reservation ofright to deny coverage
C PROCEDURAL HISTORY
As stated the insurance issues herein relate to an Amended Complaint filed in the
underlying action on December 11 2007 joining and asserting claims against JA Street See
JA-2I7 On July 14 2008 Biteo filed the instant action for declaratory judgment pursuant to
the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the
Circuit Court detennine that the previously described commercial general liability insurance
policies afford no coverage and Bitco owes no duty to defend JA Street for the claims asserted
in the Amended Complaint in the underlying action See JA-19
By Order dated February 172015 the Circuit Court invited summary judgment motions
on all grounds argued by all parties subject to waiver should any available ground not be raised
9 On August 13 2009 Biteo fIled a Motion for Summary Judgment requesting that the Circuit Court declare as a matter of law that Bitco owes no coverage andor duty to defend lA Street with respect to the claims asserted against JA Street in the underlying action See JA-263 IA Street filed a CrossshyMotion for Partial Summary Judgment on that issue Following oral argument the Circuit Court denied Biteos Motion and granted IA Streets Cross-Motion rmding that Biteo owes JA Street a duty to defend the underlying action until such time as the Plaintiff meets its burden of proof that no duty to defend exists See Order JA-I005 The Circuit Court concluded that it cannot definitively say at this time that under Tennessee law the plaintiff would not have a duty to defend Id On March 13 2014 1A Street filed a Third-Party Complaint pursuant to the West Virginia Declaratory Judgment Act WVa Code sect55-13-1 et seq requesting that the Circuit Court determine that Biteo along with five (5) other insurers owe coverage to IA Street for the claims asserted against it by TlID and that no exclusions or other policy language excludes limits or defeats coverage See IA-I051 As discussed in Petitioners Brief extensive motion practice ensued regarding a host of intricate insurance issues
9
[L06957521
Accordingly on March 12 2015 Bitco filed a Second Amended Cross-Motion for Summary
Judgment arguing that there was no coverage nor any duty to defend under any of its policies
because contract claims for damages brought against construction contractors based upon defects
or deficiencies in the work do not constitute property damage caused by an occurrence are
not VIIithin the scope of the standard commercial liability or umbrella policy and are in any event
excluded See IA-8614 After briefing and argument on December 302016 the Circuit Court
entered an Order agreeing with Bitco and granting summary judgment in Bitcos favor along
with a declaration that Bitco owes no duty to defend nor any coverage of the claims asserted
against IA Street in the underlying action See Opinion JA-I0SS2 JA Street took an appeal
to this Court and filed its principal Brief on May 122017 Bitco now responds
II SUMMARY OF ARGUMENT
This Court should affirm the lower courts declaration that Bitco owes no coverage and
no duty to defend JA Street under its commercial general liability (CGL) and umbrella
insurance policies with respect to the claims asserted in the underlying action The claims
asserted by THD against JA Street in the underlying action are for breach of contract breach of
warranty and indemnity All of these claims are ex contractu they all arise out of a written
agreement between DID and 1A Street under which 1A Street agreed to construct the Merritt
Creek Shopping Center All claims in the underlying action relate to alleged breach of the
express or implied obligations of the aforesaid contract due to alleged deficiencies in
construction work that JA Street contracted to perform thereunder Pursuant to well-settled
law those claims are not covered by liability insurance policies
10
L0695752 I
All damages alleged in the underlying Amended Complaint are first-party claims alleging
economic damages directly relating to the work JA Street contracted to perform The fact that
the only claims pled are for breach of contract -- and not tort -- is dispositive to the insurance
coverage issues Well-established Tennessee authority and the decisions of a majority of other
jurisdictions across the country have explicitly recognized that contract claims precisely like
those asserted against lA Street are not within the embrace of the insuring agreement of the
standard commercial liability policy The Travelers Indemn Co of Am v Moore amp Assocs
Inc IO decision upon which the Petitioners principally rely is inapposite since it does not address
whether pure contract claims are covered The Tennessee Supreme Courts decision in Vernon
Williams amp Son Constr Inc v Continental Ins Co II which is still the law in Tennessee today
and which the Petitioners entirely ignore clearly holds that any contract-based claims for faulty
workmanship are not covered under a commercial liability policy Consequently the claims
asserted against lA Street in the underlying action are not covered under the clear and
unambiguous terms of the applicable policies initial grant of coverage because the claims
alleged are only for the recovery of economic damages based upon breach of contract In
addition the Circuit Court correctly noted the applicability of exclusion (m) relative to impaired
property Because it is clear that the policies do not afford coverage for the claims asserted in
the underlying action Bitco does not owe a duty to defend lA Street Therefore the Circuit
Courts determination that lA Street is not entitled to coverage and a defense under the Bitco
policies was entirely correct
10 216 SW3d 202 (Tenn 2007) 11 591 SW2d 760 (Tenn 1979)
11
L069S7S21 J
Finally though the issue is moot since Bitco owes no coverage at all Bitco cross-assigns
error in the Circuit Courts determinations that more than one policy and per occurrence limit
could apply under any circumstances The unambiguous policy language restricts any coverage
to only one policy period and only one applicable limit This Court should not need to reach
those issues however since there is no coverage at all
UI STATEMENT REGARDING ORAL ARGUMENT AND DECISION
Bitco does not believe the narrow issues necessary to affirm the judgment below are
particularly difficult or complex However if the Court is interested in entertaining oral
argument Bitcos counsel would of course happily oblige
IV ARGUMENT
A STANDARD OF REVIEW
Inasmuch as the summary judgment was entered with regard to a declaratory judgment
action [a] circuit courts entry of a declaratory judgment is reviewed de novo Id
(quoting Syl Pt 3 Cox v Amick 195 WVa 608 466 SE2d 459 (1995raquo See also
Blankenship v City of Charleston 223 WVa 822 824 679 SE2d 654 656 (2009) (quoting
Syi Pt 1 Painter v Peavy 192 WVa 189 451 SE2d 755 (1994raquo Moreover
[d]etermination of the proper coverage of an insurance contract when the facts are not in
dispute is a question of law Id at 825 (quoting Syi Pt 1 Tennant v Smallwood 211 WVa
703 568 SE2d 10 (2002raquo) As [t]he interpretation of an insurance contract including the
question of whether the contract is ambiguous is a legal determination like a lower courts
grant of summary judgment [it] shall be reviewed de novo on appeal Id (quoting SyI Pt 2
12
(L06957521 )
Riffe v Home Finders Associates Inc 205 WVa 216 517 SE2d 313 (1999)) Importantly as
discussed in detail immediately below since the core issue in this case merely requires a
comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies this case presents a pure matter of law that is uniquely
suitable for decision at the summary judgment stage
B THE CIRCUIT COURT CORRECTLY HELD THAT UNDER TENNESSEE LAW THE CONTRACTUAL CLAIMS ASSERTED BY THD AGAINST JA STREET ARE NOT COVERED
BY THE BITCO POLICIES
In this State a liability insurer has no duty to defend an action asserted against the
insured where it is clear from the allegations of the Complaint against the insured that there is no
coverage afforded under the relevant insurance policy See Horace Mann Ins Co v Leeber 376
SE2d 581 584 180 WVa 375 (1988) State Auto Mut Ins Co v Alpha Engg Servbull Inc
542 SE2d 876 879 208 WVa 713 (2000) (If the causes of action alleged in the plaintiffs
complaint are entirely foreign to the risks covered by the insurance policy then the insurance
company is relieved of its duties under the policy) Tennesseel2 follows exactly the same rule
See Drexel Chemical Co v Bitco Ins Co 933 SW2d 471480 1996 TennApp LEXIS 356
(1996) (holding that the insurer did not have a duty to defend where an exclusion applied to
foreclose coverage) Tenn Farmers Mut Ins Co v Brown 1990 TennApp LEXIS 812 (1990)
(The general rule in Tennessee is that an insurer is not obligated to undertake the defense of a
suit against its insured unless the allegations of the complaint show a claim for damages that
would be covered by the policy) Cincinnati Ins Co v Grand Pointe LLC 2007 US Dist
12 All parties concede that Tennessee law governs construction of the insurance policies
13
(L069S7S21 )
LEXIS 39784 (ED Tenn 2007) (If it is plain from the face of the underlying complaint the
allegations fail to state facts that bring the case within or potentially within the policy no duty to
defend exists) Am Nat Prop and Cas Ins Co v Gray 803 SW 2d 693 695-96 (Tenn Ct
App 1990) Graves v Liberty Mut Fire Ins Co 745 SW2d 282283 (Tenn Ct App 1987)
In ascertaining whether there is a duty to defend under a liability insurance policy
Tennessee adheres to a strict four comers approach See Interstate Packaging Co v Century
Indem Co bull 2013 US Dist LEXIS 45459 (MDTenn 2013) citing St Paul Fire amp Marine Ins
Co v Torpoco 879 SW2d 831 835 (Tenn 1994) Clark v Sputnicks LLC 368 SW3d 431
439 (Tenn 2012) (An insurers duty to defend is determined solely by an examination of the
allegations of the underlying complaint) Thus under Tennessee law the court must limit its
inquiry to the claims and allegations presented in the complaint against the insured [I]f the
allegations contained in the complaintare within the risk insured against and there is a
potential basis for recovery then [the insurer] must defend St Paul v Torpoco supra 879
SW2d at 835 Conversely if the claims alleged in the complaint are clearly not within the
scope of coverage then there is no duty to defend Drexel Chemical Co v Bitco Ins Co 933
SW2d 471 480 (Tenn 1996) As the United States Court of Appeals for the Sixth Circuit
stated it applying Tennessee law in Smith amp Nephew Inc v Fed Ins Co 113 FedAppx 99
(6th Cir 2004) in detennining an insurers duty to defend courts typically begin and end
their analysis with the four comers of the complaint Id at 102 Petitioner argues that there
are significant issues of material fact that exist given that there has been no final resolution of the
14
(LD09S752 I
underlying action13 but in fact clear-cut law dictates that all the Court must do is contrast the
averments of the Amended Complaint with the terms of the policies
The instant inquiry must therefore begin with the unique circumstances that the TIID
Amended Complaint against lA Street pleads only contract-based claims and not tort claims
Although the Circuit Court based its finding of no coverage solely on the Contractual Liability
exclusion as discussed in detail below courts in Tennessee and elsewhere have concluded that
there is no coverage for breach of contact claims and the damages that typically flow from such
claims on broader grounds While the Circuit Court did not subscribe to that broad view
our cases have made clear that it is permissible for us to affirm the granting of [dismissal] on bases difference or grounds other than those relief upon by the circuit court Hoover v Moran 222 WVa at 119 662 SE2d at 718 quoting Gently v Mangum 195 WVa 512519466 SE2d 171178 (1995) See also Schmehl v Helton 222 WVa 98 662 SE2d 697 705 n7 (2008) (this Court may in any event affirm the circuit court on any proper basis whether relied upon by the circuit court or not) Murphy v Smallridge 196 WVa 35 36-7 468 SE2d 167168-9 (1996) (An appellate court is not limited to the legal grounds relied upon by the circuit court but it may affirm or reverse a decision on any independently sufficient ground that has adequate support) Syl pt 3 Barnett v Wolfolk 149 WVa 246 140 SE2d 466 (1965) (This Court may on appeal affirm the judgment of the lower court when it appears that such judgment is correct on any legal ground disclosed by the record regardless of the ground reason or theory assigned by the lower court as the basis for its judgment)
Savarese v Allstate Ins Co 672 SE2d 255260 (WVa 2008)
One of the more elemental and uniformly embraced principles of corrunercial insurance
law is that the typical commercial liability insurance policy affords coverage for tort claims not
claims for breach of contract The authorities supporting that proposition are legion Dean
Henderson in his renowned and widely cited law review article makes the point emphatically
13 Petitioners Brief pp 25-27 15
(L0695752 1 J
[t]he risk intended to be insured is the possibility that the goods products or work of the insured once relinquished or completed will cause bodily injury or damage to property other than to the product or completed work itself and for which the insured may be found liable The insured as a source of goods or services may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable because it is lacking in some capacity This may even extend to an obligation to completely replace or rebuild the deficient product or work This liability however is not what the coverages in question are designed to protect against The coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb L Rev 415441 (1971)14
The overwhelming majority of courts and commentators that have addressed this issue
have held that breach of contract claims asserted against the insured are not covered under a
standard CGL policy See eg Couch on Insurance 3d sect1291-1294 (3d Ed 2005) (a
commercial general liability insurance policy is generally designed to provide coverage for tort
liability for physical damages to others and not for contractual liability of the insured for
economic loss the majority of jurisdictions have held that breach of contract is not an
14 The Henderson article has been widely relied upon by courts and commentators for over 40 years Noticeably it has been frequently cited with approval in Tennessee See Vernon (relying upon the Henderson article the Tennessee Court held that the standard comprehensive general liability policy does not provide coverage to an insured-contractor for a breach of contract action grounded upon faulty workmanship or materials where the damages claimed are the cost of correcting the work itself) Blaylock amp Brown Constr Inc v AIU Ins Co 796 SW2d 146 1990 TennApp LEXIS 338 (1990) (relying upon Henderson the Court holds bull that the language of the policy excludes liability coverage for the plaintiffs for damage to the property constructed pursuant to the contract) Standard Fire Ins Co v Chester-ODonley amp Assocs 972 SW2d 1 1998 TennApp LEXIS 65 (1998) (citing the Henderson article for the proposition that CGL policies are not intended to cover the insureds contractual liability for economic loss because its work was not that for which the damaged person bargained) Weedo v Stone-E-Brick Inc bull 81 NJ 233 405 A2d 788 (1979) (relying heavily upon the Henderson article the Court holds that a CGL policy does not provide coverage for a breach of contract action for faulty workmanship where the damages claimed are the cost ofcorrecting the work itself)
16
IL069S7S2 I
occurrencea [CGL] policy is not intended to provide coverage for the insureds contractual
liability which merely causes economic losses) Alan D Windt Insurance Claims and
Disputes sect117 (4th Ed 2001) (Finally there is the question as to whether a breach of
contract claim involves damages caused by an occurrence The answer should in general be
no) Erie Ins Prop amp Cas Co v Pioneer Home Improvement Inc 526 SE2d 28 33 206
WVa 506 513 (1999) (The coverage [under a COL policy] is for tort liability for physical
damages to others and not for contractual liability of the insured for economic loss because the
product or completed work is not that for which the damaged person bargained) Nationwide
Mutual Ins Co v CPB Intl Inc 562 F3d 591 598 2009 US App LEXIS 7795 14 (3d Cir
2009) (holding that under Pennsylvania law a CGL policy does not provide coverage for
claims in an underlying action that arise out of and relate to the contract between the parties)
Lyerla v AMCO Ins Co 536 F3d 684691-922008 US App LEXIS 164 78 (7th Cir 2008)
(applying Illinois law) (holding that underlying allegations that insured contractor did not satisfy
his contractual obligations is not property damage caused by an occurrence) L-J Inc v
Biteo Fire amp Marine Ins Co 621 SE2d 33 35 366 SC 117 (2005) (any liability that is
incurred because of faulty workmanship is part of the insureds contractual liability not an
insurable event under a CGL policy) Hotel Roanoke Conf Ctr Commn v Cincinnati Ins Co
303 FSupp2d 784 7882004 US Dist LEXIS 2539 (2004) (applying Virginia law) (damages
limited to the insureds work or product and resulting from the insureds defective perfonnance
of a contract are not covered losses under a [CGL] policy) Westfield Ins Co v Sheehan
Construction Co 580 FSupp2d 701 710 2008 US Dist LEXIS 66843 (2008) (applying
17
(L06957521
Indiana law) (a CGL policy serves to limit contractors tort liability for damage to property
caused by their work) Key Custom Homes Inc v Mid-Continent Cas Co 450 FSupp2d
1311 1317-182006 US Dist LEXIS 60355 (2006) (applying Florida law) (it is equally clear
that breach of contract claims for the recovery of money are not covered by general liability
insurance policies) Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254 1257329
Ore 620 (2000) (there can be no accident within the meaning of a commercial liability policy
when the resulting damage is merely a breach of contract) Bonded Concrete Inc v Transcon
Ins Co 12 AD3d 761 2004 NYAppDiv LEXIS 13020 (2004) (the purpose of a
commercial general liability policy is to provide coverage for tort liability for physical damage
to others and not for contractual liability of the insured for economic loss because the
product is not what the damaged [party] bargained for) United States Fire Ins Co v Milton
Co 35 FSupp2d 8386 1998 US Dist LEXIS 22116 (1998) (applying Maryland law) (there
is no occurrence under a comprehensive general liability insurance policy where and to the
extent that a contractors use of defective materials and substandard workmanship results in
economic losses that would normally be recoverable in a breach of contract action) Burlington
Ins Co v Oceanic Design amp Construction Inc 383 F3d 940 2004 US App LEXIS 18932
(9th Cir 2004) (applying Hawaii law) (holding that claims for breach of contract and negligent
breach of contract are not covered under a CGL policy) Norwalk Ready Mixed Concrete Inc v
Travelers Ins Co 246 F3d 1132 2001 US App LEXIS 7148 (8th Cir 2001) (applying Iowa
law) (holding that breach of contract and breach of warranty claims are not covered under a CGL
policy) USFampG Com v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476
18
(L06957521 l
(1989) (holding that a breach of contract claim asserted against an insured contractor is not
covered under a COL policy) Oreat Divide Ins Co v Bitterroot Timberfiames of Wyoming
LLC 2006 US Dist LEXIS 94826 (2006) (applying Wyoming law) (the allegations
demonstrate losses resulting from breach of contract and therefore cannot constitute an
accident for purposes of determining coverage) Union Ins Co v Hottenstein 83 P3d 1196
12022003 ColoApp LEXIS 1857 (2003) (poor workmanship constituting a breach of contract
is not a covered occurrence)
Tennessee lawl5 is in accord with these authorities The Tennessee Supreme Court has
defInitively held that breach of contract claims due to the insureds faulty workmanship such as
those asserted here by THD against IA Street in the underlying Amended Complaint are simply
not covered under the grant of coverage contained in a commercial liability policy See Vernon
supra Chester-ODonley supra at 6-7 (General liability policies are not all-risk policies and
only cover damages up to the policy limits for which the insured becomes liable as a result of
tort liability to a third party) (emphasis added) In Vernon the Supreme Court of Tennessee
expressly held that a standard COL policy only covers tort claims and such a policy does not
15 Under applicable Tennessee law contracts of insurance are subject to the same rules of interpretation and construction as other contracts McKimm v Bell 790 SW2d 526 527 1990 Tenn LEXIS 161 (1990) Thus [a]n insurance policy must be interpreted fairly and reasonably giving the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204 SW3d 758 2006 Tenn LEXIS 755 (2006) In the absence of fraud or mistake a contract must be interpreted and enforced as written even though it contains terms which may be thought harsh and unjust Allstate Ins Co v Wilson 856 SW2d 706 1992 TennApp LEXIS 1012 (1992) As a result the analysis of JA Streets right to coverage for the claims asserted in the underlying action are dictated by the terms of the policy The essential components of a general liability insurance policy include (1) the declarations (2) the insuring agreements and definitions (3) the exclusions (4) the conditions and (5) the endorsements See ChestershyODonley supra The insuring agreement sets the outer limits of an insurers contractual liability If coverage cannot be found in the insuring agreement it will not be found elsewhere in the policy Id 1998 TennApp LEXIS at 13-14
19
L069S7S21
afford coverage to an insured contractor for breach of contract claims Vernon 591 SW 2d at
765 Chester-ODonley supra at 6-7 Petitioner complains that the Circuit Court focused on
West Virginia cases such as Silk v Flat TOp6 but in fact the lower court expressly relied
upon a wealth of Tennessee authority17 including Vernon Cincinnati Ins Co v Grand Pointe
LLc18 and Trinity Univ Ins Co v Turner Funeral Home Inc 19 More recently Tennessee
courts have reaffirmed the rationale and holding of Vernon See State Auto Ins Cos v Gordon
Constr Inc 2001 TennApp LEXIS 349 (2001) (following Vernon and holding that the
insuring agreement of a CGL policy does not afford coverage for underlying breach of contract
and breach of warranty claims asserted against the insured contractor) Blake Indus Inc v
General Agents Ins Co of Am 2000 Tenn App LEXIS 490 (2000) (applying Vernon and
holding that claims asserted against the insured that were grounded in contract are not covered
under a CGL policy) Blaylock and Brown Constr Inc v AID Ins Co 796 SW2d 146 152shy
153 (Tenn Ct App 1990)
As the Circuit Court correctly recognized the express tenus of the insurance contract
clearly exclude contractual liability from coverage Exclusions help define and shape the scope
of coverage but they must be read in terms of the insuring agreement to which they apply
Exclusions can only decrease coverage they cannot increase it Chester-ODonley 972 SW2d
at 7-8 Moreover [e]ach exclusion reduces coverage and operates independently with reference
16 Petitioners Brief p 30 (citing 453 SE2d 356 (Wva 1994raquo 17 See See Opinion JA-I0552 ~27
18 2007 US Dist LEXIS 39784 (ED Tenn 2007) 19 2003 WL 23218046 (ED Tenn Dec 122003)
20
IL069S7S2 I I
to the insuring agreement Id at 8 The Contractual Liability exclusion specifically provides
that the insurance coverage does not apply to
Contractual liability
Bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement This exclusion does not apply to liability for damages
(1) That the insured would have in the absence of the contract or agreement or
(2) Assumed in a contract or agreement that is an insured contract provided the bodily injury or property damage occurs subsequent to the execution of the contract or agreement Solely for the purposes of liability assumed in a insured contract reasonable attorneys fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of bodily injury or property damage provided
(a) Liability to such party for or for the cost of that partys defense has also been assumed in the same insured contract and
(b) Such attorneys fees and litigation expenses are for defense of that party against the civil or alternative dispute resolution proceeding in which damages to which the insurance applies are alleged
See JA-62 Section I C[2
Even a cursory examination ofTHDs Amended Complaint reveals that all claims alleged
against JA Street were contractual There simply was no tort claim alleged In fact the claims
against JA Street were necessarily founded in contract for two reasons First the two-year
statute of limitations applicable to any tort claims elapsed long before THD first asserted its
claims against JA Street Tort claims were not pleaded and could not have been Second the
substantive law of West Virginia applies to the underlying claims asserted by THD against lA
21
(L069S7S21 I
Street20 and applicable West Virginia law plainly holds that even if THD had asserted tort
claims against JA Street the claims would still sound in contract under these circumstances for
purposes of the instant analysis since the gist of claims asserted against a contractor for deficient
work is necessarily ex contractu See Silk supra at 360 Dan Ryan Builders Inc v Crystal
Ridge Dev Inc 783 F3d 976 (4th Cir 2015) Unlike in both Silk and Dan Ryan THO did not
even assert any tort claims here Nor could it have Relevant to the precise policy language at
issue there simply was no liability for damages that [JA Street] would have in the absence of
the contract or agreement It simply cannot be contested that the claims alleged in the Amended
Complaint are and indeed necessarily were contractual in nature Given that alone the clear
holding of the Tennessee Court in Vernon mandated the Circuit Courts correct grant of
summary judgment in Biteos favor
A great majority of courts and commentators across the country that have addressed the
issue have held that the explicit unambiguous express Contractual Liability exclusion forecloses
coverage for all contract liability including breach of contract claims asserted against the
insured except where the insured has assumed the liability of another in an insured contract
See eg Silk v Flat Top Constr Inc 453 SE2d 356 359 192 WVa 522 (1994) (holding that
the contract exclusion applies to foreclose coverage for all contractual liability of the insured
except for liability assumed in an insured contract-a contract under which the insured
assumes the tort liability of another party) Gilbert Tex Constr v Underwriters at Lloyds
20 West Virginia applies the choice-of-law principle of lex loci delicti and there is no question here that the offending conduct and the loss all occurred in West Virginia such that JA Streets liability to THD would be governed by West Virginia law See State of Wva ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) (citing Syl Pt 1 Paul v Natl Life 352 SE2d 552 (WVa 1986raquo
22
(L069S7521 I
Londo 327 SW3d 118 (2010) (citing inter alia Nationwide Mut Ins Co v CPB Int Inc
No 306-CV-0363 2007 WL 4198173 at 8 (MDPa Nov26 2007) (Exclusion (b) is simply
further clarification in the policy that contract-based claims are not covered) ClM Ins Corp v
Midpac Auto Crr Inc 108 FSupp2d 1092 1099-1100 (DHaw2000) (clause in policy stating
that policy does not apply to liability assumed under any contract or agreement means that any
claim that is dependent on the existence of an underlying contract is not covered) Monticello
Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 at 2 (WDKy
Apr 3 1998) (exclusion for liability assumed by the insured under any contract or agreement
does not arise only when a party assumes the liability for another party rather the plain meaning
of the policy excludes a breach of contract claim from coverage) Silk supra (exclusion removed
coverage for breach of contract) TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 1091-92
(8th Cir1995) (exclusion for which the insured has assumed liability in a contract or agreement
plainly excluded coverage for contractual claims and not just hold-harmless or indemnity
agreements) Nationwide Mutual Ins Co v CPB Intl Inc 562 F3d 591 5992009 US App
LEXIS 7795 (3d Cir 2009) (applying Pa law) (holding that a breach of contract claim is excluded
under the Contractual Liability exclusion) Century Sur Co v Hardscape Constr Specialties Inc
578 F3d 262 2009 US App LEXIS 25300 (5th Cir 2009) (applying Texas law) (holding that the
Contractual Liability exclusion operates to exclude claims grounded primarily in breach of contract
and that no tort claims were asserted that triggered the insured contract exception) State Farm
Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 12 (2007) (applying Hawaii
law) (holding that claims arising from the insureds obligations under a contract are barred from
23
L0695152 I I
coverage under the Contractual Liability exclusion) JACO Airfield Constr Inc v National Trust
Ins Co 2007 US Dist LEXIS 100295 10 (2007) (applying Georgia law) (holding that the
Contractual Liability exclusion applies to foreclose coverage for the contractual based claims
asserted against the insured and that the insured contract exception to the Contractual Liability
exclusion does not apply because the insured did not assume the tort liability of another) Union Ins
Co v Williams Contr Inc 2006 US Dist LEXIS 35919 4-5 (2006) (holding that the
Contractual Liability exclusion precludes coverage for claims against the insured for breach of a
construction contract) Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270
GaApp 8 (2004) (affirming trial comts finding that the Contractual Liability exclusion barred
coverage for breach of contract and breach of implied warranty claims against the insured) Gibson
amp Assocs Inc v Home Ins Co 966 FSupp 468476-77 1997 US Dist LEXIS 4776 (1997)
(applying Texas law) (recognizing that the Contractual Liability exclusion precludes coverage for
breach of contract claims asserted against the insmed and that the policy only covers contractual
liability for indemnification actions ie an insured contract) James v Burlington Northern Santa
Fe Railway Co 2007 US Dist LEXIS 63282 4-5 (2007) (applying Arizona law) (holding that
the insured contract exception to the Contractual Liability exclusion does not bring ordinary
breach-of-contract claims within the scope of CGL coverage) TGA Dev Inc v Northern Ins Co
of New York 62 F3d 1089 1091-92 1995 USApp LEXIS 21700 (8th Cir 1995) (applying
Minnesota law) (holding that the Contractual Liability exclusion plainly excludes coverage for
contractual claims made for [the insmeds] failure to provide [the property owner] with a
condominium unit free from defects)
24
(lO6957521 )
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
Accordingly on March 12 2015 Bitco filed a Second Amended Cross-Motion for Summary
Judgment arguing that there was no coverage nor any duty to defend under any of its policies
because contract claims for damages brought against construction contractors based upon defects
or deficiencies in the work do not constitute property damage caused by an occurrence are
not VIIithin the scope of the standard commercial liability or umbrella policy and are in any event
excluded See IA-8614 After briefing and argument on December 302016 the Circuit Court
entered an Order agreeing with Bitco and granting summary judgment in Bitcos favor along
with a declaration that Bitco owes no duty to defend nor any coverage of the claims asserted
against IA Street in the underlying action See Opinion JA-I0SS2 JA Street took an appeal
to this Court and filed its principal Brief on May 122017 Bitco now responds
II SUMMARY OF ARGUMENT
This Court should affirm the lower courts declaration that Bitco owes no coverage and
no duty to defend JA Street under its commercial general liability (CGL) and umbrella
insurance policies with respect to the claims asserted in the underlying action The claims
asserted by THD against JA Street in the underlying action are for breach of contract breach of
warranty and indemnity All of these claims are ex contractu they all arise out of a written
agreement between DID and 1A Street under which 1A Street agreed to construct the Merritt
Creek Shopping Center All claims in the underlying action relate to alleged breach of the
express or implied obligations of the aforesaid contract due to alleged deficiencies in
construction work that JA Street contracted to perform thereunder Pursuant to well-settled
law those claims are not covered by liability insurance policies
10
L0695752 I
All damages alleged in the underlying Amended Complaint are first-party claims alleging
economic damages directly relating to the work JA Street contracted to perform The fact that
the only claims pled are for breach of contract -- and not tort -- is dispositive to the insurance
coverage issues Well-established Tennessee authority and the decisions of a majority of other
jurisdictions across the country have explicitly recognized that contract claims precisely like
those asserted against lA Street are not within the embrace of the insuring agreement of the
standard commercial liability policy The Travelers Indemn Co of Am v Moore amp Assocs
Inc IO decision upon which the Petitioners principally rely is inapposite since it does not address
whether pure contract claims are covered The Tennessee Supreme Courts decision in Vernon
Williams amp Son Constr Inc v Continental Ins Co II which is still the law in Tennessee today
and which the Petitioners entirely ignore clearly holds that any contract-based claims for faulty
workmanship are not covered under a commercial liability policy Consequently the claims
asserted against lA Street in the underlying action are not covered under the clear and
unambiguous terms of the applicable policies initial grant of coverage because the claims
alleged are only for the recovery of economic damages based upon breach of contract In
addition the Circuit Court correctly noted the applicability of exclusion (m) relative to impaired
property Because it is clear that the policies do not afford coverage for the claims asserted in
the underlying action Bitco does not owe a duty to defend lA Street Therefore the Circuit
Courts determination that lA Street is not entitled to coverage and a defense under the Bitco
policies was entirely correct
10 216 SW3d 202 (Tenn 2007) 11 591 SW2d 760 (Tenn 1979)
11
L069S7S21 J
Finally though the issue is moot since Bitco owes no coverage at all Bitco cross-assigns
error in the Circuit Courts determinations that more than one policy and per occurrence limit
could apply under any circumstances The unambiguous policy language restricts any coverage
to only one policy period and only one applicable limit This Court should not need to reach
those issues however since there is no coverage at all
UI STATEMENT REGARDING ORAL ARGUMENT AND DECISION
Bitco does not believe the narrow issues necessary to affirm the judgment below are
particularly difficult or complex However if the Court is interested in entertaining oral
argument Bitcos counsel would of course happily oblige
IV ARGUMENT
A STANDARD OF REVIEW
Inasmuch as the summary judgment was entered with regard to a declaratory judgment
action [a] circuit courts entry of a declaratory judgment is reviewed de novo Id
(quoting Syl Pt 3 Cox v Amick 195 WVa 608 466 SE2d 459 (1995raquo See also
Blankenship v City of Charleston 223 WVa 822 824 679 SE2d 654 656 (2009) (quoting
Syi Pt 1 Painter v Peavy 192 WVa 189 451 SE2d 755 (1994raquo Moreover
[d]etermination of the proper coverage of an insurance contract when the facts are not in
dispute is a question of law Id at 825 (quoting Syi Pt 1 Tennant v Smallwood 211 WVa
703 568 SE2d 10 (2002raquo) As [t]he interpretation of an insurance contract including the
question of whether the contract is ambiguous is a legal determination like a lower courts
grant of summary judgment [it] shall be reviewed de novo on appeal Id (quoting SyI Pt 2
12
(L06957521 )
Riffe v Home Finders Associates Inc 205 WVa 216 517 SE2d 313 (1999)) Importantly as
discussed in detail immediately below since the core issue in this case merely requires a
comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies this case presents a pure matter of law that is uniquely
suitable for decision at the summary judgment stage
B THE CIRCUIT COURT CORRECTLY HELD THAT UNDER TENNESSEE LAW THE CONTRACTUAL CLAIMS ASSERTED BY THD AGAINST JA STREET ARE NOT COVERED
BY THE BITCO POLICIES
In this State a liability insurer has no duty to defend an action asserted against the
insured where it is clear from the allegations of the Complaint against the insured that there is no
coverage afforded under the relevant insurance policy See Horace Mann Ins Co v Leeber 376
SE2d 581 584 180 WVa 375 (1988) State Auto Mut Ins Co v Alpha Engg Servbull Inc
542 SE2d 876 879 208 WVa 713 (2000) (If the causes of action alleged in the plaintiffs
complaint are entirely foreign to the risks covered by the insurance policy then the insurance
company is relieved of its duties under the policy) Tennesseel2 follows exactly the same rule
See Drexel Chemical Co v Bitco Ins Co 933 SW2d 471480 1996 TennApp LEXIS 356
(1996) (holding that the insurer did not have a duty to defend where an exclusion applied to
foreclose coverage) Tenn Farmers Mut Ins Co v Brown 1990 TennApp LEXIS 812 (1990)
(The general rule in Tennessee is that an insurer is not obligated to undertake the defense of a
suit against its insured unless the allegations of the complaint show a claim for damages that
would be covered by the policy) Cincinnati Ins Co v Grand Pointe LLC 2007 US Dist
12 All parties concede that Tennessee law governs construction of the insurance policies
13
(L069S7S21 )
LEXIS 39784 (ED Tenn 2007) (If it is plain from the face of the underlying complaint the
allegations fail to state facts that bring the case within or potentially within the policy no duty to
defend exists) Am Nat Prop and Cas Ins Co v Gray 803 SW 2d 693 695-96 (Tenn Ct
App 1990) Graves v Liberty Mut Fire Ins Co 745 SW2d 282283 (Tenn Ct App 1987)
In ascertaining whether there is a duty to defend under a liability insurance policy
Tennessee adheres to a strict four comers approach See Interstate Packaging Co v Century
Indem Co bull 2013 US Dist LEXIS 45459 (MDTenn 2013) citing St Paul Fire amp Marine Ins
Co v Torpoco 879 SW2d 831 835 (Tenn 1994) Clark v Sputnicks LLC 368 SW3d 431
439 (Tenn 2012) (An insurers duty to defend is determined solely by an examination of the
allegations of the underlying complaint) Thus under Tennessee law the court must limit its
inquiry to the claims and allegations presented in the complaint against the insured [I]f the
allegations contained in the complaintare within the risk insured against and there is a
potential basis for recovery then [the insurer] must defend St Paul v Torpoco supra 879
SW2d at 835 Conversely if the claims alleged in the complaint are clearly not within the
scope of coverage then there is no duty to defend Drexel Chemical Co v Bitco Ins Co 933
SW2d 471 480 (Tenn 1996) As the United States Court of Appeals for the Sixth Circuit
stated it applying Tennessee law in Smith amp Nephew Inc v Fed Ins Co 113 FedAppx 99
(6th Cir 2004) in detennining an insurers duty to defend courts typically begin and end
their analysis with the four comers of the complaint Id at 102 Petitioner argues that there
are significant issues of material fact that exist given that there has been no final resolution of the
14
(LD09S752 I
underlying action13 but in fact clear-cut law dictates that all the Court must do is contrast the
averments of the Amended Complaint with the terms of the policies
The instant inquiry must therefore begin with the unique circumstances that the TIID
Amended Complaint against lA Street pleads only contract-based claims and not tort claims
Although the Circuit Court based its finding of no coverage solely on the Contractual Liability
exclusion as discussed in detail below courts in Tennessee and elsewhere have concluded that
there is no coverage for breach of contact claims and the damages that typically flow from such
claims on broader grounds While the Circuit Court did not subscribe to that broad view
our cases have made clear that it is permissible for us to affirm the granting of [dismissal] on bases difference or grounds other than those relief upon by the circuit court Hoover v Moran 222 WVa at 119 662 SE2d at 718 quoting Gently v Mangum 195 WVa 512519466 SE2d 171178 (1995) See also Schmehl v Helton 222 WVa 98 662 SE2d 697 705 n7 (2008) (this Court may in any event affirm the circuit court on any proper basis whether relied upon by the circuit court or not) Murphy v Smallridge 196 WVa 35 36-7 468 SE2d 167168-9 (1996) (An appellate court is not limited to the legal grounds relied upon by the circuit court but it may affirm or reverse a decision on any independently sufficient ground that has adequate support) Syl pt 3 Barnett v Wolfolk 149 WVa 246 140 SE2d 466 (1965) (This Court may on appeal affirm the judgment of the lower court when it appears that such judgment is correct on any legal ground disclosed by the record regardless of the ground reason or theory assigned by the lower court as the basis for its judgment)
Savarese v Allstate Ins Co 672 SE2d 255260 (WVa 2008)
One of the more elemental and uniformly embraced principles of corrunercial insurance
law is that the typical commercial liability insurance policy affords coverage for tort claims not
claims for breach of contract The authorities supporting that proposition are legion Dean
Henderson in his renowned and widely cited law review article makes the point emphatically
13 Petitioners Brief pp 25-27 15
(L0695752 1 J
[t]he risk intended to be insured is the possibility that the goods products or work of the insured once relinquished or completed will cause bodily injury or damage to property other than to the product or completed work itself and for which the insured may be found liable The insured as a source of goods or services may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable because it is lacking in some capacity This may even extend to an obligation to completely replace or rebuild the deficient product or work This liability however is not what the coverages in question are designed to protect against The coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb L Rev 415441 (1971)14
The overwhelming majority of courts and commentators that have addressed this issue
have held that breach of contract claims asserted against the insured are not covered under a
standard CGL policy See eg Couch on Insurance 3d sect1291-1294 (3d Ed 2005) (a
commercial general liability insurance policy is generally designed to provide coverage for tort
liability for physical damages to others and not for contractual liability of the insured for
economic loss the majority of jurisdictions have held that breach of contract is not an
14 The Henderson article has been widely relied upon by courts and commentators for over 40 years Noticeably it has been frequently cited with approval in Tennessee See Vernon (relying upon the Henderson article the Tennessee Court held that the standard comprehensive general liability policy does not provide coverage to an insured-contractor for a breach of contract action grounded upon faulty workmanship or materials where the damages claimed are the cost of correcting the work itself) Blaylock amp Brown Constr Inc v AIU Ins Co 796 SW2d 146 1990 TennApp LEXIS 338 (1990) (relying upon Henderson the Court holds bull that the language of the policy excludes liability coverage for the plaintiffs for damage to the property constructed pursuant to the contract) Standard Fire Ins Co v Chester-ODonley amp Assocs 972 SW2d 1 1998 TennApp LEXIS 65 (1998) (citing the Henderson article for the proposition that CGL policies are not intended to cover the insureds contractual liability for economic loss because its work was not that for which the damaged person bargained) Weedo v Stone-E-Brick Inc bull 81 NJ 233 405 A2d 788 (1979) (relying heavily upon the Henderson article the Court holds that a CGL policy does not provide coverage for a breach of contract action for faulty workmanship where the damages claimed are the cost ofcorrecting the work itself)
16
IL069S7S2 I
occurrencea [CGL] policy is not intended to provide coverage for the insureds contractual
liability which merely causes economic losses) Alan D Windt Insurance Claims and
Disputes sect117 (4th Ed 2001) (Finally there is the question as to whether a breach of
contract claim involves damages caused by an occurrence The answer should in general be
no) Erie Ins Prop amp Cas Co v Pioneer Home Improvement Inc 526 SE2d 28 33 206
WVa 506 513 (1999) (The coverage [under a COL policy] is for tort liability for physical
damages to others and not for contractual liability of the insured for economic loss because the
product or completed work is not that for which the damaged person bargained) Nationwide
Mutual Ins Co v CPB Intl Inc 562 F3d 591 598 2009 US App LEXIS 7795 14 (3d Cir
2009) (holding that under Pennsylvania law a CGL policy does not provide coverage for
claims in an underlying action that arise out of and relate to the contract between the parties)
Lyerla v AMCO Ins Co 536 F3d 684691-922008 US App LEXIS 164 78 (7th Cir 2008)
(applying Illinois law) (holding that underlying allegations that insured contractor did not satisfy
his contractual obligations is not property damage caused by an occurrence) L-J Inc v
Biteo Fire amp Marine Ins Co 621 SE2d 33 35 366 SC 117 (2005) (any liability that is
incurred because of faulty workmanship is part of the insureds contractual liability not an
insurable event under a CGL policy) Hotel Roanoke Conf Ctr Commn v Cincinnati Ins Co
303 FSupp2d 784 7882004 US Dist LEXIS 2539 (2004) (applying Virginia law) (damages
limited to the insureds work or product and resulting from the insureds defective perfonnance
of a contract are not covered losses under a [CGL] policy) Westfield Ins Co v Sheehan
Construction Co 580 FSupp2d 701 710 2008 US Dist LEXIS 66843 (2008) (applying
17
(L06957521
Indiana law) (a CGL policy serves to limit contractors tort liability for damage to property
caused by their work) Key Custom Homes Inc v Mid-Continent Cas Co 450 FSupp2d
1311 1317-182006 US Dist LEXIS 60355 (2006) (applying Florida law) (it is equally clear
that breach of contract claims for the recovery of money are not covered by general liability
insurance policies) Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254 1257329
Ore 620 (2000) (there can be no accident within the meaning of a commercial liability policy
when the resulting damage is merely a breach of contract) Bonded Concrete Inc v Transcon
Ins Co 12 AD3d 761 2004 NYAppDiv LEXIS 13020 (2004) (the purpose of a
commercial general liability policy is to provide coverage for tort liability for physical damage
to others and not for contractual liability of the insured for economic loss because the
product is not what the damaged [party] bargained for) United States Fire Ins Co v Milton
Co 35 FSupp2d 8386 1998 US Dist LEXIS 22116 (1998) (applying Maryland law) (there
is no occurrence under a comprehensive general liability insurance policy where and to the
extent that a contractors use of defective materials and substandard workmanship results in
economic losses that would normally be recoverable in a breach of contract action) Burlington
Ins Co v Oceanic Design amp Construction Inc 383 F3d 940 2004 US App LEXIS 18932
(9th Cir 2004) (applying Hawaii law) (holding that claims for breach of contract and negligent
breach of contract are not covered under a CGL policy) Norwalk Ready Mixed Concrete Inc v
Travelers Ins Co 246 F3d 1132 2001 US App LEXIS 7148 (8th Cir 2001) (applying Iowa
law) (holding that breach of contract and breach of warranty claims are not covered under a CGL
policy) USFampG Com v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476
18
(L06957521 l
(1989) (holding that a breach of contract claim asserted against an insured contractor is not
covered under a COL policy) Oreat Divide Ins Co v Bitterroot Timberfiames of Wyoming
LLC 2006 US Dist LEXIS 94826 (2006) (applying Wyoming law) (the allegations
demonstrate losses resulting from breach of contract and therefore cannot constitute an
accident for purposes of determining coverage) Union Ins Co v Hottenstein 83 P3d 1196
12022003 ColoApp LEXIS 1857 (2003) (poor workmanship constituting a breach of contract
is not a covered occurrence)
Tennessee lawl5 is in accord with these authorities The Tennessee Supreme Court has
defInitively held that breach of contract claims due to the insureds faulty workmanship such as
those asserted here by THD against IA Street in the underlying Amended Complaint are simply
not covered under the grant of coverage contained in a commercial liability policy See Vernon
supra Chester-ODonley supra at 6-7 (General liability policies are not all-risk policies and
only cover damages up to the policy limits for which the insured becomes liable as a result of
tort liability to a third party) (emphasis added) In Vernon the Supreme Court of Tennessee
expressly held that a standard COL policy only covers tort claims and such a policy does not
15 Under applicable Tennessee law contracts of insurance are subject to the same rules of interpretation and construction as other contracts McKimm v Bell 790 SW2d 526 527 1990 Tenn LEXIS 161 (1990) Thus [a]n insurance policy must be interpreted fairly and reasonably giving the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204 SW3d 758 2006 Tenn LEXIS 755 (2006) In the absence of fraud or mistake a contract must be interpreted and enforced as written even though it contains terms which may be thought harsh and unjust Allstate Ins Co v Wilson 856 SW2d 706 1992 TennApp LEXIS 1012 (1992) As a result the analysis of JA Streets right to coverage for the claims asserted in the underlying action are dictated by the terms of the policy The essential components of a general liability insurance policy include (1) the declarations (2) the insuring agreements and definitions (3) the exclusions (4) the conditions and (5) the endorsements See ChestershyODonley supra The insuring agreement sets the outer limits of an insurers contractual liability If coverage cannot be found in the insuring agreement it will not be found elsewhere in the policy Id 1998 TennApp LEXIS at 13-14
19
L069S7S21
afford coverage to an insured contractor for breach of contract claims Vernon 591 SW 2d at
765 Chester-ODonley supra at 6-7 Petitioner complains that the Circuit Court focused on
West Virginia cases such as Silk v Flat TOp6 but in fact the lower court expressly relied
upon a wealth of Tennessee authority17 including Vernon Cincinnati Ins Co v Grand Pointe
LLc18 and Trinity Univ Ins Co v Turner Funeral Home Inc 19 More recently Tennessee
courts have reaffirmed the rationale and holding of Vernon See State Auto Ins Cos v Gordon
Constr Inc 2001 TennApp LEXIS 349 (2001) (following Vernon and holding that the
insuring agreement of a CGL policy does not afford coverage for underlying breach of contract
and breach of warranty claims asserted against the insured contractor) Blake Indus Inc v
General Agents Ins Co of Am 2000 Tenn App LEXIS 490 (2000) (applying Vernon and
holding that claims asserted against the insured that were grounded in contract are not covered
under a CGL policy) Blaylock and Brown Constr Inc v AID Ins Co 796 SW2d 146 152shy
153 (Tenn Ct App 1990)
As the Circuit Court correctly recognized the express tenus of the insurance contract
clearly exclude contractual liability from coverage Exclusions help define and shape the scope
of coverage but they must be read in terms of the insuring agreement to which they apply
Exclusions can only decrease coverage they cannot increase it Chester-ODonley 972 SW2d
at 7-8 Moreover [e]ach exclusion reduces coverage and operates independently with reference
16 Petitioners Brief p 30 (citing 453 SE2d 356 (Wva 1994raquo 17 See See Opinion JA-I0552 ~27
18 2007 US Dist LEXIS 39784 (ED Tenn 2007) 19 2003 WL 23218046 (ED Tenn Dec 122003)
20
IL069S7S2 I I
to the insuring agreement Id at 8 The Contractual Liability exclusion specifically provides
that the insurance coverage does not apply to
Contractual liability
Bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement This exclusion does not apply to liability for damages
(1) That the insured would have in the absence of the contract or agreement or
(2) Assumed in a contract or agreement that is an insured contract provided the bodily injury or property damage occurs subsequent to the execution of the contract or agreement Solely for the purposes of liability assumed in a insured contract reasonable attorneys fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of bodily injury or property damage provided
(a) Liability to such party for or for the cost of that partys defense has also been assumed in the same insured contract and
(b) Such attorneys fees and litigation expenses are for defense of that party against the civil or alternative dispute resolution proceeding in which damages to which the insurance applies are alleged
See JA-62 Section I C[2
Even a cursory examination ofTHDs Amended Complaint reveals that all claims alleged
against JA Street were contractual There simply was no tort claim alleged In fact the claims
against JA Street were necessarily founded in contract for two reasons First the two-year
statute of limitations applicable to any tort claims elapsed long before THD first asserted its
claims against JA Street Tort claims were not pleaded and could not have been Second the
substantive law of West Virginia applies to the underlying claims asserted by THD against lA
21
(L069S7S21 I
Street20 and applicable West Virginia law plainly holds that even if THD had asserted tort
claims against JA Street the claims would still sound in contract under these circumstances for
purposes of the instant analysis since the gist of claims asserted against a contractor for deficient
work is necessarily ex contractu See Silk supra at 360 Dan Ryan Builders Inc v Crystal
Ridge Dev Inc 783 F3d 976 (4th Cir 2015) Unlike in both Silk and Dan Ryan THO did not
even assert any tort claims here Nor could it have Relevant to the precise policy language at
issue there simply was no liability for damages that [JA Street] would have in the absence of
the contract or agreement It simply cannot be contested that the claims alleged in the Amended
Complaint are and indeed necessarily were contractual in nature Given that alone the clear
holding of the Tennessee Court in Vernon mandated the Circuit Courts correct grant of
summary judgment in Biteos favor
A great majority of courts and commentators across the country that have addressed the
issue have held that the explicit unambiguous express Contractual Liability exclusion forecloses
coverage for all contract liability including breach of contract claims asserted against the
insured except where the insured has assumed the liability of another in an insured contract
See eg Silk v Flat Top Constr Inc 453 SE2d 356 359 192 WVa 522 (1994) (holding that
the contract exclusion applies to foreclose coverage for all contractual liability of the insured
except for liability assumed in an insured contract-a contract under which the insured
assumes the tort liability of another party) Gilbert Tex Constr v Underwriters at Lloyds
20 West Virginia applies the choice-of-law principle of lex loci delicti and there is no question here that the offending conduct and the loss all occurred in West Virginia such that JA Streets liability to THD would be governed by West Virginia law See State of Wva ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) (citing Syl Pt 1 Paul v Natl Life 352 SE2d 552 (WVa 1986raquo
22
(L069S7521 I
Londo 327 SW3d 118 (2010) (citing inter alia Nationwide Mut Ins Co v CPB Int Inc
No 306-CV-0363 2007 WL 4198173 at 8 (MDPa Nov26 2007) (Exclusion (b) is simply
further clarification in the policy that contract-based claims are not covered) ClM Ins Corp v
Midpac Auto Crr Inc 108 FSupp2d 1092 1099-1100 (DHaw2000) (clause in policy stating
that policy does not apply to liability assumed under any contract or agreement means that any
claim that is dependent on the existence of an underlying contract is not covered) Monticello
Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 at 2 (WDKy
Apr 3 1998) (exclusion for liability assumed by the insured under any contract or agreement
does not arise only when a party assumes the liability for another party rather the plain meaning
of the policy excludes a breach of contract claim from coverage) Silk supra (exclusion removed
coverage for breach of contract) TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 1091-92
(8th Cir1995) (exclusion for which the insured has assumed liability in a contract or agreement
plainly excluded coverage for contractual claims and not just hold-harmless or indemnity
agreements) Nationwide Mutual Ins Co v CPB Intl Inc 562 F3d 591 5992009 US App
LEXIS 7795 (3d Cir 2009) (applying Pa law) (holding that a breach of contract claim is excluded
under the Contractual Liability exclusion) Century Sur Co v Hardscape Constr Specialties Inc
578 F3d 262 2009 US App LEXIS 25300 (5th Cir 2009) (applying Texas law) (holding that the
Contractual Liability exclusion operates to exclude claims grounded primarily in breach of contract
and that no tort claims were asserted that triggered the insured contract exception) State Farm
Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 12 (2007) (applying Hawaii
law) (holding that claims arising from the insureds obligations under a contract are barred from
23
L0695152 I I
coverage under the Contractual Liability exclusion) JACO Airfield Constr Inc v National Trust
Ins Co 2007 US Dist LEXIS 100295 10 (2007) (applying Georgia law) (holding that the
Contractual Liability exclusion applies to foreclose coverage for the contractual based claims
asserted against the insured and that the insured contract exception to the Contractual Liability
exclusion does not apply because the insured did not assume the tort liability of another) Union Ins
Co v Williams Contr Inc 2006 US Dist LEXIS 35919 4-5 (2006) (holding that the
Contractual Liability exclusion precludes coverage for claims against the insured for breach of a
construction contract) Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270
GaApp 8 (2004) (affirming trial comts finding that the Contractual Liability exclusion barred
coverage for breach of contract and breach of implied warranty claims against the insured) Gibson
amp Assocs Inc v Home Ins Co 966 FSupp 468476-77 1997 US Dist LEXIS 4776 (1997)
(applying Texas law) (recognizing that the Contractual Liability exclusion precludes coverage for
breach of contract claims asserted against the insmed and that the policy only covers contractual
liability for indemnification actions ie an insured contract) James v Burlington Northern Santa
Fe Railway Co 2007 US Dist LEXIS 63282 4-5 (2007) (applying Arizona law) (holding that
the insured contract exception to the Contractual Liability exclusion does not bring ordinary
breach-of-contract claims within the scope of CGL coverage) TGA Dev Inc v Northern Ins Co
of New York 62 F3d 1089 1091-92 1995 USApp LEXIS 21700 (8th Cir 1995) (applying
Minnesota law) (holding that the Contractual Liability exclusion plainly excludes coverage for
contractual claims made for [the insmeds] failure to provide [the property owner] with a
condominium unit free from defects)
24
(lO6957521 )
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
All damages alleged in the underlying Amended Complaint are first-party claims alleging
economic damages directly relating to the work JA Street contracted to perform The fact that
the only claims pled are for breach of contract -- and not tort -- is dispositive to the insurance
coverage issues Well-established Tennessee authority and the decisions of a majority of other
jurisdictions across the country have explicitly recognized that contract claims precisely like
those asserted against lA Street are not within the embrace of the insuring agreement of the
standard commercial liability policy The Travelers Indemn Co of Am v Moore amp Assocs
Inc IO decision upon which the Petitioners principally rely is inapposite since it does not address
whether pure contract claims are covered The Tennessee Supreme Courts decision in Vernon
Williams amp Son Constr Inc v Continental Ins Co II which is still the law in Tennessee today
and which the Petitioners entirely ignore clearly holds that any contract-based claims for faulty
workmanship are not covered under a commercial liability policy Consequently the claims
asserted against lA Street in the underlying action are not covered under the clear and
unambiguous terms of the applicable policies initial grant of coverage because the claims
alleged are only for the recovery of economic damages based upon breach of contract In
addition the Circuit Court correctly noted the applicability of exclusion (m) relative to impaired
property Because it is clear that the policies do not afford coverage for the claims asserted in
the underlying action Bitco does not owe a duty to defend lA Street Therefore the Circuit
Courts determination that lA Street is not entitled to coverage and a defense under the Bitco
policies was entirely correct
10 216 SW3d 202 (Tenn 2007) 11 591 SW2d 760 (Tenn 1979)
11
L069S7S21 J
Finally though the issue is moot since Bitco owes no coverage at all Bitco cross-assigns
error in the Circuit Courts determinations that more than one policy and per occurrence limit
could apply under any circumstances The unambiguous policy language restricts any coverage
to only one policy period and only one applicable limit This Court should not need to reach
those issues however since there is no coverage at all
UI STATEMENT REGARDING ORAL ARGUMENT AND DECISION
Bitco does not believe the narrow issues necessary to affirm the judgment below are
particularly difficult or complex However if the Court is interested in entertaining oral
argument Bitcos counsel would of course happily oblige
IV ARGUMENT
A STANDARD OF REVIEW
Inasmuch as the summary judgment was entered with regard to a declaratory judgment
action [a] circuit courts entry of a declaratory judgment is reviewed de novo Id
(quoting Syl Pt 3 Cox v Amick 195 WVa 608 466 SE2d 459 (1995raquo See also
Blankenship v City of Charleston 223 WVa 822 824 679 SE2d 654 656 (2009) (quoting
Syi Pt 1 Painter v Peavy 192 WVa 189 451 SE2d 755 (1994raquo Moreover
[d]etermination of the proper coverage of an insurance contract when the facts are not in
dispute is a question of law Id at 825 (quoting Syi Pt 1 Tennant v Smallwood 211 WVa
703 568 SE2d 10 (2002raquo) As [t]he interpretation of an insurance contract including the
question of whether the contract is ambiguous is a legal determination like a lower courts
grant of summary judgment [it] shall be reviewed de novo on appeal Id (quoting SyI Pt 2
12
(L06957521 )
Riffe v Home Finders Associates Inc 205 WVa 216 517 SE2d 313 (1999)) Importantly as
discussed in detail immediately below since the core issue in this case merely requires a
comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies this case presents a pure matter of law that is uniquely
suitable for decision at the summary judgment stage
B THE CIRCUIT COURT CORRECTLY HELD THAT UNDER TENNESSEE LAW THE CONTRACTUAL CLAIMS ASSERTED BY THD AGAINST JA STREET ARE NOT COVERED
BY THE BITCO POLICIES
In this State a liability insurer has no duty to defend an action asserted against the
insured where it is clear from the allegations of the Complaint against the insured that there is no
coverage afforded under the relevant insurance policy See Horace Mann Ins Co v Leeber 376
SE2d 581 584 180 WVa 375 (1988) State Auto Mut Ins Co v Alpha Engg Servbull Inc
542 SE2d 876 879 208 WVa 713 (2000) (If the causes of action alleged in the plaintiffs
complaint are entirely foreign to the risks covered by the insurance policy then the insurance
company is relieved of its duties under the policy) Tennesseel2 follows exactly the same rule
See Drexel Chemical Co v Bitco Ins Co 933 SW2d 471480 1996 TennApp LEXIS 356
(1996) (holding that the insurer did not have a duty to defend where an exclusion applied to
foreclose coverage) Tenn Farmers Mut Ins Co v Brown 1990 TennApp LEXIS 812 (1990)
(The general rule in Tennessee is that an insurer is not obligated to undertake the defense of a
suit against its insured unless the allegations of the complaint show a claim for damages that
would be covered by the policy) Cincinnati Ins Co v Grand Pointe LLC 2007 US Dist
12 All parties concede that Tennessee law governs construction of the insurance policies
13
(L069S7S21 )
LEXIS 39784 (ED Tenn 2007) (If it is plain from the face of the underlying complaint the
allegations fail to state facts that bring the case within or potentially within the policy no duty to
defend exists) Am Nat Prop and Cas Ins Co v Gray 803 SW 2d 693 695-96 (Tenn Ct
App 1990) Graves v Liberty Mut Fire Ins Co 745 SW2d 282283 (Tenn Ct App 1987)
In ascertaining whether there is a duty to defend under a liability insurance policy
Tennessee adheres to a strict four comers approach See Interstate Packaging Co v Century
Indem Co bull 2013 US Dist LEXIS 45459 (MDTenn 2013) citing St Paul Fire amp Marine Ins
Co v Torpoco 879 SW2d 831 835 (Tenn 1994) Clark v Sputnicks LLC 368 SW3d 431
439 (Tenn 2012) (An insurers duty to defend is determined solely by an examination of the
allegations of the underlying complaint) Thus under Tennessee law the court must limit its
inquiry to the claims and allegations presented in the complaint against the insured [I]f the
allegations contained in the complaintare within the risk insured against and there is a
potential basis for recovery then [the insurer] must defend St Paul v Torpoco supra 879
SW2d at 835 Conversely if the claims alleged in the complaint are clearly not within the
scope of coverage then there is no duty to defend Drexel Chemical Co v Bitco Ins Co 933
SW2d 471 480 (Tenn 1996) As the United States Court of Appeals for the Sixth Circuit
stated it applying Tennessee law in Smith amp Nephew Inc v Fed Ins Co 113 FedAppx 99
(6th Cir 2004) in detennining an insurers duty to defend courts typically begin and end
their analysis with the four comers of the complaint Id at 102 Petitioner argues that there
are significant issues of material fact that exist given that there has been no final resolution of the
14
(LD09S752 I
underlying action13 but in fact clear-cut law dictates that all the Court must do is contrast the
averments of the Amended Complaint with the terms of the policies
The instant inquiry must therefore begin with the unique circumstances that the TIID
Amended Complaint against lA Street pleads only contract-based claims and not tort claims
Although the Circuit Court based its finding of no coverage solely on the Contractual Liability
exclusion as discussed in detail below courts in Tennessee and elsewhere have concluded that
there is no coverage for breach of contact claims and the damages that typically flow from such
claims on broader grounds While the Circuit Court did not subscribe to that broad view
our cases have made clear that it is permissible for us to affirm the granting of [dismissal] on bases difference or grounds other than those relief upon by the circuit court Hoover v Moran 222 WVa at 119 662 SE2d at 718 quoting Gently v Mangum 195 WVa 512519466 SE2d 171178 (1995) See also Schmehl v Helton 222 WVa 98 662 SE2d 697 705 n7 (2008) (this Court may in any event affirm the circuit court on any proper basis whether relied upon by the circuit court or not) Murphy v Smallridge 196 WVa 35 36-7 468 SE2d 167168-9 (1996) (An appellate court is not limited to the legal grounds relied upon by the circuit court but it may affirm or reverse a decision on any independently sufficient ground that has adequate support) Syl pt 3 Barnett v Wolfolk 149 WVa 246 140 SE2d 466 (1965) (This Court may on appeal affirm the judgment of the lower court when it appears that such judgment is correct on any legal ground disclosed by the record regardless of the ground reason or theory assigned by the lower court as the basis for its judgment)
Savarese v Allstate Ins Co 672 SE2d 255260 (WVa 2008)
One of the more elemental and uniformly embraced principles of corrunercial insurance
law is that the typical commercial liability insurance policy affords coverage for tort claims not
claims for breach of contract The authorities supporting that proposition are legion Dean
Henderson in his renowned and widely cited law review article makes the point emphatically
13 Petitioners Brief pp 25-27 15
(L0695752 1 J
[t]he risk intended to be insured is the possibility that the goods products or work of the insured once relinquished or completed will cause bodily injury or damage to property other than to the product or completed work itself and for which the insured may be found liable The insured as a source of goods or services may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable because it is lacking in some capacity This may even extend to an obligation to completely replace or rebuild the deficient product or work This liability however is not what the coverages in question are designed to protect against The coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb L Rev 415441 (1971)14
The overwhelming majority of courts and commentators that have addressed this issue
have held that breach of contract claims asserted against the insured are not covered under a
standard CGL policy See eg Couch on Insurance 3d sect1291-1294 (3d Ed 2005) (a
commercial general liability insurance policy is generally designed to provide coverage for tort
liability for physical damages to others and not for contractual liability of the insured for
economic loss the majority of jurisdictions have held that breach of contract is not an
14 The Henderson article has been widely relied upon by courts and commentators for over 40 years Noticeably it has been frequently cited with approval in Tennessee See Vernon (relying upon the Henderson article the Tennessee Court held that the standard comprehensive general liability policy does not provide coverage to an insured-contractor for a breach of contract action grounded upon faulty workmanship or materials where the damages claimed are the cost of correcting the work itself) Blaylock amp Brown Constr Inc v AIU Ins Co 796 SW2d 146 1990 TennApp LEXIS 338 (1990) (relying upon Henderson the Court holds bull that the language of the policy excludes liability coverage for the plaintiffs for damage to the property constructed pursuant to the contract) Standard Fire Ins Co v Chester-ODonley amp Assocs 972 SW2d 1 1998 TennApp LEXIS 65 (1998) (citing the Henderson article for the proposition that CGL policies are not intended to cover the insureds contractual liability for economic loss because its work was not that for which the damaged person bargained) Weedo v Stone-E-Brick Inc bull 81 NJ 233 405 A2d 788 (1979) (relying heavily upon the Henderson article the Court holds that a CGL policy does not provide coverage for a breach of contract action for faulty workmanship where the damages claimed are the cost ofcorrecting the work itself)
16
IL069S7S2 I
occurrencea [CGL] policy is not intended to provide coverage for the insureds contractual
liability which merely causes economic losses) Alan D Windt Insurance Claims and
Disputes sect117 (4th Ed 2001) (Finally there is the question as to whether a breach of
contract claim involves damages caused by an occurrence The answer should in general be
no) Erie Ins Prop amp Cas Co v Pioneer Home Improvement Inc 526 SE2d 28 33 206
WVa 506 513 (1999) (The coverage [under a COL policy] is for tort liability for physical
damages to others and not for contractual liability of the insured for economic loss because the
product or completed work is not that for which the damaged person bargained) Nationwide
Mutual Ins Co v CPB Intl Inc 562 F3d 591 598 2009 US App LEXIS 7795 14 (3d Cir
2009) (holding that under Pennsylvania law a CGL policy does not provide coverage for
claims in an underlying action that arise out of and relate to the contract between the parties)
Lyerla v AMCO Ins Co 536 F3d 684691-922008 US App LEXIS 164 78 (7th Cir 2008)
(applying Illinois law) (holding that underlying allegations that insured contractor did not satisfy
his contractual obligations is not property damage caused by an occurrence) L-J Inc v
Biteo Fire amp Marine Ins Co 621 SE2d 33 35 366 SC 117 (2005) (any liability that is
incurred because of faulty workmanship is part of the insureds contractual liability not an
insurable event under a CGL policy) Hotel Roanoke Conf Ctr Commn v Cincinnati Ins Co
303 FSupp2d 784 7882004 US Dist LEXIS 2539 (2004) (applying Virginia law) (damages
limited to the insureds work or product and resulting from the insureds defective perfonnance
of a contract are not covered losses under a [CGL] policy) Westfield Ins Co v Sheehan
Construction Co 580 FSupp2d 701 710 2008 US Dist LEXIS 66843 (2008) (applying
17
(L06957521
Indiana law) (a CGL policy serves to limit contractors tort liability for damage to property
caused by their work) Key Custom Homes Inc v Mid-Continent Cas Co 450 FSupp2d
1311 1317-182006 US Dist LEXIS 60355 (2006) (applying Florida law) (it is equally clear
that breach of contract claims for the recovery of money are not covered by general liability
insurance policies) Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254 1257329
Ore 620 (2000) (there can be no accident within the meaning of a commercial liability policy
when the resulting damage is merely a breach of contract) Bonded Concrete Inc v Transcon
Ins Co 12 AD3d 761 2004 NYAppDiv LEXIS 13020 (2004) (the purpose of a
commercial general liability policy is to provide coverage for tort liability for physical damage
to others and not for contractual liability of the insured for economic loss because the
product is not what the damaged [party] bargained for) United States Fire Ins Co v Milton
Co 35 FSupp2d 8386 1998 US Dist LEXIS 22116 (1998) (applying Maryland law) (there
is no occurrence under a comprehensive general liability insurance policy where and to the
extent that a contractors use of defective materials and substandard workmanship results in
economic losses that would normally be recoverable in a breach of contract action) Burlington
Ins Co v Oceanic Design amp Construction Inc 383 F3d 940 2004 US App LEXIS 18932
(9th Cir 2004) (applying Hawaii law) (holding that claims for breach of contract and negligent
breach of contract are not covered under a CGL policy) Norwalk Ready Mixed Concrete Inc v
Travelers Ins Co 246 F3d 1132 2001 US App LEXIS 7148 (8th Cir 2001) (applying Iowa
law) (holding that breach of contract and breach of warranty claims are not covered under a CGL
policy) USFampG Com v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476
18
(L06957521 l
(1989) (holding that a breach of contract claim asserted against an insured contractor is not
covered under a COL policy) Oreat Divide Ins Co v Bitterroot Timberfiames of Wyoming
LLC 2006 US Dist LEXIS 94826 (2006) (applying Wyoming law) (the allegations
demonstrate losses resulting from breach of contract and therefore cannot constitute an
accident for purposes of determining coverage) Union Ins Co v Hottenstein 83 P3d 1196
12022003 ColoApp LEXIS 1857 (2003) (poor workmanship constituting a breach of contract
is not a covered occurrence)
Tennessee lawl5 is in accord with these authorities The Tennessee Supreme Court has
defInitively held that breach of contract claims due to the insureds faulty workmanship such as
those asserted here by THD against IA Street in the underlying Amended Complaint are simply
not covered under the grant of coverage contained in a commercial liability policy See Vernon
supra Chester-ODonley supra at 6-7 (General liability policies are not all-risk policies and
only cover damages up to the policy limits for which the insured becomes liable as a result of
tort liability to a third party) (emphasis added) In Vernon the Supreme Court of Tennessee
expressly held that a standard COL policy only covers tort claims and such a policy does not
15 Under applicable Tennessee law contracts of insurance are subject to the same rules of interpretation and construction as other contracts McKimm v Bell 790 SW2d 526 527 1990 Tenn LEXIS 161 (1990) Thus [a]n insurance policy must be interpreted fairly and reasonably giving the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204 SW3d 758 2006 Tenn LEXIS 755 (2006) In the absence of fraud or mistake a contract must be interpreted and enforced as written even though it contains terms which may be thought harsh and unjust Allstate Ins Co v Wilson 856 SW2d 706 1992 TennApp LEXIS 1012 (1992) As a result the analysis of JA Streets right to coverage for the claims asserted in the underlying action are dictated by the terms of the policy The essential components of a general liability insurance policy include (1) the declarations (2) the insuring agreements and definitions (3) the exclusions (4) the conditions and (5) the endorsements See ChestershyODonley supra The insuring agreement sets the outer limits of an insurers contractual liability If coverage cannot be found in the insuring agreement it will not be found elsewhere in the policy Id 1998 TennApp LEXIS at 13-14
19
L069S7S21
afford coverage to an insured contractor for breach of contract claims Vernon 591 SW 2d at
765 Chester-ODonley supra at 6-7 Petitioner complains that the Circuit Court focused on
West Virginia cases such as Silk v Flat TOp6 but in fact the lower court expressly relied
upon a wealth of Tennessee authority17 including Vernon Cincinnati Ins Co v Grand Pointe
LLc18 and Trinity Univ Ins Co v Turner Funeral Home Inc 19 More recently Tennessee
courts have reaffirmed the rationale and holding of Vernon See State Auto Ins Cos v Gordon
Constr Inc 2001 TennApp LEXIS 349 (2001) (following Vernon and holding that the
insuring agreement of a CGL policy does not afford coverage for underlying breach of contract
and breach of warranty claims asserted against the insured contractor) Blake Indus Inc v
General Agents Ins Co of Am 2000 Tenn App LEXIS 490 (2000) (applying Vernon and
holding that claims asserted against the insured that were grounded in contract are not covered
under a CGL policy) Blaylock and Brown Constr Inc v AID Ins Co 796 SW2d 146 152shy
153 (Tenn Ct App 1990)
As the Circuit Court correctly recognized the express tenus of the insurance contract
clearly exclude contractual liability from coverage Exclusions help define and shape the scope
of coverage but they must be read in terms of the insuring agreement to which they apply
Exclusions can only decrease coverage they cannot increase it Chester-ODonley 972 SW2d
at 7-8 Moreover [e]ach exclusion reduces coverage and operates independently with reference
16 Petitioners Brief p 30 (citing 453 SE2d 356 (Wva 1994raquo 17 See See Opinion JA-I0552 ~27
18 2007 US Dist LEXIS 39784 (ED Tenn 2007) 19 2003 WL 23218046 (ED Tenn Dec 122003)
20
IL069S7S2 I I
to the insuring agreement Id at 8 The Contractual Liability exclusion specifically provides
that the insurance coverage does not apply to
Contractual liability
Bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement This exclusion does not apply to liability for damages
(1) That the insured would have in the absence of the contract or agreement or
(2) Assumed in a contract or agreement that is an insured contract provided the bodily injury or property damage occurs subsequent to the execution of the contract or agreement Solely for the purposes of liability assumed in a insured contract reasonable attorneys fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of bodily injury or property damage provided
(a) Liability to such party for or for the cost of that partys defense has also been assumed in the same insured contract and
(b) Such attorneys fees and litigation expenses are for defense of that party against the civil or alternative dispute resolution proceeding in which damages to which the insurance applies are alleged
See JA-62 Section I C[2
Even a cursory examination ofTHDs Amended Complaint reveals that all claims alleged
against JA Street were contractual There simply was no tort claim alleged In fact the claims
against JA Street were necessarily founded in contract for two reasons First the two-year
statute of limitations applicable to any tort claims elapsed long before THD first asserted its
claims against JA Street Tort claims were not pleaded and could not have been Second the
substantive law of West Virginia applies to the underlying claims asserted by THD against lA
21
(L069S7S21 I
Street20 and applicable West Virginia law plainly holds that even if THD had asserted tort
claims against JA Street the claims would still sound in contract under these circumstances for
purposes of the instant analysis since the gist of claims asserted against a contractor for deficient
work is necessarily ex contractu See Silk supra at 360 Dan Ryan Builders Inc v Crystal
Ridge Dev Inc 783 F3d 976 (4th Cir 2015) Unlike in both Silk and Dan Ryan THO did not
even assert any tort claims here Nor could it have Relevant to the precise policy language at
issue there simply was no liability for damages that [JA Street] would have in the absence of
the contract or agreement It simply cannot be contested that the claims alleged in the Amended
Complaint are and indeed necessarily were contractual in nature Given that alone the clear
holding of the Tennessee Court in Vernon mandated the Circuit Courts correct grant of
summary judgment in Biteos favor
A great majority of courts and commentators across the country that have addressed the
issue have held that the explicit unambiguous express Contractual Liability exclusion forecloses
coverage for all contract liability including breach of contract claims asserted against the
insured except where the insured has assumed the liability of another in an insured contract
See eg Silk v Flat Top Constr Inc 453 SE2d 356 359 192 WVa 522 (1994) (holding that
the contract exclusion applies to foreclose coverage for all contractual liability of the insured
except for liability assumed in an insured contract-a contract under which the insured
assumes the tort liability of another party) Gilbert Tex Constr v Underwriters at Lloyds
20 West Virginia applies the choice-of-law principle of lex loci delicti and there is no question here that the offending conduct and the loss all occurred in West Virginia such that JA Streets liability to THD would be governed by West Virginia law See State of Wva ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) (citing Syl Pt 1 Paul v Natl Life 352 SE2d 552 (WVa 1986raquo
22
(L069S7521 I
Londo 327 SW3d 118 (2010) (citing inter alia Nationwide Mut Ins Co v CPB Int Inc
No 306-CV-0363 2007 WL 4198173 at 8 (MDPa Nov26 2007) (Exclusion (b) is simply
further clarification in the policy that contract-based claims are not covered) ClM Ins Corp v
Midpac Auto Crr Inc 108 FSupp2d 1092 1099-1100 (DHaw2000) (clause in policy stating
that policy does not apply to liability assumed under any contract or agreement means that any
claim that is dependent on the existence of an underlying contract is not covered) Monticello
Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 at 2 (WDKy
Apr 3 1998) (exclusion for liability assumed by the insured under any contract or agreement
does not arise only when a party assumes the liability for another party rather the plain meaning
of the policy excludes a breach of contract claim from coverage) Silk supra (exclusion removed
coverage for breach of contract) TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 1091-92
(8th Cir1995) (exclusion for which the insured has assumed liability in a contract or agreement
plainly excluded coverage for contractual claims and not just hold-harmless or indemnity
agreements) Nationwide Mutual Ins Co v CPB Intl Inc 562 F3d 591 5992009 US App
LEXIS 7795 (3d Cir 2009) (applying Pa law) (holding that a breach of contract claim is excluded
under the Contractual Liability exclusion) Century Sur Co v Hardscape Constr Specialties Inc
578 F3d 262 2009 US App LEXIS 25300 (5th Cir 2009) (applying Texas law) (holding that the
Contractual Liability exclusion operates to exclude claims grounded primarily in breach of contract
and that no tort claims were asserted that triggered the insured contract exception) State Farm
Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 12 (2007) (applying Hawaii
law) (holding that claims arising from the insureds obligations under a contract are barred from
23
L0695152 I I
coverage under the Contractual Liability exclusion) JACO Airfield Constr Inc v National Trust
Ins Co 2007 US Dist LEXIS 100295 10 (2007) (applying Georgia law) (holding that the
Contractual Liability exclusion applies to foreclose coverage for the contractual based claims
asserted against the insured and that the insured contract exception to the Contractual Liability
exclusion does not apply because the insured did not assume the tort liability of another) Union Ins
Co v Williams Contr Inc 2006 US Dist LEXIS 35919 4-5 (2006) (holding that the
Contractual Liability exclusion precludes coverage for claims against the insured for breach of a
construction contract) Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270
GaApp 8 (2004) (affirming trial comts finding that the Contractual Liability exclusion barred
coverage for breach of contract and breach of implied warranty claims against the insured) Gibson
amp Assocs Inc v Home Ins Co 966 FSupp 468476-77 1997 US Dist LEXIS 4776 (1997)
(applying Texas law) (recognizing that the Contractual Liability exclusion precludes coverage for
breach of contract claims asserted against the insmed and that the policy only covers contractual
liability for indemnification actions ie an insured contract) James v Burlington Northern Santa
Fe Railway Co 2007 US Dist LEXIS 63282 4-5 (2007) (applying Arizona law) (holding that
the insured contract exception to the Contractual Liability exclusion does not bring ordinary
breach-of-contract claims within the scope of CGL coverage) TGA Dev Inc v Northern Ins Co
of New York 62 F3d 1089 1091-92 1995 USApp LEXIS 21700 (8th Cir 1995) (applying
Minnesota law) (holding that the Contractual Liability exclusion plainly excludes coverage for
contractual claims made for [the insmeds] failure to provide [the property owner] with a
condominium unit free from defects)
24
(lO6957521 )
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
Finally though the issue is moot since Bitco owes no coverage at all Bitco cross-assigns
error in the Circuit Courts determinations that more than one policy and per occurrence limit
could apply under any circumstances The unambiguous policy language restricts any coverage
to only one policy period and only one applicable limit This Court should not need to reach
those issues however since there is no coverage at all
UI STATEMENT REGARDING ORAL ARGUMENT AND DECISION
Bitco does not believe the narrow issues necessary to affirm the judgment below are
particularly difficult or complex However if the Court is interested in entertaining oral
argument Bitcos counsel would of course happily oblige
IV ARGUMENT
A STANDARD OF REVIEW
Inasmuch as the summary judgment was entered with regard to a declaratory judgment
action [a] circuit courts entry of a declaratory judgment is reviewed de novo Id
(quoting Syl Pt 3 Cox v Amick 195 WVa 608 466 SE2d 459 (1995raquo See also
Blankenship v City of Charleston 223 WVa 822 824 679 SE2d 654 656 (2009) (quoting
Syi Pt 1 Painter v Peavy 192 WVa 189 451 SE2d 755 (1994raquo Moreover
[d]etermination of the proper coverage of an insurance contract when the facts are not in
dispute is a question of law Id at 825 (quoting Syi Pt 1 Tennant v Smallwood 211 WVa
703 568 SE2d 10 (2002raquo) As [t]he interpretation of an insurance contract including the
question of whether the contract is ambiguous is a legal determination like a lower courts
grant of summary judgment [it] shall be reviewed de novo on appeal Id (quoting SyI Pt 2
12
(L06957521 )
Riffe v Home Finders Associates Inc 205 WVa 216 517 SE2d 313 (1999)) Importantly as
discussed in detail immediately below since the core issue in this case merely requires a
comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies this case presents a pure matter of law that is uniquely
suitable for decision at the summary judgment stage
B THE CIRCUIT COURT CORRECTLY HELD THAT UNDER TENNESSEE LAW THE CONTRACTUAL CLAIMS ASSERTED BY THD AGAINST JA STREET ARE NOT COVERED
BY THE BITCO POLICIES
In this State a liability insurer has no duty to defend an action asserted against the
insured where it is clear from the allegations of the Complaint against the insured that there is no
coverage afforded under the relevant insurance policy See Horace Mann Ins Co v Leeber 376
SE2d 581 584 180 WVa 375 (1988) State Auto Mut Ins Co v Alpha Engg Servbull Inc
542 SE2d 876 879 208 WVa 713 (2000) (If the causes of action alleged in the plaintiffs
complaint are entirely foreign to the risks covered by the insurance policy then the insurance
company is relieved of its duties under the policy) Tennesseel2 follows exactly the same rule
See Drexel Chemical Co v Bitco Ins Co 933 SW2d 471480 1996 TennApp LEXIS 356
(1996) (holding that the insurer did not have a duty to defend where an exclusion applied to
foreclose coverage) Tenn Farmers Mut Ins Co v Brown 1990 TennApp LEXIS 812 (1990)
(The general rule in Tennessee is that an insurer is not obligated to undertake the defense of a
suit against its insured unless the allegations of the complaint show a claim for damages that
would be covered by the policy) Cincinnati Ins Co v Grand Pointe LLC 2007 US Dist
12 All parties concede that Tennessee law governs construction of the insurance policies
13
(L069S7S21 )
LEXIS 39784 (ED Tenn 2007) (If it is plain from the face of the underlying complaint the
allegations fail to state facts that bring the case within or potentially within the policy no duty to
defend exists) Am Nat Prop and Cas Ins Co v Gray 803 SW 2d 693 695-96 (Tenn Ct
App 1990) Graves v Liberty Mut Fire Ins Co 745 SW2d 282283 (Tenn Ct App 1987)
In ascertaining whether there is a duty to defend under a liability insurance policy
Tennessee adheres to a strict four comers approach See Interstate Packaging Co v Century
Indem Co bull 2013 US Dist LEXIS 45459 (MDTenn 2013) citing St Paul Fire amp Marine Ins
Co v Torpoco 879 SW2d 831 835 (Tenn 1994) Clark v Sputnicks LLC 368 SW3d 431
439 (Tenn 2012) (An insurers duty to defend is determined solely by an examination of the
allegations of the underlying complaint) Thus under Tennessee law the court must limit its
inquiry to the claims and allegations presented in the complaint against the insured [I]f the
allegations contained in the complaintare within the risk insured against and there is a
potential basis for recovery then [the insurer] must defend St Paul v Torpoco supra 879
SW2d at 835 Conversely if the claims alleged in the complaint are clearly not within the
scope of coverage then there is no duty to defend Drexel Chemical Co v Bitco Ins Co 933
SW2d 471 480 (Tenn 1996) As the United States Court of Appeals for the Sixth Circuit
stated it applying Tennessee law in Smith amp Nephew Inc v Fed Ins Co 113 FedAppx 99
(6th Cir 2004) in detennining an insurers duty to defend courts typically begin and end
their analysis with the four comers of the complaint Id at 102 Petitioner argues that there
are significant issues of material fact that exist given that there has been no final resolution of the
14
(LD09S752 I
underlying action13 but in fact clear-cut law dictates that all the Court must do is contrast the
averments of the Amended Complaint with the terms of the policies
The instant inquiry must therefore begin with the unique circumstances that the TIID
Amended Complaint against lA Street pleads only contract-based claims and not tort claims
Although the Circuit Court based its finding of no coverage solely on the Contractual Liability
exclusion as discussed in detail below courts in Tennessee and elsewhere have concluded that
there is no coverage for breach of contact claims and the damages that typically flow from such
claims on broader grounds While the Circuit Court did not subscribe to that broad view
our cases have made clear that it is permissible for us to affirm the granting of [dismissal] on bases difference or grounds other than those relief upon by the circuit court Hoover v Moran 222 WVa at 119 662 SE2d at 718 quoting Gently v Mangum 195 WVa 512519466 SE2d 171178 (1995) See also Schmehl v Helton 222 WVa 98 662 SE2d 697 705 n7 (2008) (this Court may in any event affirm the circuit court on any proper basis whether relied upon by the circuit court or not) Murphy v Smallridge 196 WVa 35 36-7 468 SE2d 167168-9 (1996) (An appellate court is not limited to the legal grounds relied upon by the circuit court but it may affirm or reverse a decision on any independently sufficient ground that has adequate support) Syl pt 3 Barnett v Wolfolk 149 WVa 246 140 SE2d 466 (1965) (This Court may on appeal affirm the judgment of the lower court when it appears that such judgment is correct on any legal ground disclosed by the record regardless of the ground reason or theory assigned by the lower court as the basis for its judgment)
Savarese v Allstate Ins Co 672 SE2d 255260 (WVa 2008)
One of the more elemental and uniformly embraced principles of corrunercial insurance
law is that the typical commercial liability insurance policy affords coverage for tort claims not
claims for breach of contract The authorities supporting that proposition are legion Dean
Henderson in his renowned and widely cited law review article makes the point emphatically
13 Petitioners Brief pp 25-27 15
(L0695752 1 J
[t]he risk intended to be insured is the possibility that the goods products or work of the insured once relinquished or completed will cause bodily injury or damage to property other than to the product or completed work itself and for which the insured may be found liable The insured as a source of goods or services may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable because it is lacking in some capacity This may even extend to an obligation to completely replace or rebuild the deficient product or work This liability however is not what the coverages in question are designed to protect against The coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb L Rev 415441 (1971)14
The overwhelming majority of courts and commentators that have addressed this issue
have held that breach of contract claims asserted against the insured are not covered under a
standard CGL policy See eg Couch on Insurance 3d sect1291-1294 (3d Ed 2005) (a
commercial general liability insurance policy is generally designed to provide coverage for tort
liability for physical damages to others and not for contractual liability of the insured for
economic loss the majority of jurisdictions have held that breach of contract is not an
14 The Henderson article has been widely relied upon by courts and commentators for over 40 years Noticeably it has been frequently cited with approval in Tennessee See Vernon (relying upon the Henderson article the Tennessee Court held that the standard comprehensive general liability policy does not provide coverage to an insured-contractor for a breach of contract action grounded upon faulty workmanship or materials where the damages claimed are the cost of correcting the work itself) Blaylock amp Brown Constr Inc v AIU Ins Co 796 SW2d 146 1990 TennApp LEXIS 338 (1990) (relying upon Henderson the Court holds bull that the language of the policy excludes liability coverage for the plaintiffs for damage to the property constructed pursuant to the contract) Standard Fire Ins Co v Chester-ODonley amp Assocs 972 SW2d 1 1998 TennApp LEXIS 65 (1998) (citing the Henderson article for the proposition that CGL policies are not intended to cover the insureds contractual liability for economic loss because its work was not that for which the damaged person bargained) Weedo v Stone-E-Brick Inc bull 81 NJ 233 405 A2d 788 (1979) (relying heavily upon the Henderson article the Court holds that a CGL policy does not provide coverage for a breach of contract action for faulty workmanship where the damages claimed are the cost ofcorrecting the work itself)
16
IL069S7S2 I
occurrencea [CGL] policy is not intended to provide coverage for the insureds contractual
liability which merely causes economic losses) Alan D Windt Insurance Claims and
Disputes sect117 (4th Ed 2001) (Finally there is the question as to whether a breach of
contract claim involves damages caused by an occurrence The answer should in general be
no) Erie Ins Prop amp Cas Co v Pioneer Home Improvement Inc 526 SE2d 28 33 206
WVa 506 513 (1999) (The coverage [under a COL policy] is for tort liability for physical
damages to others and not for contractual liability of the insured for economic loss because the
product or completed work is not that for which the damaged person bargained) Nationwide
Mutual Ins Co v CPB Intl Inc 562 F3d 591 598 2009 US App LEXIS 7795 14 (3d Cir
2009) (holding that under Pennsylvania law a CGL policy does not provide coverage for
claims in an underlying action that arise out of and relate to the contract between the parties)
Lyerla v AMCO Ins Co 536 F3d 684691-922008 US App LEXIS 164 78 (7th Cir 2008)
(applying Illinois law) (holding that underlying allegations that insured contractor did not satisfy
his contractual obligations is not property damage caused by an occurrence) L-J Inc v
Biteo Fire amp Marine Ins Co 621 SE2d 33 35 366 SC 117 (2005) (any liability that is
incurred because of faulty workmanship is part of the insureds contractual liability not an
insurable event under a CGL policy) Hotel Roanoke Conf Ctr Commn v Cincinnati Ins Co
303 FSupp2d 784 7882004 US Dist LEXIS 2539 (2004) (applying Virginia law) (damages
limited to the insureds work or product and resulting from the insureds defective perfonnance
of a contract are not covered losses under a [CGL] policy) Westfield Ins Co v Sheehan
Construction Co 580 FSupp2d 701 710 2008 US Dist LEXIS 66843 (2008) (applying
17
(L06957521
Indiana law) (a CGL policy serves to limit contractors tort liability for damage to property
caused by their work) Key Custom Homes Inc v Mid-Continent Cas Co 450 FSupp2d
1311 1317-182006 US Dist LEXIS 60355 (2006) (applying Florida law) (it is equally clear
that breach of contract claims for the recovery of money are not covered by general liability
insurance policies) Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254 1257329
Ore 620 (2000) (there can be no accident within the meaning of a commercial liability policy
when the resulting damage is merely a breach of contract) Bonded Concrete Inc v Transcon
Ins Co 12 AD3d 761 2004 NYAppDiv LEXIS 13020 (2004) (the purpose of a
commercial general liability policy is to provide coverage for tort liability for physical damage
to others and not for contractual liability of the insured for economic loss because the
product is not what the damaged [party] bargained for) United States Fire Ins Co v Milton
Co 35 FSupp2d 8386 1998 US Dist LEXIS 22116 (1998) (applying Maryland law) (there
is no occurrence under a comprehensive general liability insurance policy where and to the
extent that a contractors use of defective materials and substandard workmanship results in
economic losses that would normally be recoverable in a breach of contract action) Burlington
Ins Co v Oceanic Design amp Construction Inc 383 F3d 940 2004 US App LEXIS 18932
(9th Cir 2004) (applying Hawaii law) (holding that claims for breach of contract and negligent
breach of contract are not covered under a CGL policy) Norwalk Ready Mixed Concrete Inc v
Travelers Ins Co 246 F3d 1132 2001 US App LEXIS 7148 (8th Cir 2001) (applying Iowa
law) (holding that breach of contract and breach of warranty claims are not covered under a CGL
policy) USFampG Com v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476
18
(L06957521 l
(1989) (holding that a breach of contract claim asserted against an insured contractor is not
covered under a COL policy) Oreat Divide Ins Co v Bitterroot Timberfiames of Wyoming
LLC 2006 US Dist LEXIS 94826 (2006) (applying Wyoming law) (the allegations
demonstrate losses resulting from breach of contract and therefore cannot constitute an
accident for purposes of determining coverage) Union Ins Co v Hottenstein 83 P3d 1196
12022003 ColoApp LEXIS 1857 (2003) (poor workmanship constituting a breach of contract
is not a covered occurrence)
Tennessee lawl5 is in accord with these authorities The Tennessee Supreme Court has
defInitively held that breach of contract claims due to the insureds faulty workmanship such as
those asserted here by THD against IA Street in the underlying Amended Complaint are simply
not covered under the grant of coverage contained in a commercial liability policy See Vernon
supra Chester-ODonley supra at 6-7 (General liability policies are not all-risk policies and
only cover damages up to the policy limits for which the insured becomes liable as a result of
tort liability to a third party) (emphasis added) In Vernon the Supreme Court of Tennessee
expressly held that a standard COL policy only covers tort claims and such a policy does not
15 Under applicable Tennessee law contracts of insurance are subject to the same rules of interpretation and construction as other contracts McKimm v Bell 790 SW2d 526 527 1990 Tenn LEXIS 161 (1990) Thus [a]n insurance policy must be interpreted fairly and reasonably giving the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204 SW3d 758 2006 Tenn LEXIS 755 (2006) In the absence of fraud or mistake a contract must be interpreted and enforced as written even though it contains terms which may be thought harsh and unjust Allstate Ins Co v Wilson 856 SW2d 706 1992 TennApp LEXIS 1012 (1992) As a result the analysis of JA Streets right to coverage for the claims asserted in the underlying action are dictated by the terms of the policy The essential components of a general liability insurance policy include (1) the declarations (2) the insuring agreements and definitions (3) the exclusions (4) the conditions and (5) the endorsements See ChestershyODonley supra The insuring agreement sets the outer limits of an insurers contractual liability If coverage cannot be found in the insuring agreement it will not be found elsewhere in the policy Id 1998 TennApp LEXIS at 13-14
19
L069S7S21
afford coverage to an insured contractor for breach of contract claims Vernon 591 SW 2d at
765 Chester-ODonley supra at 6-7 Petitioner complains that the Circuit Court focused on
West Virginia cases such as Silk v Flat TOp6 but in fact the lower court expressly relied
upon a wealth of Tennessee authority17 including Vernon Cincinnati Ins Co v Grand Pointe
LLc18 and Trinity Univ Ins Co v Turner Funeral Home Inc 19 More recently Tennessee
courts have reaffirmed the rationale and holding of Vernon See State Auto Ins Cos v Gordon
Constr Inc 2001 TennApp LEXIS 349 (2001) (following Vernon and holding that the
insuring agreement of a CGL policy does not afford coverage for underlying breach of contract
and breach of warranty claims asserted against the insured contractor) Blake Indus Inc v
General Agents Ins Co of Am 2000 Tenn App LEXIS 490 (2000) (applying Vernon and
holding that claims asserted against the insured that were grounded in contract are not covered
under a CGL policy) Blaylock and Brown Constr Inc v AID Ins Co 796 SW2d 146 152shy
153 (Tenn Ct App 1990)
As the Circuit Court correctly recognized the express tenus of the insurance contract
clearly exclude contractual liability from coverage Exclusions help define and shape the scope
of coverage but they must be read in terms of the insuring agreement to which they apply
Exclusions can only decrease coverage they cannot increase it Chester-ODonley 972 SW2d
at 7-8 Moreover [e]ach exclusion reduces coverage and operates independently with reference
16 Petitioners Brief p 30 (citing 453 SE2d 356 (Wva 1994raquo 17 See See Opinion JA-I0552 ~27
18 2007 US Dist LEXIS 39784 (ED Tenn 2007) 19 2003 WL 23218046 (ED Tenn Dec 122003)
20
IL069S7S2 I I
to the insuring agreement Id at 8 The Contractual Liability exclusion specifically provides
that the insurance coverage does not apply to
Contractual liability
Bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement This exclusion does not apply to liability for damages
(1) That the insured would have in the absence of the contract or agreement or
(2) Assumed in a contract or agreement that is an insured contract provided the bodily injury or property damage occurs subsequent to the execution of the contract or agreement Solely for the purposes of liability assumed in a insured contract reasonable attorneys fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of bodily injury or property damage provided
(a) Liability to such party for or for the cost of that partys defense has also been assumed in the same insured contract and
(b) Such attorneys fees and litigation expenses are for defense of that party against the civil or alternative dispute resolution proceeding in which damages to which the insurance applies are alleged
See JA-62 Section I C[2
Even a cursory examination ofTHDs Amended Complaint reveals that all claims alleged
against JA Street were contractual There simply was no tort claim alleged In fact the claims
against JA Street were necessarily founded in contract for two reasons First the two-year
statute of limitations applicable to any tort claims elapsed long before THD first asserted its
claims against JA Street Tort claims were not pleaded and could not have been Second the
substantive law of West Virginia applies to the underlying claims asserted by THD against lA
21
(L069S7S21 I
Street20 and applicable West Virginia law plainly holds that even if THD had asserted tort
claims against JA Street the claims would still sound in contract under these circumstances for
purposes of the instant analysis since the gist of claims asserted against a contractor for deficient
work is necessarily ex contractu See Silk supra at 360 Dan Ryan Builders Inc v Crystal
Ridge Dev Inc 783 F3d 976 (4th Cir 2015) Unlike in both Silk and Dan Ryan THO did not
even assert any tort claims here Nor could it have Relevant to the precise policy language at
issue there simply was no liability for damages that [JA Street] would have in the absence of
the contract or agreement It simply cannot be contested that the claims alleged in the Amended
Complaint are and indeed necessarily were contractual in nature Given that alone the clear
holding of the Tennessee Court in Vernon mandated the Circuit Courts correct grant of
summary judgment in Biteos favor
A great majority of courts and commentators across the country that have addressed the
issue have held that the explicit unambiguous express Contractual Liability exclusion forecloses
coverage for all contract liability including breach of contract claims asserted against the
insured except where the insured has assumed the liability of another in an insured contract
See eg Silk v Flat Top Constr Inc 453 SE2d 356 359 192 WVa 522 (1994) (holding that
the contract exclusion applies to foreclose coverage for all contractual liability of the insured
except for liability assumed in an insured contract-a contract under which the insured
assumes the tort liability of another party) Gilbert Tex Constr v Underwriters at Lloyds
20 West Virginia applies the choice-of-law principle of lex loci delicti and there is no question here that the offending conduct and the loss all occurred in West Virginia such that JA Streets liability to THD would be governed by West Virginia law See State of Wva ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) (citing Syl Pt 1 Paul v Natl Life 352 SE2d 552 (WVa 1986raquo
22
(L069S7521 I
Londo 327 SW3d 118 (2010) (citing inter alia Nationwide Mut Ins Co v CPB Int Inc
No 306-CV-0363 2007 WL 4198173 at 8 (MDPa Nov26 2007) (Exclusion (b) is simply
further clarification in the policy that contract-based claims are not covered) ClM Ins Corp v
Midpac Auto Crr Inc 108 FSupp2d 1092 1099-1100 (DHaw2000) (clause in policy stating
that policy does not apply to liability assumed under any contract or agreement means that any
claim that is dependent on the existence of an underlying contract is not covered) Monticello
Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 at 2 (WDKy
Apr 3 1998) (exclusion for liability assumed by the insured under any contract or agreement
does not arise only when a party assumes the liability for another party rather the plain meaning
of the policy excludes a breach of contract claim from coverage) Silk supra (exclusion removed
coverage for breach of contract) TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 1091-92
(8th Cir1995) (exclusion for which the insured has assumed liability in a contract or agreement
plainly excluded coverage for contractual claims and not just hold-harmless or indemnity
agreements) Nationwide Mutual Ins Co v CPB Intl Inc 562 F3d 591 5992009 US App
LEXIS 7795 (3d Cir 2009) (applying Pa law) (holding that a breach of contract claim is excluded
under the Contractual Liability exclusion) Century Sur Co v Hardscape Constr Specialties Inc
578 F3d 262 2009 US App LEXIS 25300 (5th Cir 2009) (applying Texas law) (holding that the
Contractual Liability exclusion operates to exclude claims grounded primarily in breach of contract
and that no tort claims were asserted that triggered the insured contract exception) State Farm
Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 12 (2007) (applying Hawaii
law) (holding that claims arising from the insureds obligations under a contract are barred from
23
L0695152 I I
coverage under the Contractual Liability exclusion) JACO Airfield Constr Inc v National Trust
Ins Co 2007 US Dist LEXIS 100295 10 (2007) (applying Georgia law) (holding that the
Contractual Liability exclusion applies to foreclose coverage for the contractual based claims
asserted against the insured and that the insured contract exception to the Contractual Liability
exclusion does not apply because the insured did not assume the tort liability of another) Union Ins
Co v Williams Contr Inc 2006 US Dist LEXIS 35919 4-5 (2006) (holding that the
Contractual Liability exclusion precludes coverage for claims against the insured for breach of a
construction contract) Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270
GaApp 8 (2004) (affirming trial comts finding that the Contractual Liability exclusion barred
coverage for breach of contract and breach of implied warranty claims against the insured) Gibson
amp Assocs Inc v Home Ins Co 966 FSupp 468476-77 1997 US Dist LEXIS 4776 (1997)
(applying Texas law) (recognizing that the Contractual Liability exclusion precludes coverage for
breach of contract claims asserted against the insmed and that the policy only covers contractual
liability for indemnification actions ie an insured contract) James v Burlington Northern Santa
Fe Railway Co 2007 US Dist LEXIS 63282 4-5 (2007) (applying Arizona law) (holding that
the insured contract exception to the Contractual Liability exclusion does not bring ordinary
breach-of-contract claims within the scope of CGL coverage) TGA Dev Inc v Northern Ins Co
of New York 62 F3d 1089 1091-92 1995 USApp LEXIS 21700 (8th Cir 1995) (applying
Minnesota law) (holding that the Contractual Liability exclusion plainly excludes coverage for
contractual claims made for [the insmeds] failure to provide [the property owner] with a
condominium unit free from defects)
24
(lO6957521 )
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
Riffe v Home Finders Associates Inc 205 WVa 216 517 SE2d 313 (1999)) Importantly as
discussed in detail immediately below since the core issue in this case merely requires a
comparison of the allegations of the underlying Amended Complaint with the terms and
provisions of the insurance policies this case presents a pure matter of law that is uniquely
suitable for decision at the summary judgment stage
B THE CIRCUIT COURT CORRECTLY HELD THAT UNDER TENNESSEE LAW THE CONTRACTUAL CLAIMS ASSERTED BY THD AGAINST JA STREET ARE NOT COVERED
BY THE BITCO POLICIES
In this State a liability insurer has no duty to defend an action asserted against the
insured where it is clear from the allegations of the Complaint against the insured that there is no
coverage afforded under the relevant insurance policy See Horace Mann Ins Co v Leeber 376
SE2d 581 584 180 WVa 375 (1988) State Auto Mut Ins Co v Alpha Engg Servbull Inc
542 SE2d 876 879 208 WVa 713 (2000) (If the causes of action alleged in the plaintiffs
complaint are entirely foreign to the risks covered by the insurance policy then the insurance
company is relieved of its duties under the policy) Tennesseel2 follows exactly the same rule
See Drexel Chemical Co v Bitco Ins Co 933 SW2d 471480 1996 TennApp LEXIS 356
(1996) (holding that the insurer did not have a duty to defend where an exclusion applied to
foreclose coverage) Tenn Farmers Mut Ins Co v Brown 1990 TennApp LEXIS 812 (1990)
(The general rule in Tennessee is that an insurer is not obligated to undertake the defense of a
suit against its insured unless the allegations of the complaint show a claim for damages that
would be covered by the policy) Cincinnati Ins Co v Grand Pointe LLC 2007 US Dist
12 All parties concede that Tennessee law governs construction of the insurance policies
13
(L069S7S21 )
LEXIS 39784 (ED Tenn 2007) (If it is plain from the face of the underlying complaint the
allegations fail to state facts that bring the case within or potentially within the policy no duty to
defend exists) Am Nat Prop and Cas Ins Co v Gray 803 SW 2d 693 695-96 (Tenn Ct
App 1990) Graves v Liberty Mut Fire Ins Co 745 SW2d 282283 (Tenn Ct App 1987)
In ascertaining whether there is a duty to defend under a liability insurance policy
Tennessee adheres to a strict four comers approach See Interstate Packaging Co v Century
Indem Co bull 2013 US Dist LEXIS 45459 (MDTenn 2013) citing St Paul Fire amp Marine Ins
Co v Torpoco 879 SW2d 831 835 (Tenn 1994) Clark v Sputnicks LLC 368 SW3d 431
439 (Tenn 2012) (An insurers duty to defend is determined solely by an examination of the
allegations of the underlying complaint) Thus under Tennessee law the court must limit its
inquiry to the claims and allegations presented in the complaint against the insured [I]f the
allegations contained in the complaintare within the risk insured against and there is a
potential basis for recovery then [the insurer] must defend St Paul v Torpoco supra 879
SW2d at 835 Conversely if the claims alleged in the complaint are clearly not within the
scope of coverage then there is no duty to defend Drexel Chemical Co v Bitco Ins Co 933
SW2d 471 480 (Tenn 1996) As the United States Court of Appeals for the Sixth Circuit
stated it applying Tennessee law in Smith amp Nephew Inc v Fed Ins Co 113 FedAppx 99
(6th Cir 2004) in detennining an insurers duty to defend courts typically begin and end
their analysis with the four comers of the complaint Id at 102 Petitioner argues that there
are significant issues of material fact that exist given that there has been no final resolution of the
14
(LD09S752 I
underlying action13 but in fact clear-cut law dictates that all the Court must do is contrast the
averments of the Amended Complaint with the terms of the policies
The instant inquiry must therefore begin with the unique circumstances that the TIID
Amended Complaint against lA Street pleads only contract-based claims and not tort claims
Although the Circuit Court based its finding of no coverage solely on the Contractual Liability
exclusion as discussed in detail below courts in Tennessee and elsewhere have concluded that
there is no coverage for breach of contact claims and the damages that typically flow from such
claims on broader grounds While the Circuit Court did not subscribe to that broad view
our cases have made clear that it is permissible for us to affirm the granting of [dismissal] on bases difference or grounds other than those relief upon by the circuit court Hoover v Moran 222 WVa at 119 662 SE2d at 718 quoting Gently v Mangum 195 WVa 512519466 SE2d 171178 (1995) See also Schmehl v Helton 222 WVa 98 662 SE2d 697 705 n7 (2008) (this Court may in any event affirm the circuit court on any proper basis whether relied upon by the circuit court or not) Murphy v Smallridge 196 WVa 35 36-7 468 SE2d 167168-9 (1996) (An appellate court is not limited to the legal grounds relied upon by the circuit court but it may affirm or reverse a decision on any independently sufficient ground that has adequate support) Syl pt 3 Barnett v Wolfolk 149 WVa 246 140 SE2d 466 (1965) (This Court may on appeal affirm the judgment of the lower court when it appears that such judgment is correct on any legal ground disclosed by the record regardless of the ground reason or theory assigned by the lower court as the basis for its judgment)
Savarese v Allstate Ins Co 672 SE2d 255260 (WVa 2008)
One of the more elemental and uniformly embraced principles of corrunercial insurance
law is that the typical commercial liability insurance policy affords coverage for tort claims not
claims for breach of contract The authorities supporting that proposition are legion Dean
Henderson in his renowned and widely cited law review article makes the point emphatically
13 Petitioners Brief pp 25-27 15
(L0695752 1 J
[t]he risk intended to be insured is the possibility that the goods products or work of the insured once relinquished or completed will cause bodily injury or damage to property other than to the product or completed work itself and for which the insured may be found liable The insured as a source of goods or services may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable because it is lacking in some capacity This may even extend to an obligation to completely replace or rebuild the deficient product or work This liability however is not what the coverages in question are designed to protect against The coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb L Rev 415441 (1971)14
The overwhelming majority of courts and commentators that have addressed this issue
have held that breach of contract claims asserted against the insured are not covered under a
standard CGL policy See eg Couch on Insurance 3d sect1291-1294 (3d Ed 2005) (a
commercial general liability insurance policy is generally designed to provide coverage for tort
liability for physical damages to others and not for contractual liability of the insured for
economic loss the majority of jurisdictions have held that breach of contract is not an
14 The Henderson article has been widely relied upon by courts and commentators for over 40 years Noticeably it has been frequently cited with approval in Tennessee See Vernon (relying upon the Henderson article the Tennessee Court held that the standard comprehensive general liability policy does not provide coverage to an insured-contractor for a breach of contract action grounded upon faulty workmanship or materials where the damages claimed are the cost of correcting the work itself) Blaylock amp Brown Constr Inc v AIU Ins Co 796 SW2d 146 1990 TennApp LEXIS 338 (1990) (relying upon Henderson the Court holds bull that the language of the policy excludes liability coverage for the plaintiffs for damage to the property constructed pursuant to the contract) Standard Fire Ins Co v Chester-ODonley amp Assocs 972 SW2d 1 1998 TennApp LEXIS 65 (1998) (citing the Henderson article for the proposition that CGL policies are not intended to cover the insureds contractual liability for economic loss because its work was not that for which the damaged person bargained) Weedo v Stone-E-Brick Inc bull 81 NJ 233 405 A2d 788 (1979) (relying heavily upon the Henderson article the Court holds that a CGL policy does not provide coverage for a breach of contract action for faulty workmanship where the damages claimed are the cost ofcorrecting the work itself)
16
IL069S7S2 I
occurrencea [CGL] policy is not intended to provide coverage for the insureds contractual
liability which merely causes economic losses) Alan D Windt Insurance Claims and
Disputes sect117 (4th Ed 2001) (Finally there is the question as to whether a breach of
contract claim involves damages caused by an occurrence The answer should in general be
no) Erie Ins Prop amp Cas Co v Pioneer Home Improvement Inc 526 SE2d 28 33 206
WVa 506 513 (1999) (The coverage [under a COL policy] is for tort liability for physical
damages to others and not for contractual liability of the insured for economic loss because the
product or completed work is not that for which the damaged person bargained) Nationwide
Mutual Ins Co v CPB Intl Inc 562 F3d 591 598 2009 US App LEXIS 7795 14 (3d Cir
2009) (holding that under Pennsylvania law a CGL policy does not provide coverage for
claims in an underlying action that arise out of and relate to the contract between the parties)
Lyerla v AMCO Ins Co 536 F3d 684691-922008 US App LEXIS 164 78 (7th Cir 2008)
(applying Illinois law) (holding that underlying allegations that insured contractor did not satisfy
his contractual obligations is not property damage caused by an occurrence) L-J Inc v
Biteo Fire amp Marine Ins Co 621 SE2d 33 35 366 SC 117 (2005) (any liability that is
incurred because of faulty workmanship is part of the insureds contractual liability not an
insurable event under a CGL policy) Hotel Roanoke Conf Ctr Commn v Cincinnati Ins Co
303 FSupp2d 784 7882004 US Dist LEXIS 2539 (2004) (applying Virginia law) (damages
limited to the insureds work or product and resulting from the insureds defective perfonnance
of a contract are not covered losses under a [CGL] policy) Westfield Ins Co v Sheehan
Construction Co 580 FSupp2d 701 710 2008 US Dist LEXIS 66843 (2008) (applying
17
(L06957521
Indiana law) (a CGL policy serves to limit contractors tort liability for damage to property
caused by their work) Key Custom Homes Inc v Mid-Continent Cas Co 450 FSupp2d
1311 1317-182006 US Dist LEXIS 60355 (2006) (applying Florida law) (it is equally clear
that breach of contract claims for the recovery of money are not covered by general liability
insurance policies) Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254 1257329
Ore 620 (2000) (there can be no accident within the meaning of a commercial liability policy
when the resulting damage is merely a breach of contract) Bonded Concrete Inc v Transcon
Ins Co 12 AD3d 761 2004 NYAppDiv LEXIS 13020 (2004) (the purpose of a
commercial general liability policy is to provide coverage for tort liability for physical damage
to others and not for contractual liability of the insured for economic loss because the
product is not what the damaged [party] bargained for) United States Fire Ins Co v Milton
Co 35 FSupp2d 8386 1998 US Dist LEXIS 22116 (1998) (applying Maryland law) (there
is no occurrence under a comprehensive general liability insurance policy where and to the
extent that a contractors use of defective materials and substandard workmanship results in
economic losses that would normally be recoverable in a breach of contract action) Burlington
Ins Co v Oceanic Design amp Construction Inc 383 F3d 940 2004 US App LEXIS 18932
(9th Cir 2004) (applying Hawaii law) (holding that claims for breach of contract and negligent
breach of contract are not covered under a CGL policy) Norwalk Ready Mixed Concrete Inc v
Travelers Ins Co 246 F3d 1132 2001 US App LEXIS 7148 (8th Cir 2001) (applying Iowa
law) (holding that breach of contract and breach of warranty claims are not covered under a CGL
policy) USFampG Com v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476
18
(L06957521 l
(1989) (holding that a breach of contract claim asserted against an insured contractor is not
covered under a COL policy) Oreat Divide Ins Co v Bitterroot Timberfiames of Wyoming
LLC 2006 US Dist LEXIS 94826 (2006) (applying Wyoming law) (the allegations
demonstrate losses resulting from breach of contract and therefore cannot constitute an
accident for purposes of determining coverage) Union Ins Co v Hottenstein 83 P3d 1196
12022003 ColoApp LEXIS 1857 (2003) (poor workmanship constituting a breach of contract
is not a covered occurrence)
Tennessee lawl5 is in accord with these authorities The Tennessee Supreme Court has
defInitively held that breach of contract claims due to the insureds faulty workmanship such as
those asserted here by THD against IA Street in the underlying Amended Complaint are simply
not covered under the grant of coverage contained in a commercial liability policy See Vernon
supra Chester-ODonley supra at 6-7 (General liability policies are not all-risk policies and
only cover damages up to the policy limits for which the insured becomes liable as a result of
tort liability to a third party) (emphasis added) In Vernon the Supreme Court of Tennessee
expressly held that a standard COL policy only covers tort claims and such a policy does not
15 Under applicable Tennessee law contracts of insurance are subject to the same rules of interpretation and construction as other contracts McKimm v Bell 790 SW2d 526 527 1990 Tenn LEXIS 161 (1990) Thus [a]n insurance policy must be interpreted fairly and reasonably giving the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204 SW3d 758 2006 Tenn LEXIS 755 (2006) In the absence of fraud or mistake a contract must be interpreted and enforced as written even though it contains terms which may be thought harsh and unjust Allstate Ins Co v Wilson 856 SW2d 706 1992 TennApp LEXIS 1012 (1992) As a result the analysis of JA Streets right to coverage for the claims asserted in the underlying action are dictated by the terms of the policy The essential components of a general liability insurance policy include (1) the declarations (2) the insuring agreements and definitions (3) the exclusions (4) the conditions and (5) the endorsements See ChestershyODonley supra The insuring agreement sets the outer limits of an insurers contractual liability If coverage cannot be found in the insuring agreement it will not be found elsewhere in the policy Id 1998 TennApp LEXIS at 13-14
19
L069S7S21
afford coverage to an insured contractor for breach of contract claims Vernon 591 SW 2d at
765 Chester-ODonley supra at 6-7 Petitioner complains that the Circuit Court focused on
West Virginia cases such as Silk v Flat TOp6 but in fact the lower court expressly relied
upon a wealth of Tennessee authority17 including Vernon Cincinnati Ins Co v Grand Pointe
LLc18 and Trinity Univ Ins Co v Turner Funeral Home Inc 19 More recently Tennessee
courts have reaffirmed the rationale and holding of Vernon See State Auto Ins Cos v Gordon
Constr Inc 2001 TennApp LEXIS 349 (2001) (following Vernon and holding that the
insuring agreement of a CGL policy does not afford coverage for underlying breach of contract
and breach of warranty claims asserted against the insured contractor) Blake Indus Inc v
General Agents Ins Co of Am 2000 Tenn App LEXIS 490 (2000) (applying Vernon and
holding that claims asserted against the insured that were grounded in contract are not covered
under a CGL policy) Blaylock and Brown Constr Inc v AID Ins Co 796 SW2d 146 152shy
153 (Tenn Ct App 1990)
As the Circuit Court correctly recognized the express tenus of the insurance contract
clearly exclude contractual liability from coverage Exclusions help define and shape the scope
of coverage but they must be read in terms of the insuring agreement to which they apply
Exclusions can only decrease coverage they cannot increase it Chester-ODonley 972 SW2d
at 7-8 Moreover [e]ach exclusion reduces coverage and operates independently with reference
16 Petitioners Brief p 30 (citing 453 SE2d 356 (Wva 1994raquo 17 See See Opinion JA-I0552 ~27
18 2007 US Dist LEXIS 39784 (ED Tenn 2007) 19 2003 WL 23218046 (ED Tenn Dec 122003)
20
IL069S7S2 I I
to the insuring agreement Id at 8 The Contractual Liability exclusion specifically provides
that the insurance coverage does not apply to
Contractual liability
Bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement This exclusion does not apply to liability for damages
(1) That the insured would have in the absence of the contract or agreement or
(2) Assumed in a contract or agreement that is an insured contract provided the bodily injury or property damage occurs subsequent to the execution of the contract or agreement Solely for the purposes of liability assumed in a insured contract reasonable attorneys fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of bodily injury or property damage provided
(a) Liability to such party for or for the cost of that partys defense has also been assumed in the same insured contract and
(b) Such attorneys fees and litigation expenses are for defense of that party against the civil or alternative dispute resolution proceeding in which damages to which the insurance applies are alleged
See JA-62 Section I C[2
Even a cursory examination ofTHDs Amended Complaint reveals that all claims alleged
against JA Street were contractual There simply was no tort claim alleged In fact the claims
against JA Street were necessarily founded in contract for two reasons First the two-year
statute of limitations applicable to any tort claims elapsed long before THD first asserted its
claims against JA Street Tort claims were not pleaded and could not have been Second the
substantive law of West Virginia applies to the underlying claims asserted by THD against lA
21
(L069S7S21 I
Street20 and applicable West Virginia law plainly holds that even if THD had asserted tort
claims against JA Street the claims would still sound in contract under these circumstances for
purposes of the instant analysis since the gist of claims asserted against a contractor for deficient
work is necessarily ex contractu See Silk supra at 360 Dan Ryan Builders Inc v Crystal
Ridge Dev Inc 783 F3d 976 (4th Cir 2015) Unlike in both Silk and Dan Ryan THO did not
even assert any tort claims here Nor could it have Relevant to the precise policy language at
issue there simply was no liability for damages that [JA Street] would have in the absence of
the contract or agreement It simply cannot be contested that the claims alleged in the Amended
Complaint are and indeed necessarily were contractual in nature Given that alone the clear
holding of the Tennessee Court in Vernon mandated the Circuit Courts correct grant of
summary judgment in Biteos favor
A great majority of courts and commentators across the country that have addressed the
issue have held that the explicit unambiguous express Contractual Liability exclusion forecloses
coverage for all contract liability including breach of contract claims asserted against the
insured except where the insured has assumed the liability of another in an insured contract
See eg Silk v Flat Top Constr Inc 453 SE2d 356 359 192 WVa 522 (1994) (holding that
the contract exclusion applies to foreclose coverage for all contractual liability of the insured
except for liability assumed in an insured contract-a contract under which the insured
assumes the tort liability of another party) Gilbert Tex Constr v Underwriters at Lloyds
20 West Virginia applies the choice-of-law principle of lex loci delicti and there is no question here that the offending conduct and the loss all occurred in West Virginia such that JA Streets liability to THD would be governed by West Virginia law See State of Wva ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) (citing Syl Pt 1 Paul v Natl Life 352 SE2d 552 (WVa 1986raquo
22
(L069S7521 I
Londo 327 SW3d 118 (2010) (citing inter alia Nationwide Mut Ins Co v CPB Int Inc
No 306-CV-0363 2007 WL 4198173 at 8 (MDPa Nov26 2007) (Exclusion (b) is simply
further clarification in the policy that contract-based claims are not covered) ClM Ins Corp v
Midpac Auto Crr Inc 108 FSupp2d 1092 1099-1100 (DHaw2000) (clause in policy stating
that policy does not apply to liability assumed under any contract or agreement means that any
claim that is dependent on the existence of an underlying contract is not covered) Monticello
Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 at 2 (WDKy
Apr 3 1998) (exclusion for liability assumed by the insured under any contract or agreement
does not arise only when a party assumes the liability for another party rather the plain meaning
of the policy excludes a breach of contract claim from coverage) Silk supra (exclusion removed
coverage for breach of contract) TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 1091-92
(8th Cir1995) (exclusion for which the insured has assumed liability in a contract or agreement
plainly excluded coverage for contractual claims and not just hold-harmless or indemnity
agreements) Nationwide Mutual Ins Co v CPB Intl Inc 562 F3d 591 5992009 US App
LEXIS 7795 (3d Cir 2009) (applying Pa law) (holding that a breach of contract claim is excluded
under the Contractual Liability exclusion) Century Sur Co v Hardscape Constr Specialties Inc
578 F3d 262 2009 US App LEXIS 25300 (5th Cir 2009) (applying Texas law) (holding that the
Contractual Liability exclusion operates to exclude claims grounded primarily in breach of contract
and that no tort claims were asserted that triggered the insured contract exception) State Farm
Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 12 (2007) (applying Hawaii
law) (holding that claims arising from the insureds obligations under a contract are barred from
23
L0695152 I I
coverage under the Contractual Liability exclusion) JACO Airfield Constr Inc v National Trust
Ins Co 2007 US Dist LEXIS 100295 10 (2007) (applying Georgia law) (holding that the
Contractual Liability exclusion applies to foreclose coverage for the contractual based claims
asserted against the insured and that the insured contract exception to the Contractual Liability
exclusion does not apply because the insured did not assume the tort liability of another) Union Ins
Co v Williams Contr Inc 2006 US Dist LEXIS 35919 4-5 (2006) (holding that the
Contractual Liability exclusion precludes coverage for claims against the insured for breach of a
construction contract) Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270
GaApp 8 (2004) (affirming trial comts finding that the Contractual Liability exclusion barred
coverage for breach of contract and breach of implied warranty claims against the insured) Gibson
amp Assocs Inc v Home Ins Co 966 FSupp 468476-77 1997 US Dist LEXIS 4776 (1997)
(applying Texas law) (recognizing that the Contractual Liability exclusion precludes coverage for
breach of contract claims asserted against the insmed and that the policy only covers contractual
liability for indemnification actions ie an insured contract) James v Burlington Northern Santa
Fe Railway Co 2007 US Dist LEXIS 63282 4-5 (2007) (applying Arizona law) (holding that
the insured contract exception to the Contractual Liability exclusion does not bring ordinary
breach-of-contract claims within the scope of CGL coverage) TGA Dev Inc v Northern Ins Co
of New York 62 F3d 1089 1091-92 1995 USApp LEXIS 21700 (8th Cir 1995) (applying
Minnesota law) (holding that the Contractual Liability exclusion plainly excludes coverage for
contractual claims made for [the insmeds] failure to provide [the property owner] with a
condominium unit free from defects)
24
(lO6957521 )
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
LEXIS 39784 (ED Tenn 2007) (If it is plain from the face of the underlying complaint the
allegations fail to state facts that bring the case within or potentially within the policy no duty to
defend exists) Am Nat Prop and Cas Ins Co v Gray 803 SW 2d 693 695-96 (Tenn Ct
App 1990) Graves v Liberty Mut Fire Ins Co 745 SW2d 282283 (Tenn Ct App 1987)
In ascertaining whether there is a duty to defend under a liability insurance policy
Tennessee adheres to a strict four comers approach See Interstate Packaging Co v Century
Indem Co bull 2013 US Dist LEXIS 45459 (MDTenn 2013) citing St Paul Fire amp Marine Ins
Co v Torpoco 879 SW2d 831 835 (Tenn 1994) Clark v Sputnicks LLC 368 SW3d 431
439 (Tenn 2012) (An insurers duty to defend is determined solely by an examination of the
allegations of the underlying complaint) Thus under Tennessee law the court must limit its
inquiry to the claims and allegations presented in the complaint against the insured [I]f the
allegations contained in the complaintare within the risk insured against and there is a
potential basis for recovery then [the insurer] must defend St Paul v Torpoco supra 879
SW2d at 835 Conversely if the claims alleged in the complaint are clearly not within the
scope of coverage then there is no duty to defend Drexel Chemical Co v Bitco Ins Co 933
SW2d 471 480 (Tenn 1996) As the United States Court of Appeals for the Sixth Circuit
stated it applying Tennessee law in Smith amp Nephew Inc v Fed Ins Co 113 FedAppx 99
(6th Cir 2004) in detennining an insurers duty to defend courts typically begin and end
their analysis with the four comers of the complaint Id at 102 Petitioner argues that there
are significant issues of material fact that exist given that there has been no final resolution of the
14
(LD09S752 I
underlying action13 but in fact clear-cut law dictates that all the Court must do is contrast the
averments of the Amended Complaint with the terms of the policies
The instant inquiry must therefore begin with the unique circumstances that the TIID
Amended Complaint against lA Street pleads only contract-based claims and not tort claims
Although the Circuit Court based its finding of no coverage solely on the Contractual Liability
exclusion as discussed in detail below courts in Tennessee and elsewhere have concluded that
there is no coverage for breach of contact claims and the damages that typically flow from such
claims on broader grounds While the Circuit Court did not subscribe to that broad view
our cases have made clear that it is permissible for us to affirm the granting of [dismissal] on bases difference or grounds other than those relief upon by the circuit court Hoover v Moran 222 WVa at 119 662 SE2d at 718 quoting Gently v Mangum 195 WVa 512519466 SE2d 171178 (1995) See also Schmehl v Helton 222 WVa 98 662 SE2d 697 705 n7 (2008) (this Court may in any event affirm the circuit court on any proper basis whether relied upon by the circuit court or not) Murphy v Smallridge 196 WVa 35 36-7 468 SE2d 167168-9 (1996) (An appellate court is not limited to the legal grounds relied upon by the circuit court but it may affirm or reverse a decision on any independently sufficient ground that has adequate support) Syl pt 3 Barnett v Wolfolk 149 WVa 246 140 SE2d 466 (1965) (This Court may on appeal affirm the judgment of the lower court when it appears that such judgment is correct on any legal ground disclosed by the record regardless of the ground reason or theory assigned by the lower court as the basis for its judgment)
Savarese v Allstate Ins Co 672 SE2d 255260 (WVa 2008)
One of the more elemental and uniformly embraced principles of corrunercial insurance
law is that the typical commercial liability insurance policy affords coverage for tort claims not
claims for breach of contract The authorities supporting that proposition are legion Dean
Henderson in his renowned and widely cited law review article makes the point emphatically
13 Petitioners Brief pp 25-27 15
(L0695752 1 J
[t]he risk intended to be insured is the possibility that the goods products or work of the insured once relinquished or completed will cause bodily injury or damage to property other than to the product or completed work itself and for which the insured may be found liable The insured as a source of goods or services may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable because it is lacking in some capacity This may even extend to an obligation to completely replace or rebuild the deficient product or work This liability however is not what the coverages in question are designed to protect against The coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb L Rev 415441 (1971)14
The overwhelming majority of courts and commentators that have addressed this issue
have held that breach of contract claims asserted against the insured are not covered under a
standard CGL policy See eg Couch on Insurance 3d sect1291-1294 (3d Ed 2005) (a
commercial general liability insurance policy is generally designed to provide coverage for tort
liability for physical damages to others and not for contractual liability of the insured for
economic loss the majority of jurisdictions have held that breach of contract is not an
14 The Henderson article has been widely relied upon by courts and commentators for over 40 years Noticeably it has been frequently cited with approval in Tennessee See Vernon (relying upon the Henderson article the Tennessee Court held that the standard comprehensive general liability policy does not provide coverage to an insured-contractor for a breach of contract action grounded upon faulty workmanship or materials where the damages claimed are the cost of correcting the work itself) Blaylock amp Brown Constr Inc v AIU Ins Co 796 SW2d 146 1990 TennApp LEXIS 338 (1990) (relying upon Henderson the Court holds bull that the language of the policy excludes liability coverage for the plaintiffs for damage to the property constructed pursuant to the contract) Standard Fire Ins Co v Chester-ODonley amp Assocs 972 SW2d 1 1998 TennApp LEXIS 65 (1998) (citing the Henderson article for the proposition that CGL policies are not intended to cover the insureds contractual liability for economic loss because its work was not that for which the damaged person bargained) Weedo v Stone-E-Brick Inc bull 81 NJ 233 405 A2d 788 (1979) (relying heavily upon the Henderson article the Court holds that a CGL policy does not provide coverage for a breach of contract action for faulty workmanship where the damages claimed are the cost ofcorrecting the work itself)
16
IL069S7S2 I
occurrencea [CGL] policy is not intended to provide coverage for the insureds contractual
liability which merely causes economic losses) Alan D Windt Insurance Claims and
Disputes sect117 (4th Ed 2001) (Finally there is the question as to whether a breach of
contract claim involves damages caused by an occurrence The answer should in general be
no) Erie Ins Prop amp Cas Co v Pioneer Home Improvement Inc 526 SE2d 28 33 206
WVa 506 513 (1999) (The coverage [under a COL policy] is for tort liability for physical
damages to others and not for contractual liability of the insured for economic loss because the
product or completed work is not that for which the damaged person bargained) Nationwide
Mutual Ins Co v CPB Intl Inc 562 F3d 591 598 2009 US App LEXIS 7795 14 (3d Cir
2009) (holding that under Pennsylvania law a CGL policy does not provide coverage for
claims in an underlying action that arise out of and relate to the contract between the parties)
Lyerla v AMCO Ins Co 536 F3d 684691-922008 US App LEXIS 164 78 (7th Cir 2008)
(applying Illinois law) (holding that underlying allegations that insured contractor did not satisfy
his contractual obligations is not property damage caused by an occurrence) L-J Inc v
Biteo Fire amp Marine Ins Co 621 SE2d 33 35 366 SC 117 (2005) (any liability that is
incurred because of faulty workmanship is part of the insureds contractual liability not an
insurable event under a CGL policy) Hotel Roanoke Conf Ctr Commn v Cincinnati Ins Co
303 FSupp2d 784 7882004 US Dist LEXIS 2539 (2004) (applying Virginia law) (damages
limited to the insureds work or product and resulting from the insureds defective perfonnance
of a contract are not covered losses under a [CGL] policy) Westfield Ins Co v Sheehan
Construction Co 580 FSupp2d 701 710 2008 US Dist LEXIS 66843 (2008) (applying
17
(L06957521
Indiana law) (a CGL policy serves to limit contractors tort liability for damage to property
caused by their work) Key Custom Homes Inc v Mid-Continent Cas Co 450 FSupp2d
1311 1317-182006 US Dist LEXIS 60355 (2006) (applying Florida law) (it is equally clear
that breach of contract claims for the recovery of money are not covered by general liability
insurance policies) Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254 1257329
Ore 620 (2000) (there can be no accident within the meaning of a commercial liability policy
when the resulting damage is merely a breach of contract) Bonded Concrete Inc v Transcon
Ins Co 12 AD3d 761 2004 NYAppDiv LEXIS 13020 (2004) (the purpose of a
commercial general liability policy is to provide coverage for tort liability for physical damage
to others and not for contractual liability of the insured for economic loss because the
product is not what the damaged [party] bargained for) United States Fire Ins Co v Milton
Co 35 FSupp2d 8386 1998 US Dist LEXIS 22116 (1998) (applying Maryland law) (there
is no occurrence under a comprehensive general liability insurance policy where and to the
extent that a contractors use of defective materials and substandard workmanship results in
economic losses that would normally be recoverable in a breach of contract action) Burlington
Ins Co v Oceanic Design amp Construction Inc 383 F3d 940 2004 US App LEXIS 18932
(9th Cir 2004) (applying Hawaii law) (holding that claims for breach of contract and negligent
breach of contract are not covered under a CGL policy) Norwalk Ready Mixed Concrete Inc v
Travelers Ins Co 246 F3d 1132 2001 US App LEXIS 7148 (8th Cir 2001) (applying Iowa
law) (holding that breach of contract and breach of warranty claims are not covered under a CGL
policy) USFampG Com v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476
18
(L06957521 l
(1989) (holding that a breach of contract claim asserted against an insured contractor is not
covered under a COL policy) Oreat Divide Ins Co v Bitterroot Timberfiames of Wyoming
LLC 2006 US Dist LEXIS 94826 (2006) (applying Wyoming law) (the allegations
demonstrate losses resulting from breach of contract and therefore cannot constitute an
accident for purposes of determining coverage) Union Ins Co v Hottenstein 83 P3d 1196
12022003 ColoApp LEXIS 1857 (2003) (poor workmanship constituting a breach of contract
is not a covered occurrence)
Tennessee lawl5 is in accord with these authorities The Tennessee Supreme Court has
defInitively held that breach of contract claims due to the insureds faulty workmanship such as
those asserted here by THD against IA Street in the underlying Amended Complaint are simply
not covered under the grant of coverage contained in a commercial liability policy See Vernon
supra Chester-ODonley supra at 6-7 (General liability policies are not all-risk policies and
only cover damages up to the policy limits for which the insured becomes liable as a result of
tort liability to a third party) (emphasis added) In Vernon the Supreme Court of Tennessee
expressly held that a standard COL policy only covers tort claims and such a policy does not
15 Under applicable Tennessee law contracts of insurance are subject to the same rules of interpretation and construction as other contracts McKimm v Bell 790 SW2d 526 527 1990 Tenn LEXIS 161 (1990) Thus [a]n insurance policy must be interpreted fairly and reasonably giving the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204 SW3d 758 2006 Tenn LEXIS 755 (2006) In the absence of fraud or mistake a contract must be interpreted and enforced as written even though it contains terms which may be thought harsh and unjust Allstate Ins Co v Wilson 856 SW2d 706 1992 TennApp LEXIS 1012 (1992) As a result the analysis of JA Streets right to coverage for the claims asserted in the underlying action are dictated by the terms of the policy The essential components of a general liability insurance policy include (1) the declarations (2) the insuring agreements and definitions (3) the exclusions (4) the conditions and (5) the endorsements See ChestershyODonley supra The insuring agreement sets the outer limits of an insurers contractual liability If coverage cannot be found in the insuring agreement it will not be found elsewhere in the policy Id 1998 TennApp LEXIS at 13-14
19
L069S7S21
afford coverage to an insured contractor for breach of contract claims Vernon 591 SW 2d at
765 Chester-ODonley supra at 6-7 Petitioner complains that the Circuit Court focused on
West Virginia cases such as Silk v Flat TOp6 but in fact the lower court expressly relied
upon a wealth of Tennessee authority17 including Vernon Cincinnati Ins Co v Grand Pointe
LLc18 and Trinity Univ Ins Co v Turner Funeral Home Inc 19 More recently Tennessee
courts have reaffirmed the rationale and holding of Vernon See State Auto Ins Cos v Gordon
Constr Inc 2001 TennApp LEXIS 349 (2001) (following Vernon and holding that the
insuring agreement of a CGL policy does not afford coverage for underlying breach of contract
and breach of warranty claims asserted against the insured contractor) Blake Indus Inc v
General Agents Ins Co of Am 2000 Tenn App LEXIS 490 (2000) (applying Vernon and
holding that claims asserted against the insured that were grounded in contract are not covered
under a CGL policy) Blaylock and Brown Constr Inc v AID Ins Co 796 SW2d 146 152shy
153 (Tenn Ct App 1990)
As the Circuit Court correctly recognized the express tenus of the insurance contract
clearly exclude contractual liability from coverage Exclusions help define and shape the scope
of coverage but they must be read in terms of the insuring agreement to which they apply
Exclusions can only decrease coverage they cannot increase it Chester-ODonley 972 SW2d
at 7-8 Moreover [e]ach exclusion reduces coverage and operates independently with reference
16 Petitioners Brief p 30 (citing 453 SE2d 356 (Wva 1994raquo 17 See See Opinion JA-I0552 ~27
18 2007 US Dist LEXIS 39784 (ED Tenn 2007) 19 2003 WL 23218046 (ED Tenn Dec 122003)
20
IL069S7S2 I I
to the insuring agreement Id at 8 The Contractual Liability exclusion specifically provides
that the insurance coverage does not apply to
Contractual liability
Bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement This exclusion does not apply to liability for damages
(1) That the insured would have in the absence of the contract or agreement or
(2) Assumed in a contract or agreement that is an insured contract provided the bodily injury or property damage occurs subsequent to the execution of the contract or agreement Solely for the purposes of liability assumed in a insured contract reasonable attorneys fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of bodily injury or property damage provided
(a) Liability to such party for or for the cost of that partys defense has also been assumed in the same insured contract and
(b) Such attorneys fees and litigation expenses are for defense of that party against the civil or alternative dispute resolution proceeding in which damages to which the insurance applies are alleged
See JA-62 Section I C[2
Even a cursory examination ofTHDs Amended Complaint reveals that all claims alleged
against JA Street were contractual There simply was no tort claim alleged In fact the claims
against JA Street were necessarily founded in contract for two reasons First the two-year
statute of limitations applicable to any tort claims elapsed long before THD first asserted its
claims against JA Street Tort claims were not pleaded and could not have been Second the
substantive law of West Virginia applies to the underlying claims asserted by THD against lA
21
(L069S7S21 I
Street20 and applicable West Virginia law plainly holds that even if THD had asserted tort
claims against JA Street the claims would still sound in contract under these circumstances for
purposes of the instant analysis since the gist of claims asserted against a contractor for deficient
work is necessarily ex contractu See Silk supra at 360 Dan Ryan Builders Inc v Crystal
Ridge Dev Inc 783 F3d 976 (4th Cir 2015) Unlike in both Silk and Dan Ryan THO did not
even assert any tort claims here Nor could it have Relevant to the precise policy language at
issue there simply was no liability for damages that [JA Street] would have in the absence of
the contract or agreement It simply cannot be contested that the claims alleged in the Amended
Complaint are and indeed necessarily were contractual in nature Given that alone the clear
holding of the Tennessee Court in Vernon mandated the Circuit Courts correct grant of
summary judgment in Biteos favor
A great majority of courts and commentators across the country that have addressed the
issue have held that the explicit unambiguous express Contractual Liability exclusion forecloses
coverage for all contract liability including breach of contract claims asserted against the
insured except where the insured has assumed the liability of another in an insured contract
See eg Silk v Flat Top Constr Inc 453 SE2d 356 359 192 WVa 522 (1994) (holding that
the contract exclusion applies to foreclose coverage for all contractual liability of the insured
except for liability assumed in an insured contract-a contract under which the insured
assumes the tort liability of another party) Gilbert Tex Constr v Underwriters at Lloyds
20 West Virginia applies the choice-of-law principle of lex loci delicti and there is no question here that the offending conduct and the loss all occurred in West Virginia such that JA Streets liability to THD would be governed by West Virginia law See State of Wva ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) (citing Syl Pt 1 Paul v Natl Life 352 SE2d 552 (WVa 1986raquo
22
(L069S7521 I
Londo 327 SW3d 118 (2010) (citing inter alia Nationwide Mut Ins Co v CPB Int Inc
No 306-CV-0363 2007 WL 4198173 at 8 (MDPa Nov26 2007) (Exclusion (b) is simply
further clarification in the policy that contract-based claims are not covered) ClM Ins Corp v
Midpac Auto Crr Inc 108 FSupp2d 1092 1099-1100 (DHaw2000) (clause in policy stating
that policy does not apply to liability assumed under any contract or agreement means that any
claim that is dependent on the existence of an underlying contract is not covered) Monticello
Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 at 2 (WDKy
Apr 3 1998) (exclusion for liability assumed by the insured under any contract or agreement
does not arise only when a party assumes the liability for another party rather the plain meaning
of the policy excludes a breach of contract claim from coverage) Silk supra (exclusion removed
coverage for breach of contract) TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 1091-92
(8th Cir1995) (exclusion for which the insured has assumed liability in a contract or agreement
plainly excluded coverage for contractual claims and not just hold-harmless or indemnity
agreements) Nationwide Mutual Ins Co v CPB Intl Inc 562 F3d 591 5992009 US App
LEXIS 7795 (3d Cir 2009) (applying Pa law) (holding that a breach of contract claim is excluded
under the Contractual Liability exclusion) Century Sur Co v Hardscape Constr Specialties Inc
578 F3d 262 2009 US App LEXIS 25300 (5th Cir 2009) (applying Texas law) (holding that the
Contractual Liability exclusion operates to exclude claims grounded primarily in breach of contract
and that no tort claims were asserted that triggered the insured contract exception) State Farm
Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 12 (2007) (applying Hawaii
law) (holding that claims arising from the insureds obligations under a contract are barred from
23
L0695152 I I
coverage under the Contractual Liability exclusion) JACO Airfield Constr Inc v National Trust
Ins Co 2007 US Dist LEXIS 100295 10 (2007) (applying Georgia law) (holding that the
Contractual Liability exclusion applies to foreclose coverage for the contractual based claims
asserted against the insured and that the insured contract exception to the Contractual Liability
exclusion does not apply because the insured did not assume the tort liability of another) Union Ins
Co v Williams Contr Inc 2006 US Dist LEXIS 35919 4-5 (2006) (holding that the
Contractual Liability exclusion precludes coverage for claims against the insured for breach of a
construction contract) Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270
GaApp 8 (2004) (affirming trial comts finding that the Contractual Liability exclusion barred
coverage for breach of contract and breach of implied warranty claims against the insured) Gibson
amp Assocs Inc v Home Ins Co 966 FSupp 468476-77 1997 US Dist LEXIS 4776 (1997)
(applying Texas law) (recognizing that the Contractual Liability exclusion precludes coverage for
breach of contract claims asserted against the insmed and that the policy only covers contractual
liability for indemnification actions ie an insured contract) James v Burlington Northern Santa
Fe Railway Co 2007 US Dist LEXIS 63282 4-5 (2007) (applying Arizona law) (holding that
the insured contract exception to the Contractual Liability exclusion does not bring ordinary
breach-of-contract claims within the scope of CGL coverage) TGA Dev Inc v Northern Ins Co
of New York 62 F3d 1089 1091-92 1995 USApp LEXIS 21700 (8th Cir 1995) (applying
Minnesota law) (holding that the Contractual Liability exclusion plainly excludes coverage for
contractual claims made for [the insmeds] failure to provide [the property owner] with a
condominium unit free from defects)
24
(lO6957521 )
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
underlying action13 but in fact clear-cut law dictates that all the Court must do is contrast the
averments of the Amended Complaint with the terms of the policies
The instant inquiry must therefore begin with the unique circumstances that the TIID
Amended Complaint against lA Street pleads only contract-based claims and not tort claims
Although the Circuit Court based its finding of no coverage solely on the Contractual Liability
exclusion as discussed in detail below courts in Tennessee and elsewhere have concluded that
there is no coverage for breach of contact claims and the damages that typically flow from such
claims on broader grounds While the Circuit Court did not subscribe to that broad view
our cases have made clear that it is permissible for us to affirm the granting of [dismissal] on bases difference or grounds other than those relief upon by the circuit court Hoover v Moran 222 WVa at 119 662 SE2d at 718 quoting Gently v Mangum 195 WVa 512519466 SE2d 171178 (1995) See also Schmehl v Helton 222 WVa 98 662 SE2d 697 705 n7 (2008) (this Court may in any event affirm the circuit court on any proper basis whether relied upon by the circuit court or not) Murphy v Smallridge 196 WVa 35 36-7 468 SE2d 167168-9 (1996) (An appellate court is not limited to the legal grounds relied upon by the circuit court but it may affirm or reverse a decision on any independently sufficient ground that has adequate support) Syl pt 3 Barnett v Wolfolk 149 WVa 246 140 SE2d 466 (1965) (This Court may on appeal affirm the judgment of the lower court when it appears that such judgment is correct on any legal ground disclosed by the record regardless of the ground reason or theory assigned by the lower court as the basis for its judgment)
Savarese v Allstate Ins Co 672 SE2d 255260 (WVa 2008)
One of the more elemental and uniformly embraced principles of corrunercial insurance
law is that the typical commercial liability insurance policy affords coverage for tort claims not
claims for breach of contract The authorities supporting that proposition are legion Dean
Henderson in his renowned and widely cited law review article makes the point emphatically
13 Petitioners Brief pp 25-27 15
(L0695752 1 J
[t]he risk intended to be insured is the possibility that the goods products or work of the insured once relinquished or completed will cause bodily injury or damage to property other than to the product or completed work itself and for which the insured may be found liable The insured as a source of goods or services may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable because it is lacking in some capacity This may even extend to an obligation to completely replace or rebuild the deficient product or work This liability however is not what the coverages in question are designed to protect against The coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb L Rev 415441 (1971)14
The overwhelming majority of courts and commentators that have addressed this issue
have held that breach of contract claims asserted against the insured are not covered under a
standard CGL policy See eg Couch on Insurance 3d sect1291-1294 (3d Ed 2005) (a
commercial general liability insurance policy is generally designed to provide coverage for tort
liability for physical damages to others and not for contractual liability of the insured for
economic loss the majority of jurisdictions have held that breach of contract is not an
14 The Henderson article has been widely relied upon by courts and commentators for over 40 years Noticeably it has been frequently cited with approval in Tennessee See Vernon (relying upon the Henderson article the Tennessee Court held that the standard comprehensive general liability policy does not provide coverage to an insured-contractor for a breach of contract action grounded upon faulty workmanship or materials where the damages claimed are the cost of correcting the work itself) Blaylock amp Brown Constr Inc v AIU Ins Co 796 SW2d 146 1990 TennApp LEXIS 338 (1990) (relying upon Henderson the Court holds bull that the language of the policy excludes liability coverage for the plaintiffs for damage to the property constructed pursuant to the contract) Standard Fire Ins Co v Chester-ODonley amp Assocs 972 SW2d 1 1998 TennApp LEXIS 65 (1998) (citing the Henderson article for the proposition that CGL policies are not intended to cover the insureds contractual liability for economic loss because its work was not that for which the damaged person bargained) Weedo v Stone-E-Brick Inc bull 81 NJ 233 405 A2d 788 (1979) (relying heavily upon the Henderson article the Court holds that a CGL policy does not provide coverage for a breach of contract action for faulty workmanship where the damages claimed are the cost ofcorrecting the work itself)
16
IL069S7S2 I
occurrencea [CGL] policy is not intended to provide coverage for the insureds contractual
liability which merely causes economic losses) Alan D Windt Insurance Claims and
Disputes sect117 (4th Ed 2001) (Finally there is the question as to whether a breach of
contract claim involves damages caused by an occurrence The answer should in general be
no) Erie Ins Prop amp Cas Co v Pioneer Home Improvement Inc 526 SE2d 28 33 206
WVa 506 513 (1999) (The coverage [under a COL policy] is for tort liability for physical
damages to others and not for contractual liability of the insured for economic loss because the
product or completed work is not that for which the damaged person bargained) Nationwide
Mutual Ins Co v CPB Intl Inc 562 F3d 591 598 2009 US App LEXIS 7795 14 (3d Cir
2009) (holding that under Pennsylvania law a CGL policy does not provide coverage for
claims in an underlying action that arise out of and relate to the contract between the parties)
Lyerla v AMCO Ins Co 536 F3d 684691-922008 US App LEXIS 164 78 (7th Cir 2008)
(applying Illinois law) (holding that underlying allegations that insured contractor did not satisfy
his contractual obligations is not property damage caused by an occurrence) L-J Inc v
Biteo Fire amp Marine Ins Co 621 SE2d 33 35 366 SC 117 (2005) (any liability that is
incurred because of faulty workmanship is part of the insureds contractual liability not an
insurable event under a CGL policy) Hotel Roanoke Conf Ctr Commn v Cincinnati Ins Co
303 FSupp2d 784 7882004 US Dist LEXIS 2539 (2004) (applying Virginia law) (damages
limited to the insureds work or product and resulting from the insureds defective perfonnance
of a contract are not covered losses under a [CGL] policy) Westfield Ins Co v Sheehan
Construction Co 580 FSupp2d 701 710 2008 US Dist LEXIS 66843 (2008) (applying
17
(L06957521
Indiana law) (a CGL policy serves to limit contractors tort liability for damage to property
caused by their work) Key Custom Homes Inc v Mid-Continent Cas Co 450 FSupp2d
1311 1317-182006 US Dist LEXIS 60355 (2006) (applying Florida law) (it is equally clear
that breach of contract claims for the recovery of money are not covered by general liability
insurance policies) Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254 1257329
Ore 620 (2000) (there can be no accident within the meaning of a commercial liability policy
when the resulting damage is merely a breach of contract) Bonded Concrete Inc v Transcon
Ins Co 12 AD3d 761 2004 NYAppDiv LEXIS 13020 (2004) (the purpose of a
commercial general liability policy is to provide coverage for tort liability for physical damage
to others and not for contractual liability of the insured for economic loss because the
product is not what the damaged [party] bargained for) United States Fire Ins Co v Milton
Co 35 FSupp2d 8386 1998 US Dist LEXIS 22116 (1998) (applying Maryland law) (there
is no occurrence under a comprehensive general liability insurance policy where and to the
extent that a contractors use of defective materials and substandard workmanship results in
economic losses that would normally be recoverable in a breach of contract action) Burlington
Ins Co v Oceanic Design amp Construction Inc 383 F3d 940 2004 US App LEXIS 18932
(9th Cir 2004) (applying Hawaii law) (holding that claims for breach of contract and negligent
breach of contract are not covered under a CGL policy) Norwalk Ready Mixed Concrete Inc v
Travelers Ins Co 246 F3d 1132 2001 US App LEXIS 7148 (8th Cir 2001) (applying Iowa
law) (holding that breach of contract and breach of warranty claims are not covered under a CGL
policy) USFampG Com v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476
18
(L06957521 l
(1989) (holding that a breach of contract claim asserted against an insured contractor is not
covered under a COL policy) Oreat Divide Ins Co v Bitterroot Timberfiames of Wyoming
LLC 2006 US Dist LEXIS 94826 (2006) (applying Wyoming law) (the allegations
demonstrate losses resulting from breach of contract and therefore cannot constitute an
accident for purposes of determining coverage) Union Ins Co v Hottenstein 83 P3d 1196
12022003 ColoApp LEXIS 1857 (2003) (poor workmanship constituting a breach of contract
is not a covered occurrence)
Tennessee lawl5 is in accord with these authorities The Tennessee Supreme Court has
defInitively held that breach of contract claims due to the insureds faulty workmanship such as
those asserted here by THD against IA Street in the underlying Amended Complaint are simply
not covered under the grant of coverage contained in a commercial liability policy See Vernon
supra Chester-ODonley supra at 6-7 (General liability policies are not all-risk policies and
only cover damages up to the policy limits for which the insured becomes liable as a result of
tort liability to a third party) (emphasis added) In Vernon the Supreme Court of Tennessee
expressly held that a standard COL policy only covers tort claims and such a policy does not
15 Under applicable Tennessee law contracts of insurance are subject to the same rules of interpretation and construction as other contracts McKimm v Bell 790 SW2d 526 527 1990 Tenn LEXIS 161 (1990) Thus [a]n insurance policy must be interpreted fairly and reasonably giving the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204 SW3d 758 2006 Tenn LEXIS 755 (2006) In the absence of fraud or mistake a contract must be interpreted and enforced as written even though it contains terms which may be thought harsh and unjust Allstate Ins Co v Wilson 856 SW2d 706 1992 TennApp LEXIS 1012 (1992) As a result the analysis of JA Streets right to coverage for the claims asserted in the underlying action are dictated by the terms of the policy The essential components of a general liability insurance policy include (1) the declarations (2) the insuring agreements and definitions (3) the exclusions (4) the conditions and (5) the endorsements See ChestershyODonley supra The insuring agreement sets the outer limits of an insurers contractual liability If coverage cannot be found in the insuring agreement it will not be found elsewhere in the policy Id 1998 TennApp LEXIS at 13-14
19
L069S7S21
afford coverage to an insured contractor for breach of contract claims Vernon 591 SW 2d at
765 Chester-ODonley supra at 6-7 Petitioner complains that the Circuit Court focused on
West Virginia cases such as Silk v Flat TOp6 but in fact the lower court expressly relied
upon a wealth of Tennessee authority17 including Vernon Cincinnati Ins Co v Grand Pointe
LLc18 and Trinity Univ Ins Co v Turner Funeral Home Inc 19 More recently Tennessee
courts have reaffirmed the rationale and holding of Vernon See State Auto Ins Cos v Gordon
Constr Inc 2001 TennApp LEXIS 349 (2001) (following Vernon and holding that the
insuring agreement of a CGL policy does not afford coverage for underlying breach of contract
and breach of warranty claims asserted against the insured contractor) Blake Indus Inc v
General Agents Ins Co of Am 2000 Tenn App LEXIS 490 (2000) (applying Vernon and
holding that claims asserted against the insured that were grounded in contract are not covered
under a CGL policy) Blaylock and Brown Constr Inc v AID Ins Co 796 SW2d 146 152shy
153 (Tenn Ct App 1990)
As the Circuit Court correctly recognized the express tenus of the insurance contract
clearly exclude contractual liability from coverage Exclusions help define and shape the scope
of coverage but they must be read in terms of the insuring agreement to which they apply
Exclusions can only decrease coverage they cannot increase it Chester-ODonley 972 SW2d
at 7-8 Moreover [e]ach exclusion reduces coverage and operates independently with reference
16 Petitioners Brief p 30 (citing 453 SE2d 356 (Wva 1994raquo 17 See See Opinion JA-I0552 ~27
18 2007 US Dist LEXIS 39784 (ED Tenn 2007) 19 2003 WL 23218046 (ED Tenn Dec 122003)
20
IL069S7S2 I I
to the insuring agreement Id at 8 The Contractual Liability exclusion specifically provides
that the insurance coverage does not apply to
Contractual liability
Bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement This exclusion does not apply to liability for damages
(1) That the insured would have in the absence of the contract or agreement or
(2) Assumed in a contract or agreement that is an insured contract provided the bodily injury or property damage occurs subsequent to the execution of the contract or agreement Solely for the purposes of liability assumed in a insured contract reasonable attorneys fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of bodily injury or property damage provided
(a) Liability to such party for or for the cost of that partys defense has also been assumed in the same insured contract and
(b) Such attorneys fees and litigation expenses are for defense of that party against the civil or alternative dispute resolution proceeding in which damages to which the insurance applies are alleged
See JA-62 Section I C[2
Even a cursory examination ofTHDs Amended Complaint reveals that all claims alleged
against JA Street were contractual There simply was no tort claim alleged In fact the claims
against JA Street were necessarily founded in contract for two reasons First the two-year
statute of limitations applicable to any tort claims elapsed long before THD first asserted its
claims against JA Street Tort claims were not pleaded and could not have been Second the
substantive law of West Virginia applies to the underlying claims asserted by THD against lA
21
(L069S7S21 I
Street20 and applicable West Virginia law plainly holds that even if THD had asserted tort
claims against JA Street the claims would still sound in contract under these circumstances for
purposes of the instant analysis since the gist of claims asserted against a contractor for deficient
work is necessarily ex contractu See Silk supra at 360 Dan Ryan Builders Inc v Crystal
Ridge Dev Inc 783 F3d 976 (4th Cir 2015) Unlike in both Silk and Dan Ryan THO did not
even assert any tort claims here Nor could it have Relevant to the precise policy language at
issue there simply was no liability for damages that [JA Street] would have in the absence of
the contract or agreement It simply cannot be contested that the claims alleged in the Amended
Complaint are and indeed necessarily were contractual in nature Given that alone the clear
holding of the Tennessee Court in Vernon mandated the Circuit Courts correct grant of
summary judgment in Biteos favor
A great majority of courts and commentators across the country that have addressed the
issue have held that the explicit unambiguous express Contractual Liability exclusion forecloses
coverage for all contract liability including breach of contract claims asserted against the
insured except where the insured has assumed the liability of another in an insured contract
See eg Silk v Flat Top Constr Inc 453 SE2d 356 359 192 WVa 522 (1994) (holding that
the contract exclusion applies to foreclose coverage for all contractual liability of the insured
except for liability assumed in an insured contract-a contract under which the insured
assumes the tort liability of another party) Gilbert Tex Constr v Underwriters at Lloyds
20 West Virginia applies the choice-of-law principle of lex loci delicti and there is no question here that the offending conduct and the loss all occurred in West Virginia such that JA Streets liability to THD would be governed by West Virginia law See State of Wva ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) (citing Syl Pt 1 Paul v Natl Life 352 SE2d 552 (WVa 1986raquo
22
(L069S7521 I
Londo 327 SW3d 118 (2010) (citing inter alia Nationwide Mut Ins Co v CPB Int Inc
No 306-CV-0363 2007 WL 4198173 at 8 (MDPa Nov26 2007) (Exclusion (b) is simply
further clarification in the policy that contract-based claims are not covered) ClM Ins Corp v
Midpac Auto Crr Inc 108 FSupp2d 1092 1099-1100 (DHaw2000) (clause in policy stating
that policy does not apply to liability assumed under any contract or agreement means that any
claim that is dependent on the existence of an underlying contract is not covered) Monticello
Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 at 2 (WDKy
Apr 3 1998) (exclusion for liability assumed by the insured under any contract or agreement
does not arise only when a party assumes the liability for another party rather the plain meaning
of the policy excludes a breach of contract claim from coverage) Silk supra (exclusion removed
coverage for breach of contract) TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 1091-92
(8th Cir1995) (exclusion for which the insured has assumed liability in a contract or agreement
plainly excluded coverage for contractual claims and not just hold-harmless or indemnity
agreements) Nationwide Mutual Ins Co v CPB Intl Inc 562 F3d 591 5992009 US App
LEXIS 7795 (3d Cir 2009) (applying Pa law) (holding that a breach of contract claim is excluded
under the Contractual Liability exclusion) Century Sur Co v Hardscape Constr Specialties Inc
578 F3d 262 2009 US App LEXIS 25300 (5th Cir 2009) (applying Texas law) (holding that the
Contractual Liability exclusion operates to exclude claims grounded primarily in breach of contract
and that no tort claims were asserted that triggered the insured contract exception) State Farm
Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 12 (2007) (applying Hawaii
law) (holding that claims arising from the insureds obligations under a contract are barred from
23
L0695152 I I
coverage under the Contractual Liability exclusion) JACO Airfield Constr Inc v National Trust
Ins Co 2007 US Dist LEXIS 100295 10 (2007) (applying Georgia law) (holding that the
Contractual Liability exclusion applies to foreclose coverage for the contractual based claims
asserted against the insured and that the insured contract exception to the Contractual Liability
exclusion does not apply because the insured did not assume the tort liability of another) Union Ins
Co v Williams Contr Inc 2006 US Dist LEXIS 35919 4-5 (2006) (holding that the
Contractual Liability exclusion precludes coverage for claims against the insured for breach of a
construction contract) Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270
GaApp 8 (2004) (affirming trial comts finding that the Contractual Liability exclusion barred
coverage for breach of contract and breach of implied warranty claims against the insured) Gibson
amp Assocs Inc v Home Ins Co 966 FSupp 468476-77 1997 US Dist LEXIS 4776 (1997)
(applying Texas law) (recognizing that the Contractual Liability exclusion precludes coverage for
breach of contract claims asserted against the insmed and that the policy only covers contractual
liability for indemnification actions ie an insured contract) James v Burlington Northern Santa
Fe Railway Co 2007 US Dist LEXIS 63282 4-5 (2007) (applying Arizona law) (holding that
the insured contract exception to the Contractual Liability exclusion does not bring ordinary
breach-of-contract claims within the scope of CGL coverage) TGA Dev Inc v Northern Ins Co
of New York 62 F3d 1089 1091-92 1995 USApp LEXIS 21700 (8th Cir 1995) (applying
Minnesota law) (holding that the Contractual Liability exclusion plainly excludes coverage for
contractual claims made for [the insmeds] failure to provide [the property owner] with a
condominium unit free from defects)
24
(lO6957521 )
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
[t]he risk intended to be insured is the possibility that the goods products or work of the insured once relinquished or completed will cause bodily injury or damage to property other than to the product or completed work itself and for which the insured may be found liable The insured as a source of goods or services may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable because it is lacking in some capacity This may even extend to an obligation to completely replace or rebuild the deficient product or work This liability however is not what the coverages in question are designed to protect against The coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained
Dean Henderson Insurance Protection for Products Liability and Completed Operations - What
Every Lawyer Should Know 50 Neb L Rev 415441 (1971)14
The overwhelming majority of courts and commentators that have addressed this issue
have held that breach of contract claims asserted against the insured are not covered under a
standard CGL policy See eg Couch on Insurance 3d sect1291-1294 (3d Ed 2005) (a
commercial general liability insurance policy is generally designed to provide coverage for tort
liability for physical damages to others and not for contractual liability of the insured for
economic loss the majority of jurisdictions have held that breach of contract is not an
14 The Henderson article has been widely relied upon by courts and commentators for over 40 years Noticeably it has been frequently cited with approval in Tennessee See Vernon (relying upon the Henderson article the Tennessee Court held that the standard comprehensive general liability policy does not provide coverage to an insured-contractor for a breach of contract action grounded upon faulty workmanship or materials where the damages claimed are the cost of correcting the work itself) Blaylock amp Brown Constr Inc v AIU Ins Co 796 SW2d 146 1990 TennApp LEXIS 338 (1990) (relying upon Henderson the Court holds bull that the language of the policy excludes liability coverage for the plaintiffs for damage to the property constructed pursuant to the contract) Standard Fire Ins Co v Chester-ODonley amp Assocs 972 SW2d 1 1998 TennApp LEXIS 65 (1998) (citing the Henderson article for the proposition that CGL policies are not intended to cover the insureds contractual liability for economic loss because its work was not that for which the damaged person bargained) Weedo v Stone-E-Brick Inc bull 81 NJ 233 405 A2d 788 (1979) (relying heavily upon the Henderson article the Court holds that a CGL policy does not provide coverage for a breach of contract action for faulty workmanship where the damages claimed are the cost ofcorrecting the work itself)
16
IL069S7S2 I
occurrencea [CGL] policy is not intended to provide coverage for the insureds contractual
liability which merely causes economic losses) Alan D Windt Insurance Claims and
Disputes sect117 (4th Ed 2001) (Finally there is the question as to whether a breach of
contract claim involves damages caused by an occurrence The answer should in general be
no) Erie Ins Prop amp Cas Co v Pioneer Home Improvement Inc 526 SE2d 28 33 206
WVa 506 513 (1999) (The coverage [under a COL policy] is for tort liability for physical
damages to others and not for contractual liability of the insured for economic loss because the
product or completed work is not that for which the damaged person bargained) Nationwide
Mutual Ins Co v CPB Intl Inc 562 F3d 591 598 2009 US App LEXIS 7795 14 (3d Cir
2009) (holding that under Pennsylvania law a CGL policy does not provide coverage for
claims in an underlying action that arise out of and relate to the contract between the parties)
Lyerla v AMCO Ins Co 536 F3d 684691-922008 US App LEXIS 164 78 (7th Cir 2008)
(applying Illinois law) (holding that underlying allegations that insured contractor did not satisfy
his contractual obligations is not property damage caused by an occurrence) L-J Inc v
Biteo Fire amp Marine Ins Co 621 SE2d 33 35 366 SC 117 (2005) (any liability that is
incurred because of faulty workmanship is part of the insureds contractual liability not an
insurable event under a CGL policy) Hotel Roanoke Conf Ctr Commn v Cincinnati Ins Co
303 FSupp2d 784 7882004 US Dist LEXIS 2539 (2004) (applying Virginia law) (damages
limited to the insureds work or product and resulting from the insureds defective perfonnance
of a contract are not covered losses under a [CGL] policy) Westfield Ins Co v Sheehan
Construction Co 580 FSupp2d 701 710 2008 US Dist LEXIS 66843 (2008) (applying
17
(L06957521
Indiana law) (a CGL policy serves to limit contractors tort liability for damage to property
caused by their work) Key Custom Homes Inc v Mid-Continent Cas Co 450 FSupp2d
1311 1317-182006 US Dist LEXIS 60355 (2006) (applying Florida law) (it is equally clear
that breach of contract claims for the recovery of money are not covered by general liability
insurance policies) Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254 1257329
Ore 620 (2000) (there can be no accident within the meaning of a commercial liability policy
when the resulting damage is merely a breach of contract) Bonded Concrete Inc v Transcon
Ins Co 12 AD3d 761 2004 NYAppDiv LEXIS 13020 (2004) (the purpose of a
commercial general liability policy is to provide coverage for tort liability for physical damage
to others and not for contractual liability of the insured for economic loss because the
product is not what the damaged [party] bargained for) United States Fire Ins Co v Milton
Co 35 FSupp2d 8386 1998 US Dist LEXIS 22116 (1998) (applying Maryland law) (there
is no occurrence under a comprehensive general liability insurance policy where and to the
extent that a contractors use of defective materials and substandard workmanship results in
economic losses that would normally be recoverable in a breach of contract action) Burlington
Ins Co v Oceanic Design amp Construction Inc 383 F3d 940 2004 US App LEXIS 18932
(9th Cir 2004) (applying Hawaii law) (holding that claims for breach of contract and negligent
breach of contract are not covered under a CGL policy) Norwalk Ready Mixed Concrete Inc v
Travelers Ins Co 246 F3d 1132 2001 US App LEXIS 7148 (8th Cir 2001) (applying Iowa
law) (holding that breach of contract and breach of warranty claims are not covered under a CGL
policy) USFampG Com v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476
18
(L06957521 l
(1989) (holding that a breach of contract claim asserted against an insured contractor is not
covered under a COL policy) Oreat Divide Ins Co v Bitterroot Timberfiames of Wyoming
LLC 2006 US Dist LEXIS 94826 (2006) (applying Wyoming law) (the allegations
demonstrate losses resulting from breach of contract and therefore cannot constitute an
accident for purposes of determining coverage) Union Ins Co v Hottenstein 83 P3d 1196
12022003 ColoApp LEXIS 1857 (2003) (poor workmanship constituting a breach of contract
is not a covered occurrence)
Tennessee lawl5 is in accord with these authorities The Tennessee Supreme Court has
defInitively held that breach of contract claims due to the insureds faulty workmanship such as
those asserted here by THD against IA Street in the underlying Amended Complaint are simply
not covered under the grant of coverage contained in a commercial liability policy See Vernon
supra Chester-ODonley supra at 6-7 (General liability policies are not all-risk policies and
only cover damages up to the policy limits for which the insured becomes liable as a result of
tort liability to a third party) (emphasis added) In Vernon the Supreme Court of Tennessee
expressly held that a standard COL policy only covers tort claims and such a policy does not
15 Under applicable Tennessee law contracts of insurance are subject to the same rules of interpretation and construction as other contracts McKimm v Bell 790 SW2d 526 527 1990 Tenn LEXIS 161 (1990) Thus [a]n insurance policy must be interpreted fairly and reasonably giving the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204 SW3d 758 2006 Tenn LEXIS 755 (2006) In the absence of fraud or mistake a contract must be interpreted and enforced as written even though it contains terms which may be thought harsh and unjust Allstate Ins Co v Wilson 856 SW2d 706 1992 TennApp LEXIS 1012 (1992) As a result the analysis of JA Streets right to coverage for the claims asserted in the underlying action are dictated by the terms of the policy The essential components of a general liability insurance policy include (1) the declarations (2) the insuring agreements and definitions (3) the exclusions (4) the conditions and (5) the endorsements See ChestershyODonley supra The insuring agreement sets the outer limits of an insurers contractual liability If coverage cannot be found in the insuring agreement it will not be found elsewhere in the policy Id 1998 TennApp LEXIS at 13-14
19
L069S7S21
afford coverage to an insured contractor for breach of contract claims Vernon 591 SW 2d at
765 Chester-ODonley supra at 6-7 Petitioner complains that the Circuit Court focused on
West Virginia cases such as Silk v Flat TOp6 but in fact the lower court expressly relied
upon a wealth of Tennessee authority17 including Vernon Cincinnati Ins Co v Grand Pointe
LLc18 and Trinity Univ Ins Co v Turner Funeral Home Inc 19 More recently Tennessee
courts have reaffirmed the rationale and holding of Vernon See State Auto Ins Cos v Gordon
Constr Inc 2001 TennApp LEXIS 349 (2001) (following Vernon and holding that the
insuring agreement of a CGL policy does not afford coverage for underlying breach of contract
and breach of warranty claims asserted against the insured contractor) Blake Indus Inc v
General Agents Ins Co of Am 2000 Tenn App LEXIS 490 (2000) (applying Vernon and
holding that claims asserted against the insured that were grounded in contract are not covered
under a CGL policy) Blaylock and Brown Constr Inc v AID Ins Co 796 SW2d 146 152shy
153 (Tenn Ct App 1990)
As the Circuit Court correctly recognized the express tenus of the insurance contract
clearly exclude contractual liability from coverage Exclusions help define and shape the scope
of coverage but they must be read in terms of the insuring agreement to which they apply
Exclusions can only decrease coverage they cannot increase it Chester-ODonley 972 SW2d
at 7-8 Moreover [e]ach exclusion reduces coverage and operates independently with reference
16 Petitioners Brief p 30 (citing 453 SE2d 356 (Wva 1994raquo 17 See See Opinion JA-I0552 ~27
18 2007 US Dist LEXIS 39784 (ED Tenn 2007) 19 2003 WL 23218046 (ED Tenn Dec 122003)
20
IL069S7S2 I I
to the insuring agreement Id at 8 The Contractual Liability exclusion specifically provides
that the insurance coverage does not apply to
Contractual liability
Bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement This exclusion does not apply to liability for damages
(1) That the insured would have in the absence of the contract or agreement or
(2) Assumed in a contract or agreement that is an insured contract provided the bodily injury or property damage occurs subsequent to the execution of the contract or agreement Solely for the purposes of liability assumed in a insured contract reasonable attorneys fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of bodily injury or property damage provided
(a) Liability to such party for or for the cost of that partys defense has also been assumed in the same insured contract and
(b) Such attorneys fees and litigation expenses are for defense of that party against the civil or alternative dispute resolution proceeding in which damages to which the insurance applies are alleged
See JA-62 Section I C[2
Even a cursory examination ofTHDs Amended Complaint reveals that all claims alleged
against JA Street were contractual There simply was no tort claim alleged In fact the claims
against JA Street were necessarily founded in contract for two reasons First the two-year
statute of limitations applicable to any tort claims elapsed long before THD first asserted its
claims against JA Street Tort claims were not pleaded and could not have been Second the
substantive law of West Virginia applies to the underlying claims asserted by THD against lA
21
(L069S7S21 I
Street20 and applicable West Virginia law plainly holds that even if THD had asserted tort
claims against JA Street the claims would still sound in contract under these circumstances for
purposes of the instant analysis since the gist of claims asserted against a contractor for deficient
work is necessarily ex contractu See Silk supra at 360 Dan Ryan Builders Inc v Crystal
Ridge Dev Inc 783 F3d 976 (4th Cir 2015) Unlike in both Silk and Dan Ryan THO did not
even assert any tort claims here Nor could it have Relevant to the precise policy language at
issue there simply was no liability for damages that [JA Street] would have in the absence of
the contract or agreement It simply cannot be contested that the claims alleged in the Amended
Complaint are and indeed necessarily were contractual in nature Given that alone the clear
holding of the Tennessee Court in Vernon mandated the Circuit Courts correct grant of
summary judgment in Biteos favor
A great majority of courts and commentators across the country that have addressed the
issue have held that the explicit unambiguous express Contractual Liability exclusion forecloses
coverage for all contract liability including breach of contract claims asserted against the
insured except where the insured has assumed the liability of another in an insured contract
See eg Silk v Flat Top Constr Inc 453 SE2d 356 359 192 WVa 522 (1994) (holding that
the contract exclusion applies to foreclose coverage for all contractual liability of the insured
except for liability assumed in an insured contract-a contract under which the insured
assumes the tort liability of another party) Gilbert Tex Constr v Underwriters at Lloyds
20 West Virginia applies the choice-of-law principle of lex loci delicti and there is no question here that the offending conduct and the loss all occurred in West Virginia such that JA Streets liability to THD would be governed by West Virginia law See State of Wva ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) (citing Syl Pt 1 Paul v Natl Life 352 SE2d 552 (WVa 1986raquo
22
(L069S7521 I
Londo 327 SW3d 118 (2010) (citing inter alia Nationwide Mut Ins Co v CPB Int Inc
No 306-CV-0363 2007 WL 4198173 at 8 (MDPa Nov26 2007) (Exclusion (b) is simply
further clarification in the policy that contract-based claims are not covered) ClM Ins Corp v
Midpac Auto Crr Inc 108 FSupp2d 1092 1099-1100 (DHaw2000) (clause in policy stating
that policy does not apply to liability assumed under any contract or agreement means that any
claim that is dependent on the existence of an underlying contract is not covered) Monticello
Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 at 2 (WDKy
Apr 3 1998) (exclusion for liability assumed by the insured under any contract or agreement
does not arise only when a party assumes the liability for another party rather the plain meaning
of the policy excludes a breach of contract claim from coverage) Silk supra (exclusion removed
coverage for breach of contract) TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 1091-92
(8th Cir1995) (exclusion for which the insured has assumed liability in a contract or agreement
plainly excluded coverage for contractual claims and not just hold-harmless or indemnity
agreements) Nationwide Mutual Ins Co v CPB Intl Inc 562 F3d 591 5992009 US App
LEXIS 7795 (3d Cir 2009) (applying Pa law) (holding that a breach of contract claim is excluded
under the Contractual Liability exclusion) Century Sur Co v Hardscape Constr Specialties Inc
578 F3d 262 2009 US App LEXIS 25300 (5th Cir 2009) (applying Texas law) (holding that the
Contractual Liability exclusion operates to exclude claims grounded primarily in breach of contract
and that no tort claims were asserted that triggered the insured contract exception) State Farm
Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 12 (2007) (applying Hawaii
law) (holding that claims arising from the insureds obligations under a contract are barred from
23
L0695152 I I
coverage under the Contractual Liability exclusion) JACO Airfield Constr Inc v National Trust
Ins Co 2007 US Dist LEXIS 100295 10 (2007) (applying Georgia law) (holding that the
Contractual Liability exclusion applies to foreclose coverage for the contractual based claims
asserted against the insured and that the insured contract exception to the Contractual Liability
exclusion does not apply because the insured did not assume the tort liability of another) Union Ins
Co v Williams Contr Inc 2006 US Dist LEXIS 35919 4-5 (2006) (holding that the
Contractual Liability exclusion precludes coverage for claims against the insured for breach of a
construction contract) Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270
GaApp 8 (2004) (affirming trial comts finding that the Contractual Liability exclusion barred
coverage for breach of contract and breach of implied warranty claims against the insured) Gibson
amp Assocs Inc v Home Ins Co 966 FSupp 468476-77 1997 US Dist LEXIS 4776 (1997)
(applying Texas law) (recognizing that the Contractual Liability exclusion precludes coverage for
breach of contract claims asserted against the insmed and that the policy only covers contractual
liability for indemnification actions ie an insured contract) James v Burlington Northern Santa
Fe Railway Co 2007 US Dist LEXIS 63282 4-5 (2007) (applying Arizona law) (holding that
the insured contract exception to the Contractual Liability exclusion does not bring ordinary
breach-of-contract claims within the scope of CGL coverage) TGA Dev Inc v Northern Ins Co
of New York 62 F3d 1089 1091-92 1995 USApp LEXIS 21700 (8th Cir 1995) (applying
Minnesota law) (holding that the Contractual Liability exclusion plainly excludes coverage for
contractual claims made for [the insmeds] failure to provide [the property owner] with a
condominium unit free from defects)
24
(lO6957521 )
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
occurrencea [CGL] policy is not intended to provide coverage for the insureds contractual
liability which merely causes economic losses) Alan D Windt Insurance Claims and
Disputes sect117 (4th Ed 2001) (Finally there is the question as to whether a breach of
contract claim involves damages caused by an occurrence The answer should in general be
no) Erie Ins Prop amp Cas Co v Pioneer Home Improvement Inc 526 SE2d 28 33 206
WVa 506 513 (1999) (The coverage [under a COL policy] is for tort liability for physical
damages to others and not for contractual liability of the insured for economic loss because the
product or completed work is not that for which the damaged person bargained) Nationwide
Mutual Ins Co v CPB Intl Inc 562 F3d 591 598 2009 US App LEXIS 7795 14 (3d Cir
2009) (holding that under Pennsylvania law a CGL policy does not provide coverage for
claims in an underlying action that arise out of and relate to the contract between the parties)
Lyerla v AMCO Ins Co 536 F3d 684691-922008 US App LEXIS 164 78 (7th Cir 2008)
(applying Illinois law) (holding that underlying allegations that insured contractor did not satisfy
his contractual obligations is not property damage caused by an occurrence) L-J Inc v
Biteo Fire amp Marine Ins Co 621 SE2d 33 35 366 SC 117 (2005) (any liability that is
incurred because of faulty workmanship is part of the insureds contractual liability not an
insurable event under a CGL policy) Hotel Roanoke Conf Ctr Commn v Cincinnati Ins Co
303 FSupp2d 784 7882004 US Dist LEXIS 2539 (2004) (applying Virginia law) (damages
limited to the insureds work or product and resulting from the insureds defective perfonnance
of a contract are not covered losses under a [CGL] policy) Westfield Ins Co v Sheehan
Construction Co 580 FSupp2d 701 710 2008 US Dist LEXIS 66843 (2008) (applying
17
(L06957521
Indiana law) (a CGL policy serves to limit contractors tort liability for damage to property
caused by their work) Key Custom Homes Inc v Mid-Continent Cas Co 450 FSupp2d
1311 1317-182006 US Dist LEXIS 60355 (2006) (applying Florida law) (it is equally clear
that breach of contract claims for the recovery of money are not covered by general liability
insurance policies) Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254 1257329
Ore 620 (2000) (there can be no accident within the meaning of a commercial liability policy
when the resulting damage is merely a breach of contract) Bonded Concrete Inc v Transcon
Ins Co 12 AD3d 761 2004 NYAppDiv LEXIS 13020 (2004) (the purpose of a
commercial general liability policy is to provide coverage for tort liability for physical damage
to others and not for contractual liability of the insured for economic loss because the
product is not what the damaged [party] bargained for) United States Fire Ins Co v Milton
Co 35 FSupp2d 8386 1998 US Dist LEXIS 22116 (1998) (applying Maryland law) (there
is no occurrence under a comprehensive general liability insurance policy where and to the
extent that a contractors use of defective materials and substandard workmanship results in
economic losses that would normally be recoverable in a breach of contract action) Burlington
Ins Co v Oceanic Design amp Construction Inc 383 F3d 940 2004 US App LEXIS 18932
(9th Cir 2004) (applying Hawaii law) (holding that claims for breach of contract and negligent
breach of contract are not covered under a CGL policy) Norwalk Ready Mixed Concrete Inc v
Travelers Ins Co 246 F3d 1132 2001 US App LEXIS 7148 (8th Cir 2001) (applying Iowa
law) (holding that breach of contract and breach of warranty claims are not covered under a CGL
policy) USFampG Com v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476
18
(L06957521 l
(1989) (holding that a breach of contract claim asserted against an insured contractor is not
covered under a COL policy) Oreat Divide Ins Co v Bitterroot Timberfiames of Wyoming
LLC 2006 US Dist LEXIS 94826 (2006) (applying Wyoming law) (the allegations
demonstrate losses resulting from breach of contract and therefore cannot constitute an
accident for purposes of determining coverage) Union Ins Co v Hottenstein 83 P3d 1196
12022003 ColoApp LEXIS 1857 (2003) (poor workmanship constituting a breach of contract
is not a covered occurrence)
Tennessee lawl5 is in accord with these authorities The Tennessee Supreme Court has
defInitively held that breach of contract claims due to the insureds faulty workmanship such as
those asserted here by THD against IA Street in the underlying Amended Complaint are simply
not covered under the grant of coverage contained in a commercial liability policy See Vernon
supra Chester-ODonley supra at 6-7 (General liability policies are not all-risk policies and
only cover damages up to the policy limits for which the insured becomes liable as a result of
tort liability to a third party) (emphasis added) In Vernon the Supreme Court of Tennessee
expressly held that a standard COL policy only covers tort claims and such a policy does not
15 Under applicable Tennessee law contracts of insurance are subject to the same rules of interpretation and construction as other contracts McKimm v Bell 790 SW2d 526 527 1990 Tenn LEXIS 161 (1990) Thus [a]n insurance policy must be interpreted fairly and reasonably giving the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204 SW3d 758 2006 Tenn LEXIS 755 (2006) In the absence of fraud or mistake a contract must be interpreted and enforced as written even though it contains terms which may be thought harsh and unjust Allstate Ins Co v Wilson 856 SW2d 706 1992 TennApp LEXIS 1012 (1992) As a result the analysis of JA Streets right to coverage for the claims asserted in the underlying action are dictated by the terms of the policy The essential components of a general liability insurance policy include (1) the declarations (2) the insuring agreements and definitions (3) the exclusions (4) the conditions and (5) the endorsements See ChestershyODonley supra The insuring agreement sets the outer limits of an insurers contractual liability If coverage cannot be found in the insuring agreement it will not be found elsewhere in the policy Id 1998 TennApp LEXIS at 13-14
19
L069S7S21
afford coverage to an insured contractor for breach of contract claims Vernon 591 SW 2d at
765 Chester-ODonley supra at 6-7 Petitioner complains that the Circuit Court focused on
West Virginia cases such as Silk v Flat TOp6 but in fact the lower court expressly relied
upon a wealth of Tennessee authority17 including Vernon Cincinnati Ins Co v Grand Pointe
LLc18 and Trinity Univ Ins Co v Turner Funeral Home Inc 19 More recently Tennessee
courts have reaffirmed the rationale and holding of Vernon See State Auto Ins Cos v Gordon
Constr Inc 2001 TennApp LEXIS 349 (2001) (following Vernon and holding that the
insuring agreement of a CGL policy does not afford coverage for underlying breach of contract
and breach of warranty claims asserted against the insured contractor) Blake Indus Inc v
General Agents Ins Co of Am 2000 Tenn App LEXIS 490 (2000) (applying Vernon and
holding that claims asserted against the insured that were grounded in contract are not covered
under a CGL policy) Blaylock and Brown Constr Inc v AID Ins Co 796 SW2d 146 152shy
153 (Tenn Ct App 1990)
As the Circuit Court correctly recognized the express tenus of the insurance contract
clearly exclude contractual liability from coverage Exclusions help define and shape the scope
of coverage but they must be read in terms of the insuring agreement to which they apply
Exclusions can only decrease coverage they cannot increase it Chester-ODonley 972 SW2d
at 7-8 Moreover [e]ach exclusion reduces coverage and operates independently with reference
16 Petitioners Brief p 30 (citing 453 SE2d 356 (Wva 1994raquo 17 See See Opinion JA-I0552 ~27
18 2007 US Dist LEXIS 39784 (ED Tenn 2007) 19 2003 WL 23218046 (ED Tenn Dec 122003)
20
IL069S7S2 I I
to the insuring agreement Id at 8 The Contractual Liability exclusion specifically provides
that the insurance coverage does not apply to
Contractual liability
Bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement This exclusion does not apply to liability for damages
(1) That the insured would have in the absence of the contract or agreement or
(2) Assumed in a contract or agreement that is an insured contract provided the bodily injury or property damage occurs subsequent to the execution of the contract or agreement Solely for the purposes of liability assumed in a insured contract reasonable attorneys fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of bodily injury or property damage provided
(a) Liability to such party for or for the cost of that partys defense has also been assumed in the same insured contract and
(b) Such attorneys fees and litigation expenses are for defense of that party against the civil or alternative dispute resolution proceeding in which damages to which the insurance applies are alleged
See JA-62 Section I C[2
Even a cursory examination ofTHDs Amended Complaint reveals that all claims alleged
against JA Street were contractual There simply was no tort claim alleged In fact the claims
against JA Street were necessarily founded in contract for two reasons First the two-year
statute of limitations applicable to any tort claims elapsed long before THD first asserted its
claims against JA Street Tort claims were not pleaded and could not have been Second the
substantive law of West Virginia applies to the underlying claims asserted by THD against lA
21
(L069S7S21 I
Street20 and applicable West Virginia law plainly holds that even if THD had asserted tort
claims against JA Street the claims would still sound in contract under these circumstances for
purposes of the instant analysis since the gist of claims asserted against a contractor for deficient
work is necessarily ex contractu See Silk supra at 360 Dan Ryan Builders Inc v Crystal
Ridge Dev Inc 783 F3d 976 (4th Cir 2015) Unlike in both Silk and Dan Ryan THO did not
even assert any tort claims here Nor could it have Relevant to the precise policy language at
issue there simply was no liability for damages that [JA Street] would have in the absence of
the contract or agreement It simply cannot be contested that the claims alleged in the Amended
Complaint are and indeed necessarily were contractual in nature Given that alone the clear
holding of the Tennessee Court in Vernon mandated the Circuit Courts correct grant of
summary judgment in Biteos favor
A great majority of courts and commentators across the country that have addressed the
issue have held that the explicit unambiguous express Contractual Liability exclusion forecloses
coverage for all contract liability including breach of contract claims asserted against the
insured except where the insured has assumed the liability of another in an insured contract
See eg Silk v Flat Top Constr Inc 453 SE2d 356 359 192 WVa 522 (1994) (holding that
the contract exclusion applies to foreclose coverage for all contractual liability of the insured
except for liability assumed in an insured contract-a contract under which the insured
assumes the tort liability of another party) Gilbert Tex Constr v Underwriters at Lloyds
20 West Virginia applies the choice-of-law principle of lex loci delicti and there is no question here that the offending conduct and the loss all occurred in West Virginia such that JA Streets liability to THD would be governed by West Virginia law See State of Wva ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) (citing Syl Pt 1 Paul v Natl Life 352 SE2d 552 (WVa 1986raquo
22
(L069S7521 I
Londo 327 SW3d 118 (2010) (citing inter alia Nationwide Mut Ins Co v CPB Int Inc
No 306-CV-0363 2007 WL 4198173 at 8 (MDPa Nov26 2007) (Exclusion (b) is simply
further clarification in the policy that contract-based claims are not covered) ClM Ins Corp v
Midpac Auto Crr Inc 108 FSupp2d 1092 1099-1100 (DHaw2000) (clause in policy stating
that policy does not apply to liability assumed under any contract or agreement means that any
claim that is dependent on the existence of an underlying contract is not covered) Monticello
Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 at 2 (WDKy
Apr 3 1998) (exclusion for liability assumed by the insured under any contract or agreement
does not arise only when a party assumes the liability for another party rather the plain meaning
of the policy excludes a breach of contract claim from coverage) Silk supra (exclusion removed
coverage for breach of contract) TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 1091-92
(8th Cir1995) (exclusion for which the insured has assumed liability in a contract or agreement
plainly excluded coverage for contractual claims and not just hold-harmless or indemnity
agreements) Nationwide Mutual Ins Co v CPB Intl Inc 562 F3d 591 5992009 US App
LEXIS 7795 (3d Cir 2009) (applying Pa law) (holding that a breach of contract claim is excluded
under the Contractual Liability exclusion) Century Sur Co v Hardscape Constr Specialties Inc
578 F3d 262 2009 US App LEXIS 25300 (5th Cir 2009) (applying Texas law) (holding that the
Contractual Liability exclusion operates to exclude claims grounded primarily in breach of contract
and that no tort claims were asserted that triggered the insured contract exception) State Farm
Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 12 (2007) (applying Hawaii
law) (holding that claims arising from the insureds obligations under a contract are barred from
23
L0695152 I I
coverage under the Contractual Liability exclusion) JACO Airfield Constr Inc v National Trust
Ins Co 2007 US Dist LEXIS 100295 10 (2007) (applying Georgia law) (holding that the
Contractual Liability exclusion applies to foreclose coverage for the contractual based claims
asserted against the insured and that the insured contract exception to the Contractual Liability
exclusion does not apply because the insured did not assume the tort liability of another) Union Ins
Co v Williams Contr Inc 2006 US Dist LEXIS 35919 4-5 (2006) (holding that the
Contractual Liability exclusion precludes coverage for claims against the insured for breach of a
construction contract) Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270
GaApp 8 (2004) (affirming trial comts finding that the Contractual Liability exclusion barred
coverage for breach of contract and breach of implied warranty claims against the insured) Gibson
amp Assocs Inc v Home Ins Co 966 FSupp 468476-77 1997 US Dist LEXIS 4776 (1997)
(applying Texas law) (recognizing that the Contractual Liability exclusion precludes coverage for
breach of contract claims asserted against the insmed and that the policy only covers contractual
liability for indemnification actions ie an insured contract) James v Burlington Northern Santa
Fe Railway Co 2007 US Dist LEXIS 63282 4-5 (2007) (applying Arizona law) (holding that
the insured contract exception to the Contractual Liability exclusion does not bring ordinary
breach-of-contract claims within the scope of CGL coverage) TGA Dev Inc v Northern Ins Co
of New York 62 F3d 1089 1091-92 1995 USApp LEXIS 21700 (8th Cir 1995) (applying
Minnesota law) (holding that the Contractual Liability exclusion plainly excludes coverage for
contractual claims made for [the insmeds] failure to provide [the property owner] with a
condominium unit free from defects)
24
(lO6957521 )
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
Indiana law) (a CGL policy serves to limit contractors tort liability for damage to property
caused by their work) Key Custom Homes Inc v Mid-Continent Cas Co 450 FSupp2d
1311 1317-182006 US Dist LEXIS 60355 (2006) (applying Florida law) (it is equally clear
that breach of contract claims for the recovery of money are not covered by general liability
insurance policies) Oak Crest Constr Co v Austin Mut Ins Co 998 P2d 1254 1257329
Ore 620 (2000) (there can be no accident within the meaning of a commercial liability policy
when the resulting damage is merely a breach of contract) Bonded Concrete Inc v Transcon
Ins Co 12 AD3d 761 2004 NYAppDiv LEXIS 13020 (2004) (the purpose of a
commercial general liability policy is to provide coverage for tort liability for physical damage
to others and not for contractual liability of the insured for economic loss because the
product is not what the damaged [party] bargained for) United States Fire Ins Co v Milton
Co 35 FSupp2d 8386 1998 US Dist LEXIS 22116 (1998) (applying Maryland law) (there
is no occurrence under a comprehensive general liability insurance policy where and to the
extent that a contractors use of defective materials and substandard workmanship results in
economic losses that would normally be recoverable in a breach of contract action) Burlington
Ins Co v Oceanic Design amp Construction Inc 383 F3d 940 2004 US App LEXIS 18932
(9th Cir 2004) (applying Hawaii law) (holding that claims for breach of contract and negligent
breach of contract are not covered under a CGL policy) Norwalk Ready Mixed Concrete Inc v
Travelers Ins Co 246 F3d 1132 2001 US App LEXIS 7148 (8th Cir 2001) (applying Iowa
law) (holding that breach of contract and breach of warranty claims are not covered under a CGL
policy) USFampG Com v Advanced Roofing amp Supply Co Inc 788 P2d 1227 163 Ariz 476
18
(L06957521 l
(1989) (holding that a breach of contract claim asserted against an insured contractor is not
covered under a COL policy) Oreat Divide Ins Co v Bitterroot Timberfiames of Wyoming
LLC 2006 US Dist LEXIS 94826 (2006) (applying Wyoming law) (the allegations
demonstrate losses resulting from breach of contract and therefore cannot constitute an
accident for purposes of determining coverage) Union Ins Co v Hottenstein 83 P3d 1196
12022003 ColoApp LEXIS 1857 (2003) (poor workmanship constituting a breach of contract
is not a covered occurrence)
Tennessee lawl5 is in accord with these authorities The Tennessee Supreme Court has
defInitively held that breach of contract claims due to the insureds faulty workmanship such as
those asserted here by THD against IA Street in the underlying Amended Complaint are simply
not covered under the grant of coverage contained in a commercial liability policy See Vernon
supra Chester-ODonley supra at 6-7 (General liability policies are not all-risk policies and
only cover damages up to the policy limits for which the insured becomes liable as a result of
tort liability to a third party) (emphasis added) In Vernon the Supreme Court of Tennessee
expressly held that a standard COL policy only covers tort claims and such a policy does not
15 Under applicable Tennessee law contracts of insurance are subject to the same rules of interpretation and construction as other contracts McKimm v Bell 790 SW2d 526 527 1990 Tenn LEXIS 161 (1990) Thus [a]n insurance policy must be interpreted fairly and reasonably giving the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204 SW3d 758 2006 Tenn LEXIS 755 (2006) In the absence of fraud or mistake a contract must be interpreted and enforced as written even though it contains terms which may be thought harsh and unjust Allstate Ins Co v Wilson 856 SW2d 706 1992 TennApp LEXIS 1012 (1992) As a result the analysis of JA Streets right to coverage for the claims asserted in the underlying action are dictated by the terms of the policy The essential components of a general liability insurance policy include (1) the declarations (2) the insuring agreements and definitions (3) the exclusions (4) the conditions and (5) the endorsements See ChestershyODonley supra The insuring agreement sets the outer limits of an insurers contractual liability If coverage cannot be found in the insuring agreement it will not be found elsewhere in the policy Id 1998 TennApp LEXIS at 13-14
19
L069S7S21
afford coverage to an insured contractor for breach of contract claims Vernon 591 SW 2d at
765 Chester-ODonley supra at 6-7 Petitioner complains that the Circuit Court focused on
West Virginia cases such as Silk v Flat TOp6 but in fact the lower court expressly relied
upon a wealth of Tennessee authority17 including Vernon Cincinnati Ins Co v Grand Pointe
LLc18 and Trinity Univ Ins Co v Turner Funeral Home Inc 19 More recently Tennessee
courts have reaffirmed the rationale and holding of Vernon See State Auto Ins Cos v Gordon
Constr Inc 2001 TennApp LEXIS 349 (2001) (following Vernon and holding that the
insuring agreement of a CGL policy does not afford coverage for underlying breach of contract
and breach of warranty claims asserted against the insured contractor) Blake Indus Inc v
General Agents Ins Co of Am 2000 Tenn App LEXIS 490 (2000) (applying Vernon and
holding that claims asserted against the insured that were grounded in contract are not covered
under a CGL policy) Blaylock and Brown Constr Inc v AID Ins Co 796 SW2d 146 152shy
153 (Tenn Ct App 1990)
As the Circuit Court correctly recognized the express tenus of the insurance contract
clearly exclude contractual liability from coverage Exclusions help define and shape the scope
of coverage but they must be read in terms of the insuring agreement to which they apply
Exclusions can only decrease coverage they cannot increase it Chester-ODonley 972 SW2d
at 7-8 Moreover [e]ach exclusion reduces coverage and operates independently with reference
16 Petitioners Brief p 30 (citing 453 SE2d 356 (Wva 1994raquo 17 See See Opinion JA-I0552 ~27
18 2007 US Dist LEXIS 39784 (ED Tenn 2007) 19 2003 WL 23218046 (ED Tenn Dec 122003)
20
IL069S7S2 I I
to the insuring agreement Id at 8 The Contractual Liability exclusion specifically provides
that the insurance coverage does not apply to
Contractual liability
Bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement This exclusion does not apply to liability for damages
(1) That the insured would have in the absence of the contract or agreement or
(2) Assumed in a contract or agreement that is an insured contract provided the bodily injury or property damage occurs subsequent to the execution of the contract or agreement Solely for the purposes of liability assumed in a insured contract reasonable attorneys fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of bodily injury or property damage provided
(a) Liability to such party for or for the cost of that partys defense has also been assumed in the same insured contract and
(b) Such attorneys fees and litigation expenses are for defense of that party against the civil or alternative dispute resolution proceeding in which damages to which the insurance applies are alleged
See JA-62 Section I C[2
Even a cursory examination ofTHDs Amended Complaint reveals that all claims alleged
against JA Street were contractual There simply was no tort claim alleged In fact the claims
against JA Street were necessarily founded in contract for two reasons First the two-year
statute of limitations applicable to any tort claims elapsed long before THD first asserted its
claims against JA Street Tort claims were not pleaded and could not have been Second the
substantive law of West Virginia applies to the underlying claims asserted by THD against lA
21
(L069S7S21 I
Street20 and applicable West Virginia law plainly holds that even if THD had asserted tort
claims against JA Street the claims would still sound in contract under these circumstances for
purposes of the instant analysis since the gist of claims asserted against a contractor for deficient
work is necessarily ex contractu See Silk supra at 360 Dan Ryan Builders Inc v Crystal
Ridge Dev Inc 783 F3d 976 (4th Cir 2015) Unlike in both Silk and Dan Ryan THO did not
even assert any tort claims here Nor could it have Relevant to the precise policy language at
issue there simply was no liability for damages that [JA Street] would have in the absence of
the contract or agreement It simply cannot be contested that the claims alleged in the Amended
Complaint are and indeed necessarily were contractual in nature Given that alone the clear
holding of the Tennessee Court in Vernon mandated the Circuit Courts correct grant of
summary judgment in Biteos favor
A great majority of courts and commentators across the country that have addressed the
issue have held that the explicit unambiguous express Contractual Liability exclusion forecloses
coverage for all contract liability including breach of contract claims asserted against the
insured except where the insured has assumed the liability of another in an insured contract
See eg Silk v Flat Top Constr Inc 453 SE2d 356 359 192 WVa 522 (1994) (holding that
the contract exclusion applies to foreclose coverage for all contractual liability of the insured
except for liability assumed in an insured contract-a contract under which the insured
assumes the tort liability of another party) Gilbert Tex Constr v Underwriters at Lloyds
20 West Virginia applies the choice-of-law principle of lex loci delicti and there is no question here that the offending conduct and the loss all occurred in West Virginia such that JA Streets liability to THD would be governed by West Virginia law See State of Wva ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) (citing Syl Pt 1 Paul v Natl Life 352 SE2d 552 (WVa 1986raquo
22
(L069S7521 I
Londo 327 SW3d 118 (2010) (citing inter alia Nationwide Mut Ins Co v CPB Int Inc
No 306-CV-0363 2007 WL 4198173 at 8 (MDPa Nov26 2007) (Exclusion (b) is simply
further clarification in the policy that contract-based claims are not covered) ClM Ins Corp v
Midpac Auto Crr Inc 108 FSupp2d 1092 1099-1100 (DHaw2000) (clause in policy stating
that policy does not apply to liability assumed under any contract or agreement means that any
claim that is dependent on the existence of an underlying contract is not covered) Monticello
Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 at 2 (WDKy
Apr 3 1998) (exclusion for liability assumed by the insured under any contract or agreement
does not arise only when a party assumes the liability for another party rather the plain meaning
of the policy excludes a breach of contract claim from coverage) Silk supra (exclusion removed
coverage for breach of contract) TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 1091-92
(8th Cir1995) (exclusion for which the insured has assumed liability in a contract or agreement
plainly excluded coverage for contractual claims and not just hold-harmless or indemnity
agreements) Nationwide Mutual Ins Co v CPB Intl Inc 562 F3d 591 5992009 US App
LEXIS 7795 (3d Cir 2009) (applying Pa law) (holding that a breach of contract claim is excluded
under the Contractual Liability exclusion) Century Sur Co v Hardscape Constr Specialties Inc
578 F3d 262 2009 US App LEXIS 25300 (5th Cir 2009) (applying Texas law) (holding that the
Contractual Liability exclusion operates to exclude claims grounded primarily in breach of contract
and that no tort claims were asserted that triggered the insured contract exception) State Farm
Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 12 (2007) (applying Hawaii
law) (holding that claims arising from the insureds obligations under a contract are barred from
23
L0695152 I I
coverage under the Contractual Liability exclusion) JACO Airfield Constr Inc v National Trust
Ins Co 2007 US Dist LEXIS 100295 10 (2007) (applying Georgia law) (holding that the
Contractual Liability exclusion applies to foreclose coverage for the contractual based claims
asserted against the insured and that the insured contract exception to the Contractual Liability
exclusion does not apply because the insured did not assume the tort liability of another) Union Ins
Co v Williams Contr Inc 2006 US Dist LEXIS 35919 4-5 (2006) (holding that the
Contractual Liability exclusion precludes coverage for claims against the insured for breach of a
construction contract) Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270
GaApp 8 (2004) (affirming trial comts finding that the Contractual Liability exclusion barred
coverage for breach of contract and breach of implied warranty claims against the insured) Gibson
amp Assocs Inc v Home Ins Co 966 FSupp 468476-77 1997 US Dist LEXIS 4776 (1997)
(applying Texas law) (recognizing that the Contractual Liability exclusion precludes coverage for
breach of contract claims asserted against the insmed and that the policy only covers contractual
liability for indemnification actions ie an insured contract) James v Burlington Northern Santa
Fe Railway Co 2007 US Dist LEXIS 63282 4-5 (2007) (applying Arizona law) (holding that
the insured contract exception to the Contractual Liability exclusion does not bring ordinary
breach-of-contract claims within the scope of CGL coverage) TGA Dev Inc v Northern Ins Co
of New York 62 F3d 1089 1091-92 1995 USApp LEXIS 21700 (8th Cir 1995) (applying
Minnesota law) (holding that the Contractual Liability exclusion plainly excludes coverage for
contractual claims made for [the insmeds] failure to provide [the property owner] with a
condominium unit free from defects)
24
(lO6957521 )
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
(1989) (holding that a breach of contract claim asserted against an insured contractor is not
covered under a COL policy) Oreat Divide Ins Co v Bitterroot Timberfiames of Wyoming
LLC 2006 US Dist LEXIS 94826 (2006) (applying Wyoming law) (the allegations
demonstrate losses resulting from breach of contract and therefore cannot constitute an
accident for purposes of determining coverage) Union Ins Co v Hottenstein 83 P3d 1196
12022003 ColoApp LEXIS 1857 (2003) (poor workmanship constituting a breach of contract
is not a covered occurrence)
Tennessee lawl5 is in accord with these authorities The Tennessee Supreme Court has
defInitively held that breach of contract claims due to the insureds faulty workmanship such as
those asserted here by THD against IA Street in the underlying Amended Complaint are simply
not covered under the grant of coverage contained in a commercial liability policy See Vernon
supra Chester-ODonley supra at 6-7 (General liability policies are not all-risk policies and
only cover damages up to the policy limits for which the insured becomes liable as a result of
tort liability to a third party) (emphasis added) In Vernon the Supreme Court of Tennessee
expressly held that a standard COL policy only covers tort claims and such a policy does not
15 Under applicable Tennessee law contracts of insurance are subject to the same rules of interpretation and construction as other contracts McKimm v Bell 790 SW2d 526 527 1990 Tenn LEXIS 161 (1990) Thus [a]n insurance policy must be interpreted fairly and reasonably giving the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204 SW3d 758 2006 Tenn LEXIS 755 (2006) In the absence of fraud or mistake a contract must be interpreted and enforced as written even though it contains terms which may be thought harsh and unjust Allstate Ins Co v Wilson 856 SW2d 706 1992 TennApp LEXIS 1012 (1992) As a result the analysis of JA Streets right to coverage for the claims asserted in the underlying action are dictated by the terms of the policy The essential components of a general liability insurance policy include (1) the declarations (2) the insuring agreements and definitions (3) the exclusions (4) the conditions and (5) the endorsements See ChestershyODonley supra The insuring agreement sets the outer limits of an insurers contractual liability If coverage cannot be found in the insuring agreement it will not be found elsewhere in the policy Id 1998 TennApp LEXIS at 13-14
19
L069S7S21
afford coverage to an insured contractor for breach of contract claims Vernon 591 SW 2d at
765 Chester-ODonley supra at 6-7 Petitioner complains that the Circuit Court focused on
West Virginia cases such as Silk v Flat TOp6 but in fact the lower court expressly relied
upon a wealth of Tennessee authority17 including Vernon Cincinnati Ins Co v Grand Pointe
LLc18 and Trinity Univ Ins Co v Turner Funeral Home Inc 19 More recently Tennessee
courts have reaffirmed the rationale and holding of Vernon See State Auto Ins Cos v Gordon
Constr Inc 2001 TennApp LEXIS 349 (2001) (following Vernon and holding that the
insuring agreement of a CGL policy does not afford coverage for underlying breach of contract
and breach of warranty claims asserted against the insured contractor) Blake Indus Inc v
General Agents Ins Co of Am 2000 Tenn App LEXIS 490 (2000) (applying Vernon and
holding that claims asserted against the insured that were grounded in contract are not covered
under a CGL policy) Blaylock and Brown Constr Inc v AID Ins Co 796 SW2d 146 152shy
153 (Tenn Ct App 1990)
As the Circuit Court correctly recognized the express tenus of the insurance contract
clearly exclude contractual liability from coverage Exclusions help define and shape the scope
of coverage but they must be read in terms of the insuring agreement to which they apply
Exclusions can only decrease coverage they cannot increase it Chester-ODonley 972 SW2d
at 7-8 Moreover [e]ach exclusion reduces coverage and operates independently with reference
16 Petitioners Brief p 30 (citing 453 SE2d 356 (Wva 1994raquo 17 See See Opinion JA-I0552 ~27
18 2007 US Dist LEXIS 39784 (ED Tenn 2007) 19 2003 WL 23218046 (ED Tenn Dec 122003)
20
IL069S7S2 I I
to the insuring agreement Id at 8 The Contractual Liability exclusion specifically provides
that the insurance coverage does not apply to
Contractual liability
Bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement This exclusion does not apply to liability for damages
(1) That the insured would have in the absence of the contract or agreement or
(2) Assumed in a contract or agreement that is an insured contract provided the bodily injury or property damage occurs subsequent to the execution of the contract or agreement Solely for the purposes of liability assumed in a insured contract reasonable attorneys fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of bodily injury or property damage provided
(a) Liability to such party for or for the cost of that partys defense has also been assumed in the same insured contract and
(b) Such attorneys fees and litigation expenses are for defense of that party against the civil or alternative dispute resolution proceeding in which damages to which the insurance applies are alleged
See JA-62 Section I C[2
Even a cursory examination ofTHDs Amended Complaint reveals that all claims alleged
against JA Street were contractual There simply was no tort claim alleged In fact the claims
against JA Street were necessarily founded in contract for two reasons First the two-year
statute of limitations applicable to any tort claims elapsed long before THD first asserted its
claims against JA Street Tort claims were not pleaded and could not have been Second the
substantive law of West Virginia applies to the underlying claims asserted by THD against lA
21
(L069S7S21 I
Street20 and applicable West Virginia law plainly holds that even if THD had asserted tort
claims against JA Street the claims would still sound in contract under these circumstances for
purposes of the instant analysis since the gist of claims asserted against a contractor for deficient
work is necessarily ex contractu See Silk supra at 360 Dan Ryan Builders Inc v Crystal
Ridge Dev Inc 783 F3d 976 (4th Cir 2015) Unlike in both Silk and Dan Ryan THO did not
even assert any tort claims here Nor could it have Relevant to the precise policy language at
issue there simply was no liability for damages that [JA Street] would have in the absence of
the contract or agreement It simply cannot be contested that the claims alleged in the Amended
Complaint are and indeed necessarily were contractual in nature Given that alone the clear
holding of the Tennessee Court in Vernon mandated the Circuit Courts correct grant of
summary judgment in Biteos favor
A great majority of courts and commentators across the country that have addressed the
issue have held that the explicit unambiguous express Contractual Liability exclusion forecloses
coverage for all contract liability including breach of contract claims asserted against the
insured except where the insured has assumed the liability of another in an insured contract
See eg Silk v Flat Top Constr Inc 453 SE2d 356 359 192 WVa 522 (1994) (holding that
the contract exclusion applies to foreclose coverage for all contractual liability of the insured
except for liability assumed in an insured contract-a contract under which the insured
assumes the tort liability of another party) Gilbert Tex Constr v Underwriters at Lloyds
20 West Virginia applies the choice-of-law principle of lex loci delicti and there is no question here that the offending conduct and the loss all occurred in West Virginia such that JA Streets liability to THD would be governed by West Virginia law See State of Wva ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) (citing Syl Pt 1 Paul v Natl Life 352 SE2d 552 (WVa 1986raquo
22
(L069S7521 I
Londo 327 SW3d 118 (2010) (citing inter alia Nationwide Mut Ins Co v CPB Int Inc
No 306-CV-0363 2007 WL 4198173 at 8 (MDPa Nov26 2007) (Exclusion (b) is simply
further clarification in the policy that contract-based claims are not covered) ClM Ins Corp v
Midpac Auto Crr Inc 108 FSupp2d 1092 1099-1100 (DHaw2000) (clause in policy stating
that policy does not apply to liability assumed under any contract or agreement means that any
claim that is dependent on the existence of an underlying contract is not covered) Monticello
Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 at 2 (WDKy
Apr 3 1998) (exclusion for liability assumed by the insured under any contract or agreement
does not arise only when a party assumes the liability for another party rather the plain meaning
of the policy excludes a breach of contract claim from coverage) Silk supra (exclusion removed
coverage for breach of contract) TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 1091-92
(8th Cir1995) (exclusion for which the insured has assumed liability in a contract or agreement
plainly excluded coverage for contractual claims and not just hold-harmless or indemnity
agreements) Nationwide Mutual Ins Co v CPB Intl Inc 562 F3d 591 5992009 US App
LEXIS 7795 (3d Cir 2009) (applying Pa law) (holding that a breach of contract claim is excluded
under the Contractual Liability exclusion) Century Sur Co v Hardscape Constr Specialties Inc
578 F3d 262 2009 US App LEXIS 25300 (5th Cir 2009) (applying Texas law) (holding that the
Contractual Liability exclusion operates to exclude claims grounded primarily in breach of contract
and that no tort claims were asserted that triggered the insured contract exception) State Farm
Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 12 (2007) (applying Hawaii
law) (holding that claims arising from the insureds obligations under a contract are barred from
23
L0695152 I I
coverage under the Contractual Liability exclusion) JACO Airfield Constr Inc v National Trust
Ins Co 2007 US Dist LEXIS 100295 10 (2007) (applying Georgia law) (holding that the
Contractual Liability exclusion applies to foreclose coverage for the contractual based claims
asserted against the insured and that the insured contract exception to the Contractual Liability
exclusion does not apply because the insured did not assume the tort liability of another) Union Ins
Co v Williams Contr Inc 2006 US Dist LEXIS 35919 4-5 (2006) (holding that the
Contractual Liability exclusion precludes coverage for claims against the insured for breach of a
construction contract) Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270
GaApp 8 (2004) (affirming trial comts finding that the Contractual Liability exclusion barred
coverage for breach of contract and breach of implied warranty claims against the insured) Gibson
amp Assocs Inc v Home Ins Co 966 FSupp 468476-77 1997 US Dist LEXIS 4776 (1997)
(applying Texas law) (recognizing that the Contractual Liability exclusion precludes coverage for
breach of contract claims asserted against the insmed and that the policy only covers contractual
liability for indemnification actions ie an insured contract) James v Burlington Northern Santa
Fe Railway Co 2007 US Dist LEXIS 63282 4-5 (2007) (applying Arizona law) (holding that
the insured contract exception to the Contractual Liability exclusion does not bring ordinary
breach-of-contract claims within the scope of CGL coverage) TGA Dev Inc v Northern Ins Co
of New York 62 F3d 1089 1091-92 1995 USApp LEXIS 21700 (8th Cir 1995) (applying
Minnesota law) (holding that the Contractual Liability exclusion plainly excludes coverage for
contractual claims made for [the insmeds] failure to provide [the property owner] with a
condominium unit free from defects)
24
(lO6957521 )
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
afford coverage to an insured contractor for breach of contract claims Vernon 591 SW 2d at
765 Chester-ODonley supra at 6-7 Petitioner complains that the Circuit Court focused on
West Virginia cases such as Silk v Flat TOp6 but in fact the lower court expressly relied
upon a wealth of Tennessee authority17 including Vernon Cincinnati Ins Co v Grand Pointe
LLc18 and Trinity Univ Ins Co v Turner Funeral Home Inc 19 More recently Tennessee
courts have reaffirmed the rationale and holding of Vernon See State Auto Ins Cos v Gordon
Constr Inc 2001 TennApp LEXIS 349 (2001) (following Vernon and holding that the
insuring agreement of a CGL policy does not afford coverage for underlying breach of contract
and breach of warranty claims asserted against the insured contractor) Blake Indus Inc v
General Agents Ins Co of Am 2000 Tenn App LEXIS 490 (2000) (applying Vernon and
holding that claims asserted against the insured that were grounded in contract are not covered
under a CGL policy) Blaylock and Brown Constr Inc v AID Ins Co 796 SW2d 146 152shy
153 (Tenn Ct App 1990)
As the Circuit Court correctly recognized the express tenus of the insurance contract
clearly exclude contractual liability from coverage Exclusions help define and shape the scope
of coverage but they must be read in terms of the insuring agreement to which they apply
Exclusions can only decrease coverage they cannot increase it Chester-ODonley 972 SW2d
at 7-8 Moreover [e]ach exclusion reduces coverage and operates independently with reference
16 Petitioners Brief p 30 (citing 453 SE2d 356 (Wva 1994raquo 17 See See Opinion JA-I0552 ~27
18 2007 US Dist LEXIS 39784 (ED Tenn 2007) 19 2003 WL 23218046 (ED Tenn Dec 122003)
20
IL069S7S2 I I
to the insuring agreement Id at 8 The Contractual Liability exclusion specifically provides
that the insurance coverage does not apply to
Contractual liability
Bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement This exclusion does not apply to liability for damages
(1) That the insured would have in the absence of the contract or agreement or
(2) Assumed in a contract or agreement that is an insured contract provided the bodily injury or property damage occurs subsequent to the execution of the contract or agreement Solely for the purposes of liability assumed in a insured contract reasonable attorneys fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of bodily injury or property damage provided
(a) Liability to such party for or for the cost of that partys defense has also been assumed in the same insured contract and
(b) Such attorneys fees and litigation expenses are for defense of that party against the civil or alternative dispute resolution proceeding in which damages to which the insurance applies are alleged
See JA-62 Section I C[2
Even a cursory examination ofTHDs Amended Complaint reveals that all claims alleged
against JA Street were contractual There simply was no tort claim alleged In fact the claims
against JA Street were necessarily founded in contract for two reasons First the two-year
statute of limitations applicable to any tort claims elapsed long before THD first asserted its
claims against JA Street Tort claims were not pleaded and could not have been Second the
substantive law of West Virginia applies to the underlying claims asserted by THD against lA
21
(L069S7S21 I
Street20 and applicable West Virginia law plainly holds that even if THD had asserted tort
claims against JA Street the claims would still sound in contract under these circumstances for
purposes of the instant analysis since the gist of claims asserted against a contractor for deficient
work is necessarily ex contractu See Silk supra at 360 Dan Ryan Builders Inc v Crystal
Ridge Dev Inc 783 F3d 976 (4th Cir 2015) Unlike in both Silk and Dan Ryan THO did not
even assert any tort claims here Nor could it have Relevant to the precise policy language at
issue there simply was no liability for damages that [JA Street] would have in the absence of
the contract or agreement It simply cannot be contested that the claims alleged in the Amended
Complaint are and indeed necessarily were contractual in nature Given that alone the clear
holding of the Tennessee Court in Vernon mandated the Circuit Courts correct grant of
summary judgment in Biteos favor
A great majority of courts and commentators across the country that have addressed the
issue have held that the explicit unambiguous express Contractual Liability exclusion forecloses
coverage for all contract liability including breach of contract claims asserted against the
insured except where the insured has assumed the liability of another in an insured contract
See eg Silk v Flat Top Constr Inc 453 SE2d 356 359 192 WVa 522 (1994) (holding that
the contract exclusion applies to foreclose coverage for all contractual liability of the insured
except for liability assumed in an insured contract-a contract under which the insured
assumes the tort liability of another party) Gilbert Tex Constr v Underwriters at Lloyds
20 West Virginia applies the choice-of-law principle of lex loci delicti and there is no question here that the offending conduct and the loss all occurred in West Virginia such that JA Streets liability to THD would be governed by West Virginia law See State of Wva ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) (citing Syl Pt 1 Paul v Natl Life 352 SE2d 552 (WVa 1986raquo
22
(L069S7521 I
Londo 327 SW3d 118 (2010) (citing inter alia Nationwide Mut Ins Co v CPB Int Inc
No 306-CV-0363 2007 WL 4198173 at 8 (MDPa Nov26 2007) (Exclusion (b) is simply
further clarification in the policy that contract-based claims are not covered) ClM Ins Corp v
Midpac Auto Crr Inc 108 FSupp2d 1092 1099-1100 (DHaw2000) (clause in policy stating
that policy does not apply to liability assumed under any contract or agreement means that any
claim that is dependent on the existence of an underlying contract is not covered) Monticello
Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 at 2 (WDKy
Apr 3 1998) (exclusion for liability assumed by the insured under any contract or agreement
does not arise only when a party assumes the liability for another party rather the plain meaning
of the policy excludes a breach of contract claim from coverage) Silk supra (exclusion removed
coverage for breach of contract) TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 1091-92
(8th Cir1995) (exclusion for which the insured has assumed liability in a contract or agreement
plainly excluded coverage for contractual claims and not just hold-harmless or indemnity
agreements) Nationwide Mutual Ins Co v CPB Intl Inc 562 F3d 591 5992009 US App
LEXIS 7795 (3d Cir 2009) (applying Pa law) (holding that a breach of contract claim is excluded
under the Contractual Liability exclusion) Century Sur Co v Hardscape Constr Specialties Inc
578 F3d 262 2009 US App LEXIS 25300 (5th Cir 2009) (applying Texas law) (holding that the
Contractual Liability exclusion operates to exclude claims grounded primarily in breach of contract
and that no tort claims were asserted that triggered the insured contract exception) State Farm
Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 12 (2007) (applying Hawaii
law) (holding that claims arising from the insureds obligations under a contract are barred from
23
L0695152 I I
coverage under the Contractual Liability exclusion) JACO Airfield Constr Inc v National Trust
Ins Co 2007 US Dist LEXIS 100295 10 (2007) (applying Georgia law) (holding that the
Contractual Liability exclusion applies to foreclose coverage for the contractual based claims
asserted against the insured and that the insured contract exception to the Contractual Liability
exclusion does not apply because the insured did not assume the tort liability of another) Union Ins
Co v Williams Contr Inc 2006 US Dist LEXIS 35919 4-5 (2006) (holding that the
Contractual Liability exclusion precludes coverage for claims against the insured for breach of a
construction contract) Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270
GaApp 8 (2004) (affirming trial comts finding that the Contractual Liability exclusion barred
coverage for breach of contract and breach of implied warranty claims against the insured) Gibson
amp Assocs Inc v Home Ins Co 966 FSupp 468476-77 1997 US Dist LEXIS 4776 (1997)
(applying Texas law) (recognizing that the Contractual Liability exclusion precludes coverage for
breach of contract claims asserted against the insmed and that the policy only covers contractual
liability for indemnification actions ie an insured contract) James v Burlington Northern Santa
Fe Railway Co 2007 US Dist LEXIS 63282 4-5 (2007) (applying Arizona law) (holding that
the insured contract exception to the Contractual Liability exclusion does not bring ordinary
breach-of-contract claims within the scope of CGL coverage) TGA Dev Inc v Northern Ins Co
of New York 62 F3d 1089 1091-92 1995 USApp LEXIS 21700 (8th Cir 1995) (applying
Minnesota law) (holding that the Contractual Liability exclusion plainly excludes coverage for
contractual claims made for [the insmeds] failure to provide [the property owner] with a
condominium unit free from defects)
24
(lO6957521 )
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
to the insuring agreement Id at 8 The Contractual Liability exclusion specifically provides
that the insurance coverage does not apply to
Contractual liability
Bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement This exclusion does not apply to liability for damages
(1) That the insured would have in the absence of the contract or agreement or
(2) Assumed in a contract or agreement that is an insured contract provided the bodily injury or property damage occurs subsequent to the execution of the contract or agreement Solely for the purposes of liability assumed in a insured contract reasonable attorneys fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of bodily injury or property damage provided
(a) Liability to such party for or for the cost of that partys defense has also been assumed in the same insured contract and
(b) Such attorneys fees and litigation expenses are for defense of that party against the civil or alternative dispute resolution proceeding in which damages to which the insurance applies are alleged
See JA-62 Section I C[2
Even a cursory examination ofTHDs Amended Complaint reveals that all claims alleged
against JA Street were contractual There simply was no tort claim alleged In fact the claims
against JA Street were necessarily founded in contract for two reasons First the two-year
statute of limitations applicable to any tort claims elapsed long before THD first asserted its
claims against JA Street Tort claims were not pleaded and could not have been Second the
substantive law of West Virginia applies to the underlying claims asserted by THD against lA
21
(L069S7S21 I
Street20 and applicable West Virginia law plainly holds that even if THD had asserted tort
claims against JA Street the claims would still sound in contract under these circumstances for
purposes of the instant analysis since the gist of claims asserted against a contractor for deficient
work is necessarily ex contractu See Silk supra at 360 Dan Ryan Builders Inc v Crystal
Ridge Dev Inc 783 F3d 976 (4th Cir 2015) Unlike in both Silk and Dan Ryan THO did not
even assert any tort claims here Nor could it have Relevant to the precise policy language at
issue there simply was no liability for damages that [JA Street] would have in the absence of
the contract or agreement It simply cannot be contested that the claims alleged in the Amended
Complaint are and indeed necessarily were contractual in nature Given that alone the clear
holding of the Tennessee Court in Vernon mandated the Circuit Courts correct grant of
summary judgment in Biteos favor
A great majority of courts and commentators across the country that have addressed the
issue have held that the explicit unambiguous express Contractual Liability exclusion forecloses
coverage for all contract liability including breach of contract claims asserted against the
insured except where the insured has assumed the liability of another in an insured contract
See eg Silk v Flat Top Constr Inc 453 SE2d 356 359 192 WVa 522 (1994) (holding that
the contract exclusion applies to foreclose coverage for all contractual liability of the insured
except for liability assumed in an insured contract-a contract under which the insured
assumes the tort liability of another party) Gilbert Tex Constr v Underwriters at Lloyds
20 West Virginia applies the choice-of-law principle of lex loci delicti and there is no question here that the offending conduct and the loss all occurred in West Virginia such that JA Streets liability to THD would be governed by West Virginia law See State of Wva ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) (citing Syl Pt 1 Paul v Natl Life 352 SE2d 552 (WVa 1986raquo
22
(L069S7521 I
Londo 327 SW3d 118 (2010) (citing inter alia Nationwide Mut Ins Co v CPB Int Inc
No 306-CV-0363 2007 WL 4198173 at 8 (MDPa Nov26 2007) (Exclusion (b) is simply
further clarification in the policy that contract-based claims are not covered) ClM Ins Corp v
Midpac Auto Crr Inc 108 FSupp2d 1092 1099-1100 (DHaw2000) (clause in policy stating
that policy does not apply to liability assumed under any contract or agreement means that any
claim that is dependent on the existence of an underlying contract is not covered) Monticello
Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 at 2 (WDKy
Apr 3 1998) (exclusion for liability assumed by the insured under any contract or agreement
does not arise only when a party assumes the liability for another party rather the plain meaning
of the policy excludes a breach of contract claim from coverage) Silk supra (exclusion removed
coverage for breach of contract) TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 1091-92
(8th Cir1995) (exclusion for which the insured has assumed liability in a contract or agreement
plainly excluded coverage for contractual claims and not just hold-harmless or indemnity
agreements) Nationwide Mutual Ins Co v CPB Intl Inc 562 F3d 591 5992009 US App
LEXIS 7795 (3d Cir 2009) (applying Pa law) (holding that a breach of contract claim is excluded
under the Contractual Liability exclusion) Century Sur Co v Hardscape Constr Specialties Inc
578 F3d 262 2009 US App LEXIS 25300 (5th Cir 2009) (applying Texas law) (holding that the
Contractual Liability exclusion operates to exclude claims grounded primarily in breach of contract
and that no tort claims were asserted that triggered the insured contract exception) State Farm
Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 12 (2007) (applying Hawaii
law) (holding that claims arising from the insureds obligations under a contract are barred from
23
L0695152 I I
coverage under the Contractual Liability exclusion) JACO Airfield Constr Inc v National Trust
Ins Co 2007 US Dist LEXIS 100295 10 (2007) (applying Georgia law) (holding that the
Contractual Liability exclusion applies to foreclose coverage for the contractual based claims
asserted against the insured and that the insured contract exception to the Contractual Liability
exclusion does not apply because the insured did not assume the tort liability of another) Union Ins
Co v Williams Contr Inc 2006 US Dist LEXIS 35919 4-5 (2006) (holding that the
Contractual Liability exclusion precludes coverage for claims against the insured for breach of a
construction contract) Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270
GaApp 8 (2004) (affirming trial comts finding that the Contractual Liability exclusion barred
coverage for breach of contract and breach of implied warranty claims against the insured) Gibson
amp Assocs Inc v Home Ins Co 966 FSupp 468476-77 1997 US Dist LEXIS 4776 (1997)
(applying Texas law) (recognizing that the Contractual Liability exclusion precludes coverage for
breach of contract claims asserted against the insmed and that the policy only covers contractual
liability for indemnification actions ie an insured contract) James v Burlington Northern Santa
Fe Railway Co 2007 US Dist LEXIS 63282 4-5 (2007) (applying Arizona law) (holding that
the insured contract exception to the Contractual Liability exclusion does not bring ordinary
breach-of-contract claims within the scope of CGL coverage) TGA Dev Inc v Northern Ins Co
of New York 62 F3d 1089 1091-92 1995 USApp LEXIS 21700 (8th Cir 1995) (applying
Minnesota law) (holding that the Contractual Liability exclusion plainly excludes coverage for
contractual claims made for [the insmeds] failure to provide [the property owner] with a
condominium unit free from defects)
24
(lO6957521 )
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
Street20 and applicable West Virginia law plainly holds that even if THD had asserted tort
claims against JA Street the claims would still sound in contract under these circumstances for
purposes of the instant analysis since the gist of claims asserted against a contractor for deficient
work is necessarily ex contractu See Silk supra at 360 Dan Ryan Builders Inc v Crystal
Ridge Dev Inc 783 F3d 976 (4th Cir 2015) Unlike in both Silk and Dan Ryan THO did not
even assert any tort claims here Nor could it have Relevant to the precise policy language at
issue there simply was no liability for damages that [JA Street] would have in the absence of
the contract or agreement It simply cannot be contested that the claims alleged in the Amended
Complaint are and indeed necessarily were contractual in nature Given that alone the clear
holding of the Tennessee Court in Vernon mandated the Circuit Courts correct grant of
summary judgment in Biteos favor
A great majority of courts and commentators across the country that have addressed the
issue have held that the explicit unambiguous express Contractual Liability exclusion forecloses
coverage for all contract liability including breach of contract claims asserted against the
insured except where the insured has assumed the liability of another in an insured contract
See eg Silk v Flat Top Constr Inc 453 SE2d 356 359 192 WVa 522 (1994) (holding that
the contract exclusion applies to foreclose coverage for all contractual liability of the insured
except for liability assumed in an insured contract-a contract under which the insured
assumes the tort liability of another party) Gilbert Tex Constr v Underwriters at Lloyds
20 West Virginia applies the choice-of-law principle of lex loci delicti and there is no question here that the offending conduct and the loss all occurred in West Virginia such that JA Streets liability to THD would be governed by West Virginia law See State of Wva ex reI Chemtall Inc v Madden 607 SE2d 772 Syl Pt 2 (WVa 2004) (citing Syl Pt 1 Paul v Natl Life 352 SE2d 552 (WVa 1986raquo
22
(L069S7521 I
Londo 327 SW3d 118 (2010) (citing inter alia Nationwide Mut Ins Co v CPB Int Inc
No 306-CV-0363 2007 WL 4198173 at 8 (MDPa Nov26 2007) (Exclusion (b) is simply
further clarification in the policy that contract-based claims are not covered) ClM Ins Corp v
Midpac Auto Crr Inc 108 FSupp2d 1092 1099-1100 (DHaw2000) (clause in policy stating
that policy does not apply to liability assumed under any contract or agreement means that any
claim that is dependent on the existence of an underlying contract is not covered) Monticello
Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 at 2 (WDKy
Apr 3 1998) (exclusion for liability assumed by the insured under any contract or agreement
does not arise only when a party assumes the liability for another party rather the plain meaning
of the policy excludes a breach of contract claim from coverage) Silk supra (exclusion removed
coverage for breach of contract) TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 1091-92
(8th Cir1995) (exclusion for which the insured has assumed liability in a contract or agreement
plainly excluded coverage for contractual claims and not just hold-harmless or indemnity
agreements) Nationwide Mutual Ins Co v CPB Intl Inc 562 F3d 591 5992009 US App
LEXIS 7795 (3d Cir 2009) (applying Pa law) (holding that a breach of contract claim is excluded
under the Contractual Liability exclusion) Century Sur Co v Hardscape Constr Specialties Inc
578 F3d 262 2009 US App LEXIS 25300 (5th Cir 2009) (applying Texas law) (holding that the
Contractual Liability exclusion operates to exclude claims grounded primarily in breach of contract
and that no tort claims were asserted that triggered the insured contract exception) State Farm
Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 12 (2007) (applying Hawaii
law) (holding that claims arising from the insureds obligations under a contract are barred from
23
L0695152 I I
coverage under the Contractual Liability exclusion) JACO Airfield Constr Inc v National Trust
Ins Co 2007 US Dist LEXIS 100295 10 (2007) (applying Georgia law) (holding that the
Contractual Liability exclusion applies to foreclose coverage for the contractual based claims
asserted against the insured and that the insured contract exception to the Contractual Liability
exclusion does not apply because the insured did not assume the tort liability of another) Union Ins
Co v Williams Contr Inc 2006 US Dist LEXIS 35919 4-5 (2006) (holding that the
Contractual Liability exclusion precludes coverage for claims against the insured for breach of a
construction contract) Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270
GaApp 8 (2004) (affirming trial comts finding that the Contractual Liability exclusion barred
coverage for breach of contract and breach of implied warranty claims against the insured) Gibson
amp Assocs Inc v Home Ins Co 966 FSupp 468476-77 1997 US Dist LEXIS 4776 (1997)
(applying Texas law) (recognizing that the Contractual Liability exclusion precludes coverage for
breach of contract claims asserted against the insmed and that the policy only covers contractual
liability for indemnification actions ie an insured contract) James v Burlington Northern Santa
Fe Railway Co 2007 US Dist LEXIS 63282 4-5 (2007) (applying Arizona law) (holding that
the insured contract exception to the Contractual Liability exclusion does not bring ordinary
breach-of-contract claims within the scope of CGL coverage) TGA Dev Inc v Northern Ins Co
of New York 62 F3d 1089 1091-92 1995 USApp LEXIS 21700 (8th Cir 1995) (applying
Minnesota law) (holding that the Contractual Liability exclusion plainly excludes coverage for
contractual claims made for [the insmeds] failure to provide [the property owner] with a
condominium unit free from defects)
24
(lO6957521 )
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
Londo 327 SW3d 118 (2010) (citing inter alia Nationwide Mut Ins Co v CPB Int Inc
No 306-CV-0363 2007 WL 4198173 at 8 (MDPa Nov26 2007) (Exclusion (b) is simply
further clarification in the policy that contract-based claims are not covered) ClM Ins Corp v
Midpac Auto Crr Inc 108 FSupp2d 1092 1099-1100 (DHaw2000) (clause in policy stating
that policy does not apply to liability assumed under any contract or agreement means that any
claim that is dependent on the existence of an underlying contract is not covered) Monticello
Ins Co v Dismas Charities Inc No 396CV-550-S 1998 WL 1969611 at 2 (WDKy
Apr 3 1998) (exclusion for liability assumed by the insured under any contract or agreement
does not arise only when a party assumes the liability for another party rather the plain meaning
of the policy excludes a breach of contract claim from coverage) Silk supra (exclusion removed
coverage for breach of contract) TGA Dev Inc v N Ins Co ofNY 62 F3d 1089 1091-92
(8th Cir1995) (exclusion for which the insured has assumed liability in a contract or agreement
plainly excluded coverage for contractual claims and not just hold-harmless or indemnity
agreements) Nationwide Mutual Ins Co v CPB Intl Inc 562 F3d 591 5992009 US App
LEXIS 7795 (3d Cir 2009) (applying Pa law) (holding that a breach of contract claim is excluded
under the Contractual Liability exclusion) Century Sur Co v Hardscape Constr Specialties Inc
578 F3d 262 2009 US App LEXIS 25300 (5th Cir 2009) (applying Texas law) (holding that the
Contractual Liability exclusion operates to exclude claims grounded primarily in breach of contract
and that no tort claims were asserted that triggered the insured contract exception) State Farm
Fire amp Cas Co v Metropolitan Mgmt 2007 US Dist LEXIS 86373 12 (2007) (applying Hawaii
law) (holding that claims arising from the insureds obligations under a contract are barred from
23
L0695152 I I
coverage under the Contractual Liability exclusion) JACO Airfield Constr Inc v National Trust
Ins Co 2007 US Dist LEXIS 100295 10 (2007) (applying Georgia law) (holding that the
Contractual Liability exclusion applies to foreclose coverage for the contractual based claims
asserted against the insured and that the insured contract exception to the Contractual Liability
exclusion does not apply because the insured did not assume the tort liability of another) Union Ins
Co v Williams Contr Inc 2006 US Dist LEXIS 35919 4-5 (2006) (holding that the
Contractual Liability exclusion precludes coverage for claims against the insured for breach of a
construction contract) Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270
GaApp 8 (2004) (affirming trial comts finding that the Contractual Liability exclusion barred
coverage for breach of contract and breach of implied warranty claims against the insured) Gibson
amp Assocs Inc v Home Ins Co 966 FSupp 468476-77 1997 US Dist LEXIS 4776 (1997)
(applying Texas law) (recognizing that the Contractual Liability exclusion precludes coverage for
breach of contract claims asserted against the insmed and that the policy only covers contractual
liability for indemnification actions ie an insured contract) James v Burlington Northern Santa
Fe Railway Co 2007 US Dist LEXIS 63282 4-5 (2007) (applying Arizona law) (holding that
the insured contract exception to the Contractual Liability exclusion does not bring ordinary
breach-of-contract claims within the scope of CGL coverage) TGA Dev Inc v Northern Ins Co
of New York 62 F3d 1089 1091-92 1995 USApp LEXIS 21700 (8th Cir 1995) (applying
Minnesota law) (holding that the Contractual Liability exclusion plainly excludes coverage for
contractual claims made for [the insmeds] failure to provide [the property owner] with a
condominium unit free from defects)
24
(lO6957521 )
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
coverage under the Contractual Liability exclusion) JACO Airfield Constr Inc v National Trust
Ins Co 2007 US Dist LEXIS 100295 10 (2007) (applying Georgia law) (holding that the
Contractual Liability exclusion applies to foreclose coverage for the contractual based claims
asserted against the insured and that the insured contract exception to the Contractual Liability
exclusion does not apply because the insured did not assume the tort liability of another) Union Ins
Co v Williams Contr Inc 2006 US Dist LEXIS 35919 4-5 (2006) (holding that the
Contractual Liability exclusion precludes coverage for claims against the insured for breach of a
construction contract) Custom Planning amp Dev Inc v Am Nat Fire Ins Co 606 SE2d 39 270
GaApp 8 (2004) (affirming trial comts finding that the Contractual Liability exclusion barred
coverage for breach of contract and breach of implied warranty claims against the insured) Gibson
amp Assocs Inc v Home Ins Co 966 FSupp 468476-77 1997 US Dist LEXIS 4776 (1997)
(applying Texas law) (recognizing that the Contractual Liability exclusion precludes coverage for
breach of contract claims asserted against the insmed and that the policy only covers contractual
liability for indemnification actions ie an insured contract) James v Burlington Northern Santa
Fe Railway Co 2007 US Dist LEXIS 63282 4-5 (2007) (applying Arizona law) (holding that
the insured contract exception to the Contractual Liability exclusion does not bring ordinary
breach-of-contract claims within the scope of CGL coverage) TGA Dev Inc v Northern Ins Co
of New York 62 F3d 1089 1091-92 1995 USApp LEXIS 21700 (8th Cir 1995) (applying
Minnesota law) (holding that the Contractual Liability exclusion plainly excludes coverage for
contractual claims made for [the insmeds] failure to provide [the property owner] with a
condominium unit free from defects)
24
(lO6957521 )
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
o
There was never any argument by JA Street that the insured contact exception to the
Contractual Liability exclusion applies See Circuit Court Opinion lA-I0552 -026 This is
because it is clear that lA Street did not assume the tort liability of another in the THDJA
Street contract and thus the contract is not an insured contract as defmed by the policy Nor
were THDs claims for liability for damages that [lA Street] would have in the absence of the
contract or agreement since the two-year statute of limitations had already run and also since
West Virginia law as espoused by Silk only recognizes contract claims under these
circumstances anyway The exclusion plainly applies Once an insurer has established that an
exclusion applies the burden shifts to the insured to demonstrate that its claim fits within an
exception to the exclusion Chester-ODonley 972 SW2d at 8
In arguing that the Contractual Liability exclusion does not foreclose coverage for the
contractual claims asserted against JA Street in the underlying action Petitioner principally
relies upon the Tennessee Supreme Courts decision in Travelers v Moore amp Assocs supra
which does not even address the Contractual Liability exclusion at all21 That case instead
deals with a different issue Travelers involved tort claims not solely contract claims like the
instant case Nonetheless recognizing that the standard commercial liability policy affords only
limited coverage even for tort claims based on faulty workmanship the Tennessee Supreme
Court grappled with whether there is any coverage provided for damages to property caused by
deficiencies in construction work of a contractor Ultimately the Tennessee Court held that
21 Petitioners Brief generally (citing Travelers Indem Co of Am v Moore amp Assocs Inc 216 SW2d 302 (Tenn 2007raquo
25
L06957521 I
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
where the damages involve property other than the contractors work or workmanship there may
be coverage subject to the applicability or inapplicability of various exclusions
The Travelers case is interesting but inapposite because it does not address the issue of
whether strictly contractual claims are or may be covered and it certainly does not overrule or
modify the Tennessee Supreme Courts decision in Vernon The claims in this case are solely
for breach of contract which under dispositive Tennessee law are not within the coverage issue
of this type of case Travelers might counsel that certain exclusions contained in the Bitco
policies other than the Contractual Liability exclusion could apply to foreclose coverage in
whole or in part But again those issues are not before the Court on this appeal
The Eastern District of Tennessee District Court in Cincinnati Ins Co v Grand Pointe
LLc 2007 US Dist LEXIS 39784 L6-17 (ED Tenn May 302007) specifically addressed
Vernon in light of the decision in Travelers In doing so the Court found that the holding in
Travelers affmned and is consistent with the decision in Vernon Id Specifically the Cincinnati
Ins Court stated
The Travelers Court upheld the rule it stated in Vernon Williams defining property damage and specifically applied it in the context of the insuring agreement portion of a CGL policy Therefore the Tennessee Supreme Court clarified the rule contained in Vernon Williams is applicable to the insuring agreement portion of a CGL policy Accordingly Travelers affirmed longstanding Tennessee law that a claim limited to faulty workmanship or materials where the sole damages are for replacement of a defective component or correction of faulty installation does not fall within the defInition of property damage in a CGL insurance policy
Id at 16-17 (internal citations omitted) Thus it is clear that Vernon is still settled Tennessee
law despite the decision in Travelers The trial court correctly recognized this See Opinion
26
(L069S7S21 )
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
lA-I0552 ~27 (citing Cincinnati Trinity Univ Ins Co v Turner Funeral Home Inc 2003 WL
23218046 (ED Tenn Dec 122003raquo)
Petitioners also rely upon an aberrational Wisconsin case Am Family Mut Ins Co v
American Girl Inc22 However the Tennessee courts have never adopted American Girl nor
even cited that case approvingly Nor would they The American Girl Court blatantly misread
and misinterpreted the Contractual Liability exclusion holding that this exclusion somehow
only excludes coverage for liability that arises because the insured has contractually assumed
the liability of another as in indemnification or hold harmless agreement[] and therefore does
not exclude coverage for any other types of contract claims American Girl 673 NW2d at 70
The Wisconsin Court got it precisely backwards -- clearly the Contractual Liability exclusion
forecloses coverage for all contract-based claims except those that arise out of an insured
contract as defmed by the policy23 As the Circuit Court here recognized no argument is made
in this case nor could it be that the contract between THD and lA Street is an insured
contract See Opinion lA-l 0552 ~26 And although the American Girl case has never been
explicitly rejected by the Tennessee courts Tennessee courts clearly embrace the fact that
exclusions can only exclude coverage and therefore can never add to it See Cincinnati Ins
Co supra (quoting Chester ODonley supra (if coverage cannot be found in the insuring
agreement it will not be found elsewhere in the policy exclusions can only decrease
22 673 NW2d 65268 Wis2d 16 (2004) 23 No argument is made in this case nor could it be that the contract between THO and JA Street is an insured contract
27
L06957521 I
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
coverage)) In light of the foregoing American Girl provides zero guidance on the effect of the
Contractual Liability exclusion Petitioners reliance on it is misplaced
Likewise JA Streets reliance upon the decision of the Texas Supreme Court in Ewing
Constr Co Inc v Amerisure Ins CO24 to support its argument that the Contractual Liability
exclusion only applies to foreclose coverage for contractual assumptions of the Liabilities of
others and does not apply to exclude coverage for contractual claims against an insured in
general as per the viewpoint of the American Girl court is ironic and paradoxical At the outset
the Texas courts construe the Contractual Liability exclusion very differently and much more
broadly than American Girl and its progeny In fact the Texas courts hold precisely as the
Circuit Court here did to-wit that the exclusion applies generally to any contract-based cause of
action against an insured The Ewing Court made that clear in its reaffrrmation of the prior Texas
Supreme Court decision in Gilbert Tex Constr v Underwriters at Lloyds London 327 SW3d
118 (2010) In both cases the Texas Court held that the basic exclusionary language liability
assumed in a contract embraces any claim ex contractu against an insured That is what the
Circuit Court here held The distinction between Ewing and Gilbert dealt only with the
applicability of the exception proviso which states that the exclusion does not apply to liability
that the insured would have in the absence of the contract or agreement In Ewing the Court
concluded that while the exclusion generally would apply to the contract-based claim asserted
against the insured the exception proviso also applied to reinstate coverage there because in
addition to contractual claims there were also tort claims alleged against the insured for poor
24 420 SW3d 3057 (Tex 2014)
28
LD6957S2 1 J
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
workmanship By contrast in Gilbert the Court found the exclusion applicable and also found the
exception proviso inapplicable because like here the only viable claim against the insured was
contractual the tort-based claims having been previously been dismissed on the basis of
governmental immunity The Ewing Court carefully distinguished on that basis that in Gilbert
the tort claims had been dismissed leaving only contractual liability while in the circumstances
of fuyigg there were both contact and tort claims pending
The instant case of course is akin to Gilbert and is plainly distinguishable from Ewing
Here there never were any tort claims alleged against JA Street the only claims alleged were
contractual in nature Indeed here as in Gilbert the assertion of tort claims is precluded as a
matter of law in this case based upon the statute of limitations much like the governmental
immunity impediment in Gilbert25 Thus contrary to JA Streets argument that Texas handling
of the contractual liability exclusion supports its position in fact the Gilbert case makes perfectly
clear that under Texas law coverage in this matter would be excluded
Finally Petitioner relies upon an interesting but woefully misguided article Insurance for
Defective Construction26 in support of the proposition [t]he majority view on the [Contractual
Liability] Exclusion holds that it does not apply to simple claims for breach of contract but only
contractual assumptions of the liability of third parties See Petitioners Brief pp 31-32 Upon
careful study the article is facially flawed Indeed the article severely contradicts itself on that
critical point In two separate places the article states that a CGL policy provides coverage for
the insureds obligation to indemnify a third party (the indemnitee) for property damage arises
25 Applicable West Virginia Law would also foreclose any tort liability Silk supra Dan Ryan supra 26 Wielinski Patrick (4th ed) IRMJ Ch 6 pp 180-185
29
IL0695752_1
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
out of its performance of the contract of which the indemnity agreement is a part rd at p 183
Id at p 184 ([T]he insured contract exception to the exclusion [indicating what is covered by
the policy] is intended to and does in effect include liabilities usually assumed by parties to
construction agreements in typical indemnityagreement) The author then goes on to precisely
contradict those statements stating instead that the Contractual Liability Exclusion does not
apply to simple claims for breach of contract only contractual assumptions of the liability of
third parties Id at p 184 In other words the author first contends that the policy covers
indemnity agreements and then immediately concludes that the policy excludes coverage of
indemnity agreements That is patently nonsensical Putting aside the relative paucity of
authority cited by the author as the basis for the majority view in his opinion27 the author
tellingly relies principally upon the American Girl opinion discussed above and makes the exact
same mistake in logic that the American Girl court did Namely the author gets the matter
precisely backwards He confuses the substance of the exclusion which forecloses coverage for
contract-based claims generally with the substance of the exception proviso which adds back
coverage for insured contracts As the Supreme Court of Texas explained in Gilbert supra
the few courts that have narrowly construed the Contractual Liability Exclusion in the manner
prayed for by the Petitioner have done so on the basis of outdated cases construing an outdated
CGL form Gilbert supra at 130-132 (distinguishing inter alia Olympic Inc v Providence
Washington Insurance Co of Alaska 648 P2d 1008 (Alaska 1982) The article does the exact
same and is simply wrong
27 The article cites as support two cases from 1972 and 1982 respectively and the aberrational American Girl decision explicated above
30
(L06957521 )
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
The Bitco policies issued to JA Street do not afford coverage for the solely contractshy
based claims asserted by TIID in the underlying action The Circuit Court correctly granted
summary judgment in favor of Bitco
C THE BUSINESS RIsK EXCLUSION (M) FORECLOSES COVERAGE
The standard Commercial Liability policy has for many years contained a series of
business risk exclusions which are specifically designed to eliminate coverage for the typical
and ordinary risks associated with poor or deficient workmanship of a construction contractor
See Henderson supra The Damage to hnpaired Property or Property not Physically Injured
exclusion makes clear that the insurance does not apply to
m Damage To Impaired Property Or Property Not Physically Injured
Property damage to impaired property or property that has not been physically injured arising out of
(3) A defect deficiency inadequacy or dangerous condition in your product or your work
or
(4) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your work after it has been put to its intended use
Courts have held that the business risk exclusions singly or in combination are
designed to exclude coverage for typical business risks for defects or deficiencies in work
performed which cause damage to the project itself See Taylor v Travelers Ins Co 40 F3d 79
83 (5th Cir 1994) (finding coverage was excluded based on a work you performed business
31
L069S7S21 I
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
risk exclusion) Haren Constr Co v Continental Ins Co 2000 US App LEXIS 28061 (6th
Cir 2000) (lUlpublished opinion) (affirming the district courts determination that the business
risk exclusion denied coverage) Canal Indem Co v Adair Homes Inc 445 Fed Appx 938
940 (9th Cir 2011) (holding [c]overage was barred because [the business risk exclusions]
applied to all of the insureds operations and any damages stemming from defective
construction) Hathaway Dev Co v Ill Union Ins Co 274 Fed Appx 787 792 (lIth Cir
2008) (unpublished opinion) (holding that the business risk exclusion prohibits the plaintiff from
trying to recover costs associated with repairing and replacing faulty workmanship or work that
was withdrawn from use at the projects) Vari Builders Inc v United States Fidelity amp
Guaranty Co 523 A2d 549551 (Del Super Ct 1986) ([b]usiness risk exclusion clauses have
repeatedly been held to insulate the insurer from exposure where the work product of the insured
is the subject of the claim) Sapp v State Farm Fire amp Cas Co 486 SE2d 71 74 (Ga Ct
App 1997) (stating that the business risk exclusions are designed to exclude coverage for
defective workmanship by the insured builder causing damage to the construction project
itself) Columbia Mut Ins Co v Schauf 967 SW2d 74 81 (Mo 1998) (holding that the
business risk exclusion denies coverage for property damage to the particular part of the real
property that is the subject of the insureds work at the time of the damage if the damage arises
out of those operations) Copple Constr LLC v Columbia Nan Ins Co 776 NW2d 503
509 (Neb 2009) (precluding coverage based on a business risk exclusion identical to one in the
instant case which states that coverage does not apply to [t]hat particular part of real property
on which you or any contractors or subcontractors working directly or indirectly on your behalf
32
L06957S2 I
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
are performing operations if the property damage arises out of those operations) Weedo v
Stone-E-Brick Inc 405 A2d 788 794 (NJ 1979) ( our review of twenty years worth of
judicial treatment of the business risk exclusion demonstrates that if nothing else the
exclusions are meant to be a valid limitation upon standard readily available liability insurance
coverage Indeed several courts have remarked in ruling upon the impact of these clauses that
the terms used to convey the business risk exclusions are straightforward and without
ambiguity) Ernst v Acuity 704 NW2d 869872 (ND 2005) (stating that the purpose of [the
business risk exclusions] is to prevent policyholders from converting liability insurance into
protection from foreseeable business risks) (citing Grinnell Mut Reinsurance Co v Lynne
686 NW2d 118 (ND 2004)) LISN Inc v Commercial Union Ins Cos 615 NE2d 650 654
(Ohio Ct App 1992) (excluding coverage under the insurance policy for property damage that
must be repaired or replaced due to work incorrectly performed on the property) Ryan
Homes v Home Indem Co 647 A2d 939 940 (pa Super 1994) (finding coverage barred by
the business risk exclusions in the general liability policy where a contractor sought coverage to
make repairs due to defective work by a subcontractor) Vernon Williams amp Son Constr Inc v
Continental Ins Co 591 SW2d 760 762 (Tenn 1979) (all of the cases agree that [business
risk exclusions] clearly eliminate coverage for damages confined to the internal defectiveness of
the insureds own work product resulting from defective materials or defective negligent or
unskilled workmanship) The only realm of coverage to be within the risk of liability is
consequential or collateral damage to other persons or property See Central Armature Works
Inc v Am Motorists Ins Co 520 FSupp 283 288 (DDC 1980) (holding that the business
33
L069S7S21 I
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
risk exclusions do not exclude damages to other property not manufactured or provided by the
insured caused the insureds poor performance) (emphasis added) Thomrnes v Milwaukee
Mut Ins Co 622 NW2d 155 159 (Minn Ct App 2001) (finding damage to third-party
property caused by appellants work is not excluded from coverage under the business risk
exclusions) Newark Ins Co v Acupac Packaging Inc 746 A2d 47 55 (NJ Super Ct App
Div 2000) C[t]he business risk exclusion only applies regarding claims for damage to the
insureds own work arising out of his faulty workmanship and does not exclude damage to other
property not manufactured or provided by the insured yet caused by the insureds poor
performance) (emphasis added) Jacob v Russo Builders 592 NW2d 271 277 (Wis Ct App
1999) (finding that the business risk exclusions do not apply to collateral damage to other
property as these are losses which can be recovered in tort)
JA Street contracted to perform all of the work at the Merritt Creek site The damage
allegedly sustained by THD in this matter must fall within the embrace of the standard business
risk exclusion All of the damages clearly involve the costs of restoration repair replacement
and remediation of defects or deficiencies in work which 1A Street contracted to perform
Therefore the Circuit Court correctly found that the business risk exclusion applies to
foreclose coverage
34
L069S7S2 )
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
v CROSS-ASSIGNMENTS OF ERROR
Aa THE CIRCUIT COURT ERRED IN CONCLUDING THAT MULTIPLE SUCCESSIVE Brrco CGL POLICIES COVERAGE MAY BE IMPLICATED SINCE TIlE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THE POLICIES DICTATE THAT COVERAGE IF NOT OTHERWISE EXCLUDED Is AFFORDED ONLY UNDER POLICY No CLP 3 107 706 B IN EFFECT FROM MARCH 12001 THROUGH MARCH 12002
Generally a Courts interpretation of insurance contracts is governed by the same
rules of construction used to interpret other contracts McKimm v Bell 790 SW2d 526
527 (Tenn 1990) An insurance policy must be interpreted fairly and reasonably giving
the language its usual and ordinary meaning Naifeh v Valley Forge Life Ins Co 204
SW3d 758 768 (Tenn 2006) Under Tennessee law a Courts principal goal is to
ascertain and enforce the intent of the contracting parties Certain Underwriters at Lloyds
of London v Paniagua 957 FSupp2d 921 924 (WDTenn 2013) The parties intent and
thus the meaning of the contract should be derived from the provisions of the policy itself
Id
As explained above the Insuring Agreements contained in Bitcos commercial
liability policies provide in unambiguous clear and defmite language that liability
coverage under the policy only extends to property damage that occurs during the policy
period But coverage applies only if prior to the inception of the policy no insured
knew that the property damage had occurred in whole or in part See Insuring
Agreements subparagraph (3)28 Stated otherwise if prior to the inception of the policy
28 The pertinent provisions state as follows b This insurance applies to property damage only if
35
(LIJ695752 I )
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
JA Street knew that the property damage had begun to occur in whole or in part coverage
would not be triggered
Further subparagraph d of the Insuring Agreement illustrates the circumstances
under which the insured is deemed to know whether property damage had occurred in
whole or in part3 Paragraph d(2) expressly dictates that knowledge of property damage
will be imputed at the earliest time when any insured listed under Paragraph 1 of Section
II - Who Is An Insured becomes aware that property damage has occurred or has
begun to occur Naturally lA Street is an insured listed under the Who Is An Insured
proVISion JA Street of course became aware in September 2001 that the property
damage had occurred or had begun to occur as a massive landslide occurred at the site
Therefore subparagraphs b(2) and (3) and subparagraph d when read in conjunction will
accordingly confine lA Streets coverage if not otherwise excluded to the policy in effect
when the property damage began to occur and became known to lA Street By
(2)The bodily injury or property damage occurs during the policy period and
(3)Prior to the policy period no insured listed under Paragraph 1 of Section II -Who Is An Insured and no employee authorized by you to give or receive notice of an occurrence or claim knew that that the bodily injury or property damage had occurred in whole or in part
Subparagraph d states in pertinent part d Bodily injury or property damage will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph I of Section II - Who Is An Insured or any employee authorized by you to give or receive notice of an occurrence or claim
(1) Receives a written or verbal demand or claim for damages because of the bodily injury or property damage or (2) Becomes aware by any other means that bodily injury or property damage has occurred or has begun to occur
36
(L069S7S21 )
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
subsequent policy contrast coverage will not be triggered under any subsequent policy
It is unmistakable that 1A Street knew as of September 2001 that property damage
had begun to occur On that date a massive landslide occurred at the development site29
Alleged property damage had begun to occur during Bitcos commercial liability policy No
CLP 3 107 706 B in effect from March 1 2001 through March 1 2002 Coverage if not
otherwise excludetL would be triggered solely under that policy Coverage would not be
triggered under any subsequent Biteo commercial liability policy beginning with No CLP 3 135
489 B effective from March 1 2002 through March 1 2003 because the insured knew
property damage had occurred in whole or in part prior to that policy inception Thus
coverage if not otherwise excluded would only be extended under Bitco commercial
liability insurance policy No CLP 3 107706 B effective from March 12001 through March 1
2002
The Circuit Court essentially sidestepped this issue entirely by erroneously concluding
that Biteo had waived the argument Specifically the Circuit Court cited General Housewares
Com v National Surety COrp30 an Indiana case for the proposition that Bitco waived the
above-quoted provisions of the insurance contract as they knew of the ongoing loss and
continued to insure [1A Street] despite said knowledge3 That simply is not the law of
Tennessee or any other jurisdiction besides perhaps Indiana whose peculiar law on this point
does not apply In fact the position is utterly illogical There is simply no basis to conclude that
29 See 1A Streets Answer to Amended Complaint 3 30 741 NE2d 408 (Ind 2000) 31 See Courts Order JA10552 35
37
L069S7S2l I
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
Bitco waived anything relative to known losses as obviously evidenced by the fact that Bitco
inserted clear and unambiguous policy language into its insurance contract specifically
addressing this precise scenario The lower court committed flagrant error concluding otherwise
R THE CIRCUIT COURT ERRED IN CONCLUDING THAT ANY OF RHCOS UMBRELLA
POLICIES COULD AFFORD COVERAGE SINCE THE UNAMBIGUOUS TERMS OF THE INSURING AGREEMENTS OF THOSE POLICIES MANDATE THAT NO OCCURRENCE TOOK
PLACE DURING ANY POLICY PERIOD
The analysis of whether coverage under any given policy applies must start with the
pertinent language of the policy Each Bitco wnbrella policy starting with Policy No CUP 2
570 314 B which was in effect March 1 2003 through March I 2004 contains an Insuring
Agreement which states in relevant part Plainly given the quoted language in order to
determine whether coverage is triggered under a policy the key question is whether an
occurrence occurred Detennining whether coverage is triggered requires a detennination
of when the occurrence here involved took place
Once again the unambiguous language of the policy illwninates the issue The policy
explicitly defmes occurrence to mean
a Witll respect to property damage an accident including continuous or repeated exposure to substantially the same general harmful conditions
The key wording of the occurrence definition is including continuous or repeated exposure
to substantially the same general harmful conditions That wording is uniquely applicable
to a persistent progressive property damage scenario The policy definition of
occurrence makes it clear beyond peradventure of a doubt that an occurrence takes place
38
L0695752 1 l
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
when property damage first materializes and that an occurrence includes any ensuing
progressive continuous damage resulting therefrom That conclusion has been endorsed by
almost every Cowt that has had occasion to examine the meaning of occurrence as it is
defined in the Bitco excess policies to include continuous or repeated exposure to
substantially the same general harmful conditions See eg Champion Inl Corp v
Continental Casualty Co 546_F2d 502 506 (2d Cir NY 1976) Southern International
Corp v Poly-Urethane Industries Inc 353 So2d 646 (Fla Dist Ct App 3d Dist 1977)
Transport Ins Co v Lee Way Motor Freight Inc 487 FSupp 1325 1329 (ND Tex
1980) Appalachian Ins Co v Libertv Mut Ins Co 676 F2d 56 59 (3d Cir Pa 1982)
Owens-Illinois Inc v Aetna Casualty amp Surety Co 597 FSupp 1515 1527 (DDC 1984)
Headley v S1 Paul Fire amp Marine Ins Co 712 FSupp 745 747-748 (DSD 1989)
Associated lndem Corp v Dow Chern Co 814 FSupp 613 621 (ED Mich 1993) Truk-
Away Inc v Aetna Cas amp Sur Co 723 A2d 309(RL 1999)32
32 JA Street and possibly one or more of the other insurers suggested in defining occurrence that Tennessee Courts apply what is euphemistically called the effects test This contention appears to be grounded upon a decision of a Tennessee Court in Kuhns of Brownsville Inc v Bitco Cas Co 197 Tenn 60 (Tenn 1954) and cases following That view thoroughly overlooks the dramatic distinction between the policy language involved in Kuhns and the relevant policy language contained in the Bitco policies The issue in Kuhns was whether the damage there involved constituted one accident or two separate accidents which was determinative on the number of $1000000 limits that would apply to the loss Significantly the policy in that case contained no express defmition of accident and certainly no language explicitly including in a single accident continuous or repeated exposure to substantially the same general harmful conditions as does the policy defmition of occurrence contained in the Bitco policies The Tennessee Court therefore could reasonably conclude that separate damage to two different buildings owned by two different owners could constitute two separate accidents That conclusion however is totally foreclosed by the express language of the occurrence definition contained in Bitco policies under the relevant definitional language here all injurious consequences of the same general harmful conditions must be regarded as one occurrence
39
(106957521 I
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
lA Street and THD averred in the Court below that the alleged property damage
emanated from continuous progressive earth movement which commenced in September
2001 and continued thereafter Under the policy definition contained in the umbrella
policies the occurrence including continuous or repeated exposure to substantially the
same general hannful conditions took place in September 2001 and that occurrence
allegedly continues until the present time The first Bitco commercial umbrella policy was
not issued until March 12003 The occurrence took place in September 2001 Since no
occurrence took place during any Biteo umbrella policy period coverage cannot be triggered
thereunder Any liability insurance coverage if any can only be triggered under the Bitco
commercial liability insurance policy no CLP 3 107 706 B covering the period from March 1
2001 through March 1 2002 and coverage cannot under any circumstances be triggered under
any other commercial liability or commercial umbrella policy issued by Bitco
The Circuit Court ignored the language of the policies and concluded that because there
were four (4) separate contracts for the work at the site therefore there may have been four
(4) separate contracts that were allegedly implicated and thus at least four (4) alleged
occurrences if proven See Circuit Court Opinion JA-10552 36 The Circuit Court neither
does cite nor can cite any authority supporting this proposition It simply is not the law
Indeed the Circuit Court itself found that the standard liability policy does not cover breach of
contract claims It is therefore utterly incongruous to conclude that a breach of contract itself
constitutes an occurrence as that term is defined by the very policy that the Court concludes
40
[L069575Z1 I
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
does not cover the claim In so holding the Court committed clear and Wlmistakable error
C THE CIRCUIT COURT ERRED IN HOLDING THAT MORE THAN ONE $1 MILLION LIMIT CAN APPLY
The Limits of Liability provision set forth in Section III of each Bitco commercial
liability policy states inrelevant part as follows
1 The Limits of Insurance shown in the Declarations and the rules below frx the most we will pay regardless of the number of a Insureds b Claims made or suits brought or c Persons or organizations making claims or bringing suits
2 The General Aggregate Limit is the most we will pay for the sum of a Medical Expenses WlderCoverageC b Damages Wlder Coverage A except damages because of bodily
injury or property damage included in the products completed operations hazard and
c Damages Wlder Coverage B
3 The Products-Completed Operation Aggregate Limit is the most we will pay under Coverage A for damages because of tlbodily injury and property damage included in the products completed operations hazard
4 Subject to 2 above the Personal and Advertising Injury Limit is the most we will pay under Coverage Bfor the sum ofall damages because ofall personal and advertising injury sustained by anyone person or organization
5 Subject to 2 or 3 above whichever applies the Each Occurrence Limit is the most we will pay for the sum of a Damages Under Coverage A and b Medical expenses under Coverage C because ofall bodily injury and property damage It arising out ofanyone occurrence
6 Subject to 5 above the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of property damage to anyone premises while rented to you or in the case of
41
(L06957521 )
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
damage by fire while rented to you or temporarily occupied by you with permission of the owner
7 Subject to 5 above the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of bodily injury sustained by anyone person
Of course Coverage A within the meaning of the above Limits of Liability
language is the coverage that applies to property damage In addition each Biteo policy
plainly specifies in the declarations that the Each Occurrence Limit is $1 million33
Significantly the Limits of Liability provision does not say that a separate $1 million policy
applies under each policy that is triggered by a loss nor does it say that a separate $1 million
policy limit applies for each policy embraced by an occurrence Rather the language very
clearly states that only a single $1 million limit is applicable for all damage arising out of
anyone occurrence
The Bitco policies define the term occurrence in the conventional manner to
mean an accident including continuous or repeated exposure to the same general harmful
conditions See Definitions at 13 As discussed above an incident such as the instant case
in which there is alleged ongoing possibly continuous property damage arising from the
same continuous or repeated exposure to the same general harmful conditions which
occurs across multiple policy periods involves but one perhaps ongoing continuous
occurrence In such a scenario under the clear language of the Limits of Liability
33 One specimen of the Bitco policies specifically the policy in effect from March I 2002 to March 1 2003 is appended hereto as Exhibit B The above quoted Limits of Liability provision which again appears in Section III is on page 10 of 16 of the basic form
42
(L05957SZ1 )
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
provision only a single $1 million Per Occurrence Limit applies This is so even though
coverage may be triggered under multiple successive policies
Courts that have addressed this issue under the same or very similar language as
appears in the Bitco Limits of Liability provision and under a same or similar defInition
of occurrence have flatly rejected the notion that mUltiple per occurrence limits may
be stacked Rather the courts have consistently held that only a single per occurrence
limit applies to all damages arising from a single occurrence even though damages
resulting from a single occurrence may span several policy periods See eg Kaiser Cement
andGypsum Corp v Insurance Co of the State ofPa 215 Cal App 4th 210 155 Cal Rptr
3d 283 (2013) Safeco Insurance Company of American v Firemens Fund Insurance Co 148
Cal App 4th 620 55 Cal Rptr 3d 844 (2007) Lennar Corp v Markel American Insurance
Co 413 SW3d 750 (Texas 2013) American Physicians Insurance Exchange and American
Physicians Service Group Inc v Garcia 876 SW2d 842 (Texas 1994) North American
Specialty Insurance Co v Loyal Surplus Lines Insurance Co 541 F3d 552 (5th Cir 2008)
Bethany Christian Church v Preferred Risk Mutual Insurance Co 942 FSupp 330 (SDTex
1996) Sybron Transition Corp v Security Insurance 258 F3d 595 (7th Cir 2001) Nesmith v
Allstate Insurance Co 103 AD3d 190 958 NY S 2d 817 (2013) Hiraldo vs Allstate
Insurance Co 8 ADJd 230 778 NYS 2nd 50 (2004) Greenidge v Allstate Insurance Co
312 F2d430 (SDNY 2004) Bahar v Allstate Insurance Co 2004 US Dist LEXIS 15612
(2004) Greene v Allstate Insurance Co 2004 US Dist LEXIS 10860 (2004) Certain
Underwriters at Lloyds London v Valiant Insurance Co 155 WashApp 469 229 P3d 930
43
(L0695752 I )
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
(Wash App 2001) Bayley Construction vs American Guaranty amp Liability Insurance CPO
2010 US Dist LEXIS 110767 (WD Wash 2010) All of these Courts have construed
virtually identical language in the Limits of Liability provision to preclude stacking of
limits across multiple policy periods
Thus it is clear that in this case only a single $1 million dollar underlying liability
limit can be applicable under one or any number of the Biteo policies that may be
applicable Again here the Circuit Court ignored the policy language and instead concluded
that because it could conceivably find four (4) separate occurrences based upon four (4)
separate alleged breaches of contract therefore multiple per occurrence limits could apply
See Opinion JA-I0552 ~37 For the reasons discussed above the Courts conclusion and logic
supporting same are deeply flawed and constitute clear and wunistakable error
VII CONCLUSION
Bitco respectfully requests that this Court affirm the Circuit Courts determination as a
matter of law that Biteo has no duty to defend or indemnify JA Street and thus was entitled to
summary judgment on all claims asserted in the underlying case Bitco respectfully requests that
this Honorable Court affirm the Circuit Courts December 292016 Order and judgment in favor
of Biteo
44
(L06957S21 )
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
Date June 21 2017
L069S75Z1 I
Edward 1 Levicoff ELevicoffLevicoftLawcom WVa ID 12486 The Levicoff Law Firm P C 4 PPG Place Suite 200 Pittsburgh P A 15222 (412) 434-5200
Counsel for Respondent Rilco General Insurance Corporation
45
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
No 17-0079
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
JA STREET amp AsSOCIATES INC
DEFENDANTITHIRD-PARTY PLAINTIFF BELOW
PETITIONER
v
BITCO GENERAL INSURANCE CORPORATION PLAINTIFF BELOW
RESPONDENT
BRIEF OF RESPONDENT BrrCO GENERAL INSURANCE CORPORATION AND CROSS-ASSIGNMENTS OF ERROR
In The Circuit Court of CabeU County West Virginia The Honorable F Jane Hustead
CA No 08-C-623
CERTIFICATE OF SERVICE
The undersigned counsel for Respondent Bitco General Insurance Corporation does hereby certify that the foregoing Briefand Cross-Assignments of Error was served upon counsel of record via first class US Mail postage prepaid on June 21 2017 addressed as follows
S Douglas Adkins Esquire Donald CappareUa Esquire sdadkinswcvrusandadkinscom capparella(~vdodsollparkcrcom Cyrus Adkins amp Walker Elizabeth Sitgreaves Esquire 636 Fourth Avenue Esitgreaves2dodsonparkercom Huntington WV 25701 Dodson Parker Behm amp Capparella PC Counselfor Petitioner 1310 Sixth Avenue North
Nashville TN 37208 Counselfor Petitioner
Debra Tedeschi Varner Esquire Michael S Saltzman Esquire dtvamer(poundl)middotvv lawyerscom msaltzmanl1Jgoldbergsegallacom McNeer Highland 1cMunn amp Varner LC Goldberg Segalla LLP PO Box 2040 1700 Market Street Suite 1418 Empire Building 400 West Main Street Philadelphia PA 19103 Clarksburg WV 26302 Counselfor Respondent Scottsdale Insurance Co Counsel for Respondent Scottsdale Insurance Co
IL06029ll 1
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
Jeffrey P Hinebaugh Esquire Jeffhinebaugh(a)dinsfllorecolll Elizabeth M Shaffer Esquire EI izabethshaffer(iVdinsmorecol11 Dinsmore amp Shohl LLP 255 East Fifth Street Suite 1900 Cincinnati OH 45202 Counselfor Respondent The Ohio Casualty Ins Co
Adam M Bames Esquire abamesi(vwalshlegalnet Walsh Barnes Collis amp Zumpella Pc Gulf Tower Suite 1400 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Cincinnati Ins Co
Susan L Loughran Esquire aloughrmv(Vrnoodklawcom Marks ONeill OBrien Dougherty amp Kelly Pc Gulf Tower Suite 2600 707 Grant Street Pittsburgh PA 15219 Counselfor Respondent The Princeton Excess and Surplus Line Insurance Co
Date June 21 2017 By
W Henry Jernigan Jr Esquire Henry iern igall iagtd inSl11orecom Dinsmore amp Shohl LLP PO Box 11887 Charleston WV 25339 Counselfor Respondent The Ohio Casualty Ins Co
Tiffany R Durst Esquire tdurst(pftvvcom Pullin Fowler Flanagan Brown amp Poe PLLC 2414 Cranberry Square Morgantown WV 26508 Counselfor Zurich American Insurance Company of Illinois
Holly S Planinsic Esquire hplaninsichmhycom Herndon Morton amp Yeager 83 Edgington Lane Wheeling WV 26003 Counselfor Thundering Herd eveJopmenl UC
----------~-r~~---
Edward 1 Levieo Esquire WVa ID 12486 The LevicoffLaw Firm PC 4 PPG Place Suite 200 Pittsburgh PA 15222 (412) 434-5200 Counsel for Respondent Bilco General Insurance Corporation
fL0696029 I 2
![[Eng]Advanced Concept Training - 2D concrete members EN ...masesoft.com/uploads/3/5/4/3/35434736/_engadvanced...Advanced Concept Training Reinforced concrete (EN 1992) – 2D members](https://img.dokumen.tips/doc/110x75/610b3d027e5cab74477779ca/engadvanced-concept-training-2d-concrete-members-en-advanced-concept.jpg)
