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J.A. Street & Associates, Inc. v. Bitco General Insurance Corp.

Supreme Court of West Virginia

May 1, 2019

J.A. STREET & ASSOCIATES, INC., Defendant and Third-Party Plaintiff Below, Petitioner,

          Cabell County 08-C-623


         The petitioner, J.A. Street & Associates, Inc. ("Street"), appeals from six separate summary judgment orders entered by the Circuit Court of Cabell County on December 30, 2016, in a declaratory judgment action regarding insurance coverage.[1] Concluding that there was no duty to defend or indemnify Street, the circuit court granted summary judgment to each of the six respondent insurance companies: Bitco General Insurance Corporation (formerly Bituminous Casualty Corporation, referred to herein as "Bitco"); The Ohio Casualty Insurance Company (formerly Liberty Mutual Agency, referred to herein as "Ohio Casualty"); Zurich American Insurance Company of Illinois ("Zurich"); Scottsdale Insurance Company ("Scottsdale"); The Princeton Excess and Surplus Lines Insurance Company ("Princeton"); and The Cincinnati Insurance Company ("Cincinnati").[2] The respondents argue in support of the circuit court's orders. Furthermore, respondents Bitco, Ohio Casualty, Zurich, Scottsdale, and Cincinnati assert cross-assignments of error contending there are additional grounds, not relied upon by the circuit court, that also support summary judgment in their favor.[3]

         The parties' assignments of error pertain to whether policies of commercial general liability ("CGL") insurance, as well as policies that were written as umbrella and excess coverage to the CGL insurance, apply to breach of contract claims brought by a commercial property developer against its general contractor. Having considered the parties' written and oral arguments, we conclude that under the applicable and existing Tennessee law, the respondent insurance companies are entitled to summary judgment. Accordingly, we affirm. Furthermore, we find that this matter is appropriate for disposition in a memorandum decision pursuant to Rule 21 of the Rules of Appellate Procedure.

         I. Facts and Procedural Background

         Petitioner Street is a construction company headquartered in Tennessee that served as the general contractor on a seventy-eight acre commercial shopping center development in Cabell County, West Virginia, named Merritt Creek Farm. Street and its subcontractors performed work at Merritt Creek Farm pursuant to written construction contracts that Street entered into with the property's developer, Thundering Herd Development, L.L.C. ("Thundering Herd"). Thundering Herd has sued Street asserting that it breached the construction contracts, and Street seeks a defense and coverage from the respondent insurance companies pursuant to insurance policies that Street purchased in Tennessee. The instant appeal concerns whether the insurance policies provide coverage. However, to understand the coverage dispute, it is necessary to first examine the underlying breach of contract lawsuit.

         A. Lawsuit over Merritt Creek Farm

         On June 5, 2001, Thundering Herd entered into four written contracts with Street to hire Street as the general contractor for the Merritt Creek Farm development. In those contracts, Street agreed to, inter alia, oversee the site preparation for the development and oversee the construction of many of the buildings.[4] The written agreements provide that Street "covenants . . . that all the Work shall be performed in a good and workmanlike manner[, ]" and that Street "shall provide competent supervision of all phases of the Work and shall cause the Work to be performed with a high degree of expertise and workmanship, so as to provide Owner with Improvements constructed for the general and specific uses to which the Improvements will be put."

         Sometime prior to the events described herein, Thundering Herd retained an engineering firm, S&ME, Inc., which conducted geotechnical exploration and provided advice regarding land preparation for the Merritt Creek Farm site. Thundering Herd also reached an agreement with the Target Corporation for a parcel of land and "pad" to be prepared at Merritt Creek Farm, after which this parcel would be conveyed to the Target Corporation for Target to construct a store on the pad.

         Street hired subcontractors to prepare the site, including to grade the land and install fill material. In early September 2001, Street's subcontractors completed the site preparation and pad for the planned Target store. On or about September 21, 2001, a slope that was constructed at the rear of the proposed Target site failed, causing a landslide, damage to the pad, and damage to adjacent property owned by a third party. As a result, Thundering Herd reportedly incurred $721, 875.18 in additional costs to repair this slope, reconstruct the Target site, and compensate the neighbor for the damage to the adjacent property.[5] Street oversaw these repairs.

         In September 2001, subcontractors hired by Street began site preparation and fill placement in a different area in the Merritt Creek Farm development known as "Shops A." Construction of the pad for Shops A was finished on January 9, 2002. Construction of the foundation of Shops A began on March 12, 2002, and the building itself was substantially completed in June 2002. In the fall of 2002, the walls at Shops A began cracking due to settlement. In a report dated February 24, 2003, S&ME discussed the problems at Shops A and made recommendations for corrective action. As a result, remedial action was taken during the fall of 2003; Street arranged for the installation of pilings under the foundation and grout injection under the slab, as well as repairs of damage to the building.

         Because of the land movement and resulting damage at Merritt Creek Farm, in June 2003 Thundering Herd filed suit against S&ME in the Circuit Court of Cabell County asserting claims of negligence, breach of contract, breach of warranty, and indemnity.

         Construction of much of the Merritt Creek Farm shopping center was completed in 2004.[6]On December 5, 2005, an attorney representing Thundering Herd wrote a letter to Street advising of slope movement and resulting damage to improvements in another section of Merritt Creek Farm referred to as "Shops C," which includes an A.C. Moore and other stores. Construction of Shops C had been completed in December 2002. Street and its subcontractors had not constructed the A.C. Moore building, but they performed the site preparation. The December 2005 letter notified Street that it might be responsible for the cost to repair Shops C. Subsequently, on February 22, 2007, a company named Bizzak, Inc. advised Street of land settlement at yet another part of the shopping center referred to as the "Office Depot Site."

         On December 11, 2007, Thundering Herd[7] amended its complaint to add Street as an additional defendant (referred to herein as the "Amended Complaint"). Thundering Herd alleged that Street failed to comply with its obligations in the construction contracts, resulting in harm to the Merritt Creek Farm development from landslides, sloughing, land movement, and settling. In addition to seeking damages for the Target site and Shops A, with its Amended Complaint Thundering Herd also sought compensation for damages to the A.C. Moore store area, the Office Depot store area, and to storm and sanitary systems throughout the development.

         It is notable that all four of Thundering Herd's claims against Street in the Amended Complaint are based entirely upon the construction contracts they signed. Indeed, the circuit court concluded that the statute of limitations for bringing tort claims had already expired when Thundering Herd added Street as a defendant. Thundering Herd's first cause of action against Street is labeled "Breach of Contract, Target Store Area[.]" In this count, Thundering Herd alleges that "[p]ursuant to the written agreement between" Thundering Herd and Street, "Street had the obligation to discharge its responsibilities under the agreement in a competent manner" but "[a]cting individually and by and through its subcontractors, J.A. Street failed to comply with the requirements of the written agreement, thereby resulting in a breach of the terms of said agreement." The Amended Complaint goes on to provide that "[a]s a direct and proximate result of the breach of the agreement, [Thundering Herd] has suffered damages from the land movement and slide that occurred on the Target store site" and "Street is liable to [Thundering Herd] for the damages incurred as a result of the breach of the agreement."

         Thundering Herd's second cause of action against Street is titled "Breach of Contract, Remainder of Development[.]" For this claim, Thundering Herd alleges that "[p]ursuant to the written agreements between" them, "Street had the obligation to discharge its responsibilities under the agreements in a competent manner" but "[a]cting individually and by and through its subcontractors, J.A. Street failed to comply with the requirements of the written agreements, thereby resulting in a breach of the terms of said agreements." The Amended Complaint further provides that "[a]s a direct and proximate result of the breach of the agreements," Thundering Herd has "suffered substantial damages to various areas of the site" and "Street is liable to [Thundering Herd] . . . for the damages incurred as a result of the breach of the agreement." The harm to the site is identified as "unanticipated land movement and settlement, sloughing and slides."

         The third cause of action against Street is labeled "Breach of Warranty." In this count, Thundering Herd asserts that it was damaged by Street's breach of warranties arising from their written contracts. More specifically, the Amended Complaint provides that "[t]he agreements between" them "expressly provide that [Street] warrants its workmanship as to the services to be performed" and that "[i]n performing the requirements of the agreements, J.A. Street breached its express warranty with respect to the work performed on both the Target store site and the remainder of the Merritt Creek Farm site, which resulted in the damages alleged herein." Additionally, Thundering Herd alleges that "[a]s a result of the agreements between" it and Street, "there existed an implied warranty on the part of J.A. Street that it would perform its obligation in a manner consistent with the level of skill reasonably required for the business in which J.A. Street is engaged."

         In its fourth and final count against Street, Thundering Herd seeks indemnity for expenditures it has made, or will make, to repair the slopes and other property at the development that were allegedly damaged as a result of Street's actions. As a basis for this claim, Thundering Herd contends that "[p]ursuant to the written agreement between [Thundering Herd] and J.A. Street, J.A. Street has agreed both expressly and by implication, that it will indemnify [Thundering Herd] for any losses or damages payable by [Thundering Herd] that result from the negligence or wrongful acts of J.A. Street and/or its subcontractors." This count of the Amended Complaint also provides that "[p]ursuant to the covenants of express and implied indemnity arising out of the written agreement between [Thundering Herd] and J.A. Street, J.A. Street is liable to [Thundering Herd] for the amounts paid as set forth herein."

         On January 13, 2008, Street answered the Amended Complaint, filed a cross-claim against SM&E, and filed a counterclaim against Thundering Herd. In its petitioner's brief to this Court, Street reports that the Thundering Herd litigation is pending and that Thundering Herd asserts the land movement problems at Merritt Creek Farm are ongoing and progressive.

         B. This Insurance Litigation

         Between March 2001 and March 2015, Street was insured by the following CGL policies, and by umbrella and excess policies related to the CGL coverage, from the respondent insurance companies:


Bitco CGL $1, 000, 000

Ohio Casualty Umbrella/Excess $5, 000, 000


Bitco CGL $1, 000, 000

Zurich Umbrella/Excess $5, 000, 000


Bitco CGL $1, 000, 000

Bitco Umbrella/Excess $2, 000, 000


Scottsdale Excess $2, 000, 000


Bitco CGL $1, 000, 000

Bitco Umbrella/Excess $2, 000, 000

Scottsdale Excess $2, 000, 000


Bitco CGL $1, 000, 000

Bitco Umbrella/Excess $2, 000, 000

Princeton Excess $2, 000, 000


Bitco CGL $1, 000, 000

Bitco Umbrella/Excess $5, 000, 000


Cincinnati CGL $1, 000, 000

Cincinnati Umbrella $5, 000, 000


Cincinnati CGL $1, 000, 000

Cincinnati Umbrella $5, 000, 000


Cincinnati CGL $1, 000, 000

Cincinnati Umbrella $5, 000, 000

         Street, which is a Tennessee company, purchased all of these policies in Tennessee using a Tennessee insurance agent.

         Bitco has been providing a defense to Street in the Thundering Herd litigation. However, on July 14, 2008, Bitco filed the instant declaratory judgment action asking the circuit court to declare that it owes no duties to either defend or indemnify Street in this matter. Thereafter, Street was permitted to file an amended answer and counterclaim in the declaratory judgment action to bring all of the CGL policies that Bitco had issued to Street from March 2001 to March 2007 within the circuit court's consideration. Furthermore, on March 13, 2014, Street filed a third-party complaint seeking a declaratory judgment as to the potential coverage of all of its insurers who issued CGL policies from 2007 to 2015, and of all the insurers who issued excess and umbrella policies from 2001 to 2015. More than two years of litigation in circuit court followed, including multiple motions and cross-motions for summary judgment.

         When arguing to the circuit court that they were entitled to summary judgment, the insurance companies asserted that there is no coverage under any of their policies because Thundering Herd's contract-based claims against Street do not constitute "property damage" caused by an "occurrence," as required by the insuring agreement portion of each policy. They further argued that even if there was "property damage" caused by an "occurrence," that one or more other policy provisions and/or exclusions would apply to preclude coverage. Arguments presented to the circuit court by some or all of the respondents included application of their contractual liability exclusions; application of their business risk exclusions; application of their subsidence exclusions; application of their "known loss" exclusions and the related common-law "loss in progress" doctrine; that the damages occurred prior to or after their coverage periods; that Street failed to timely notify them of the risk and of the Thundering Herd lawsuit; that even if there is coverage and no applicable exclusion, there was only a single, ongoing occurrence subject to a single policy limit; and that all of the underlying CGL policies must be exhausted before any of the umbrella/excess policies apply.

         In its six separate summary judgment orders, the circuit court concluded that some of Thundering Herd's contract claims against Street might amount to an "occurrence" resulting in "property damage" under the insuring agreement provisions of the respondents' policies. Nonetheless, the circuit court found that other policy provisions, primarily the contractual liability exclusion, preclude coverage in this matter. Because the circuit court found no coverage pursuant to the CGL policies, it consequently found no coverage under the related umbrella and excess policies. Accordingly, the circuit court ruled that the respondent insurance companies owed neither a duty to defend nor a duty to indemnify Street with respect to Thundering Herd's Amended Complaint, and granted summary judgment in the respondents' favor. It is from these six summary judgment orders that Street appeals and five of the respondent insurance companies file cross appeals.

         II. Choice of Law and Standard of Review

         The overall question presented in this declaratory judgment proceeding is whether the claims asserted against Street in the Amended Complaint are within the risk covered by the various insurance policies. Street is a Tennessee company with its principal offices in Tennessee, and all of these insurance contracts were formed and delivered in Tennessee. Accordingly, the parties agree that Tennessee law controls the substantive legal rulings in this case. See Syl., Liberty Mut. Ins. Co. v. Triangle Indus., Inc., 182 W.Va. 580, 390 S.E.2d 565 (1990) ("In a case involving the interpretation of an insurance policy, made in one state to be performed in another, the law of the state of the formation of the contract shall govern, unless another state has a more significant relationship to the transaction and the parties, or the law of the other state is contrary to the public policy of this state.").

         Nonetheless, West Virginia law controls our procedures. See Syl., in part, State ex rel. Airsquid Ventures, Inc. v. Hummel, 236 W.Va. 142, 778 S.E.2d 591 (2015) ("The procedural laws of this state necessarily apply to matters that are brought in the courts of West Virginia."). The circuit court resolved this case on summary judgment pursuant to Rule 56 of the West Virginia Rules of Civil Procedure. It is well-settled in our state that "[a] motion for summary judgment should be granted only when it is clear that there is no genuine issue of fact to be tried and inquiry concerning the facts is not desirable to clarify the application of the law." Syl. Pt. 3, Aetna Cas. & Sur. Co. v. Federal Ins. Co. of New York, 148 W.Va. 160, 133 S.E.2d 770 (1963).

         As to this Court's standard of review on appeal, "[a] circuit court's entry of summary judgment is reviewed de novo." Syl. Pt. 1, Painter v. Peavy, 192 W.Va. 189, 451 S.E.2d 755 (1994). In that same vein, "[a] circuit court's entry of a declaratory judgment is reviewed de novo." Syl. Pt. 3, Cox v. Amick, 195 W.Va. 608, 466 S.E.2d 459 (1995). Moreover, "[t]he interpretation of an insurance contract, including the question of whether the contract is ambiguous, is a legal determination that, like a lower court's grant of summary judgement, shall be reviewed de novo on appeal." Syl. Pt. 2, Riffe v. Home Finders Assoc., Inc., 205 W.Va. 216, 517 S.E.2d 313 (1999). Using this plenary standard of review, we turn to the parties' arguments.

         III. Discussion

         The parties assert a total of twenty-three separate assignments of error on appeal and cross appeal. The assignments of error present issues regarding the duty to defend and/or the duty to indemnify an insured pursuant to CGL insurance policies. In Tennessee, the duty to defend is broader than the duty to indemnify. St. Paul Fire & Marine Ins. Co. v. Torpoco, 879 S.W.2d 831, 835 (Tenn. 1994). An insurance company's duty to defend its insured is triggered "when the underlying complaint alleges damages that are within the risk covered by the insurance contract and for which there is a potential basis for recovery." Travelers Indem. Co. of Amer. v. Moore & Assoc., Inc., 216 S.W.3d 302, 305 (Tenn. 2007) (citing Torpoco, 879 S.W.2d at 835). Whether a duty to defend exists "depends solely on the allegations contained in the underlying complaint." Travelers, 216 S.W.3d at 305.[8] In Tennessee,

[f]or the duty to defend to arise, the underlying complaint must make sufficient allegations concerning the nature of the damages sought to trigger the duty to defend, or, keeping in mind that ambiguity is construed in favor of the insured, to alert . . . [the insurer] to further inquire if the allegations are not clear. This means that . . . [the insurer] must have received enough information from the allegations to understand that there had been an "occurrence" causing "property damage" and that no exclusions applied.

Forrest Const., Inc. v. Cincinnati Ins. Co., 703 F.3d 359, 363 (6th Cir. 2013) (applying Tennessee law). Any doubt as to whether a complaint states a cause of action within the policy's coverage is resolved in favor of the insured. Dempster Bros., Inc. v. U.S. Fid. & Guar. Co., 388 S.W.2d 153, 156 (Tenn. Ct. App. 1964). Moreover, if any of the allegations are covered by the policy, the insurer must defend the lawsuit regardless of the number of allegations outside of coverage. Drexel Chem. Co. v. Bituminous Ins. Co., 933 S.W.2d 471, 480 (Tenn. Ct. App. 1996).

         Tennessee courts have explained that CGL policies are "designed to protect an insured against certain losses arising out of business operations." Travelers, 216 S.W.3d at 305 (citation omitted). CGL policies "are divided into several components, including the 'insuring agreement,' which 'sets the outer limits of an insurer's contractual liability,' and the 'exclusions,' which 'help define the shape and scope of coverage' by excluding certain forms of coverage." Id. (quoting Standard Fire Ins. Co. v. Chester-O'Donley & Assoc., Inc., 972 S.E.2d 1, 7 (Tenn. Ct. App. 1998)). When considering what coverage is provided by a CGL policy, "the 'insuring agreement' should be construed before the 'exclusions' to avoid confusion and error." Travelers, 216 S.W.3d at 306. Finally, the interpretation of insurance contracts is governed by the same rules of construction used to interpret any contract. Id. at 305. With these precepts in mind, we examine the arguments pertaining to the policies of each of the six respondent insurance companies.

         A. Bitco

         Bitco was Street's CGL insurer for six policy years beginning on March 1, 2001 and ending on March 1, 2007. Bitco also provided umbrella/excess coverage for four policy years from March 1, 2003, until March 1, 2007. Because these years encompass the construction of the Merritt Creek Farm development, and because land movement problems at the development were reported to Street during those years, we will address Bitco's policies first.

         The circuit court granted summary judgment in favor of Bitco on the basis of two policy exclusions: the contractual liability exclusion, and the business risk "exclusion M." Street challenges these rulings on appeal arguing that pursuant to the modern legal view, a CGL policy can apply to faulty construction situations. Bitco contends that under long-standing Tennessee law, CGL insurance simply does not apply to the breach of construction contract claims that Thundering Herd asserts against Street in the Amended Complaint, and it was unnecessary for the circuit court to have applied the policy exclusions. Alternatively, Bitco argues that various policy exclusions operate to bar coverage. As directed by Tennessee law, we begin our analysis with the insuring agreement portion of Bitco's CGL policy and then turn to the policy exclusions. See Travelers, 216 S.W.3d at 306.

         i. Bitco's CGL Insuring Agreement

         Bitco used the same CGL policy form, a standard form in the insurance industry, for each of the six years it provided this coverage to Street. The insuring agreement portion of the policy provides, inter alia, that Bitco

will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damages" 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 damages" to which this insurance does not apply. . . .

         The policy defines "property damage" to include "[p]hysical 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[.]" Furthermore, Bitco's CGL insurance applies only if "the 'bodily injury' or 'property damage' is caused by an 'occurrence'. . . ." The policy defines "occurrence" as "[a]n accident, including continuous or repeated exposure to substantially the same general harmful conditions." The word "accident" is undefined in the policy.

         Street argues that it is entitled to coverage and a defense pursuant to the Tennessee Supreme Court's 2007 opinion in Travelers, 216 S.W.3d 302. In that case, a property owner sought compensation from a general contractor for damages that resulted from a subcontractor's negligent installation of windows during the construction of a hotel. Id. at 304. The property owner brought tort claims alleging that the negligent window installation allowed moisture to penetrate into the hotel rooms, causing water damage and mold growth inside the building. Id. When deciding whether the general contractor's CGL policy provided coverage, the Tennessee Supreme Court began by analyzing the terms "occurrence" and "property damage" in a CGL insuring agreement.

         Like the Bitco CGL policy, the policy at issue in Travelers defined "occurrence" as an "accident, including continuous or repeated exposure to substantially the same general harmful conditions." Id. at 308. The Tennessee Supreme Court determined that "'accident' refers to 'an event not reasonably to be foreseen, unexpected and fortuitous'" and would "include the 'negligent acts of the insured causing damage which is undesigned and unexpected.'" Id. at 308 (quoting Gassway v. Travelers Ins. Co., 439 S.W.2d 605, 607 & 608 (1969)). The court reasoned that because a person would assume that a subcontractor would properly install windows, then the water penetration ...

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