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Essex Insurance Co. v. Dimucci Development Corp. of Ponce Inlet, Inc.

United States District Court, M.D. Florida, Orlando Division

February 6, 2017

EVANSTON INSURANCE COMPANY, Plaintiff,
v.
DIMUCCI DEVELOPMENT CORPORATION OF PONCE INLET, INC. and TOWERS GRANDE CONDOMINIUM ASSOCIATION, Defendants.

          ORDER

          ROY B. DALTON JUDGE

         This cause is before the Court on the following:

         (1) Defendant/Counter-Plaintiff, DiMucci Development Corporation of Ponce Inlet, Inc.'s, Motion for Reconsideration of Order Granting Summary Judgment on Behalf of Evanston Insurance Company and Incorporated Memorandum of Law (Doc. 110), filed September 19, 2016;

         (2) Plaintiff, Evanston Insurance Company's Response in Opposition to DiMucci Development Corp. of Ponce Inlet, Inc.'s Motion for Reconsideration of Order Granting Summary Judgment on Behalf of Evanston Insurance Company and Incorporated Memorandum of Law (Doc. 111), filed October 3, 2016;

         (3) Evanston Insurance Company's Response to this Court's Order Requiring Supplemental Briefing (Doc. 117), filed November 8, 2016; and

         (4) Defendant/Counter-Plaintiff, DiMucci Development Corporation of Ponce Inlet, Inc.'s Supplemental Brief on Application of the “Your Work” Exclusion to DiMucci's Claim for Defense and Indemnity (Doc. 118), filed November 8, 2016.

         BACKGROUND

         The primary insurance coverage dispute in this declaratory judgment action[1](“Coverage Dispute”) is whether the claims asserted by Towers Grande Condominium Association (“Towers”) against DiMucci Development Corp. of Ponce Inlet, Inc. (“DiMucci”) in Towers Grande Condominium Association, Inc. v. DiMucci Development Corporation of Ponce Inlet, Inc., Wayne's Roofing & Sheet Metal, Case No. 2012 33194 CICI 32 (“Towers Case”)[2] are covered under any of three commercial general liability (“CGL”) policies (“Policies”) issued by a predecessor of Evanston Insurance Company (“Plaintiff”).[3] In an Order dated September 13, 2016 (“SJ Order”), the Court determined that the claims asserted by Towers are covered, but such coverage is subject to the “Your Work Exclusion” (“Your Work Ruling”); thus, Plaintiff had no duty to defend (“No Defense Declaration”). In this Order, the Court reconsiders the Your Work Ruling and No Defense Declaration. Given the Court's determination that such rulings were in error, the Court also addresses Plaintiff's claim that it is relieved of any duty to defend because DiMucci allegedly breached the cooperation provisions of the “Self-Insured Retention Endorsement” (“SIR Endorsement”).

         I. The Pleadings

         On September 17, 2014, Plaintiff initiated this action in the U.S. District Court for the Northern District of Illinois (“Illinois Court”) (Doc. 1), and the Illinois Court transferred the action to this Court in March 2015. (See Doc. 23; see also Doc. 42, ¶24; Doc. 54, ¶24.) Three months later, Plaintiff filed its eleven-count Amended Complaint, which seeks judicial declarations that Illinois law applies to the Coverage Dispute (Doc. 42, ¶¶87-90 (“COL Claim”)) and Plaintiff owes no duty to defend DiMucci in the Towers Case because:

(1) DiMucci is not an “insured” under the 2003 Policy (see Id. ¶¶27-28, 42-44 (“Insured Identity Claim”));
(2) DiMucci breached the SIR Endorsement by failing to cooperate and allow Plaintiff to control DiMucci's defense in the Towers Case (see Id. ¶¶81-86 (“SIR Claim”));
(3) No “Occurrence” is alleged in the Towers Complaint (see Doc. 42, ¶¶45-49 (“Occurrence Claim”));
(4) No “Property Damage” is alleged in the Towers Complaint (see Doc. 42, ¶¶50-54 (“Property Damage Claim”)); and
(5) Six exclusions bar coverage for the claims asserted by Towers (“Exclusion Claims”) (see Id. ¶¶55-59 (Prior Incident(s) and Defects Exclusion); id. ¶¶60-63 (Mold Exclusion); id. ¶¶64-67 (Subsidence Exclusion); id. ¶¶68-71 (Contract Liability Exclusion); id. ¶¶72-76 (Contract Breach Exclusion); id. ¶¶77-80 (Independent Contractors Conditional Endorsement).[4]

         Both Towers and DiMucci filed Answers and alleged numerous Affirmative Defenses (“AD”). (See Docs. 54, 55.) DiMucci also filed a Counterclaim (Doc. 55), which sought damages for Plaintiff's alleged breach of the Policies (see id. at 20-21, ¶¶ 44-49 (“Breach of Contract CC”)), and judicial declarations that: (1) Florida law applies to the Coverage Dispute (see id. at 18-19, ¶¶ 37-43 (“COL CC”)); (2) this Court is the proper forum for this action (see id. at 16-17 (“Forum CC”)); and (3) Plaintiff owes DiMucci a defense in the Towers Case (see id. at 17-18, ¶¶ 31-36 (“Duty to Defend CC”)). Finally, Plaintiff filed a reply to the Counterclaim (“CC Reply”), which included thirty affirmative defenses (“CCAD”), including that Plaintiff “has no duty to defend or indemnify DiMucci pursuant to the “‘your work' exclusion” in the Policies (“Your Work CCAD”). (See Doc. 56, p. 8.)

         II. Summary Judgment Briefing

         Before conducting discovery, the parties filed cross-motions for summary judgment. (See Docs. 69, 72; see also Doc. 108, p. 9, n.9.) Relying exclusively on Illinois law, Plaintiff sought summary judgment in its favor on three claims-the COL, Occurrence and Property Damage Claims. (See Doc. 72 (“Plaintiff's SJ”).) Relying on Florida law, DiMucci sought summary judgment in its favor on every claim asserted in the Amended Complaint (see Doc. 69 (“DiMucci's SJ”)).

         In its response (“Plaintiff's Response”), Plaintiff reiterated that Illinois law applies, and: (1) abandoned the Insured Identity Claim (Doc. 81, p. 19 (conceding that DiMucci is an insured); (2) contended that DiMucci's arguments concerning Plaintiff's Exclusion Claims should be disregarded because such claims are moot (id.); and (3) argued that it should prevail on the SIR Claim because Plaintiff fully complied with its requirements under the Policies while DiMucci violated the SIR Endorsement (id. 6-13). In its response (“DiMucci's Response”), DiMucci argued that the Court should deny Plaintiff's SJ because Florida law applies and Plaintiff had not filed a “shred” of evidence. (See Doc. 77.) Neither party filed a reply.[5]

         III. The SJ Order

         In the SJ Order, the Court held that: (1) the insurance laws of Florida-not Illinois- control the Coverage Dispute (id. at 8-14, 24 (“COL Ruling”)); (2) the factual allegations of the Towers Complaint show both an Occurrence and Property Damage (see id. at 17- 19 (“Occurrence Ruling”)); id. at 19-21 (“Property Damage Ruling”)); (3) none of the exclusions raised in the Exclusion Claims are triggered by the allegations of the Towers Complaint (id. at 22, n.17 (“Exclusion Claims Ruling”)). Based on these Rulings, the Court determined that Plaintiff's duty to defend DiMucci was triggered by the Towers Complaint (“Duty to Defend Ruling”). Nonetheless, the Court ultimately declared that Plaintiff had no duty to defend DiMucci (“No Defense Declaration”) because the Your Work Exclusion bars any coverage under the Policies. (See id. at 22-24 (“Your Work Ruling”)).[6]

         IV. The Reconsideration Motion

         Less than a week after issuance of the SJ Order, DiMucci moved for reconsideration (“Reconsideration Motion”).[7] (See Doc. 110.) DiMucci argued that the Court should alter or amend the SJ Order and declare that Plaintiff owes DiMucci a defense in the Towers Case because the Your Work Exclusion was not properly before the Court for resolution. DiMucci further argued that even if the Your Work Exclusion were properly raised in the pleadings and addressed in the SJ briefing, the Court erred by failing to require that Plaintiff meet its heavy burden to establish that the Towers Complaint alleges “facts that clearly bring the entire case within” the Your Work Exclusion. Finally, DiMucci argued that the Court did not properly address the subcontractor exception to the Your Work Exclusion (“SUBC Exception”). (See id.)

         Plaintiff responded that the Court should deny the Reconsideration Motion because: (1) DiMucci failed to meet the standard to justify reconsideration; (2) the Court properly ignored allegations in the Towers Complaint concerning DiMucci's co-defendant, Wayne's Roofing & Sheet Metal (“Wayne's”); and (3) because the Towers Complaint “only alleges damage to ‘property that was the subject of the construction project itself, '” the Your Work Ruling and No Defense Declaration were correct. (See Doc. 111 (“Reconsideration Response”).)

         On October 20, 2016, the Court conditionally granted the Reconsideration Motion, vacated the SJ Order, and directed additional briefing from the parties “as to the applicability of the Your Work Exclusion” and the significance of allegations in the Towers Complaint concerning damages sought from Wayne's and on behalf of a class of condominium owners. (See Doc. 115 (“October Order”).) Both parties then timely filed their supplemental briefing (see Doc. 117 (“Plaintiff's Brief”); Doc. 118 (“DiMucci's Brief”)), and the matter is ripe for adjudication.

         As directed in the October Order, DiMucci's Brief focuses exclusively on the Your Work Ruling and the SUBC Exception. (See Doc. 118.) Based on specifically-identified allegations from the Towers Complaint-including allegations related to Wayne's- DiMucci argued that: (1) Plaintiff cannot show that the Your Work Exclusion applies; and (2) in any event, the SUBC Exception nullifies the Your Work Exclusion. (See id. at 2-3.) Although Plaintiff's Brief focused less on the SUBC Exception and the Your Work Ruling, [8]Plaintiff did argue that:

(1) the Your Work Exclusion applies because the Towers Complaint “only alleges damage to DiMucci's work caused by DiMucci's work” (Doc. 117, pp. 7-8; Doc. 111, pp. 6-9);
(2) the SUBC Exception does not apply because- focusing solely on the allegations concerning DiMucci-the Towers Complaint provides no express allegations that DiMucci used subcontractors (Doc. 117, pp. 8-9); and
(3) Even if the Court finds that Plaintiff owed DiMucci a defense, Plaintiff is relieved of such duty due to DiMucci's breach of the SIR Endorsement (id. at 9).

         V. Federal Rules of Civil Procedure 59(e)

         Because DiMucci filed the Reconsideration Motion within twenty-eight days of the SJ Order: (1) Federal Rule of Civil Procedure 59(e) controls;[9] and (2) the Court is afforded discretion to address clear error or manifest injustice.[10] Here, the DiMucci Brief elaborated on its arguments that the Your Work Ruling is erroneous and unfairly prejudicial to DiMucci because the Your Work Exclusion was not properly raised by the parties. (See Doc. 118, pp. 7, 8, 9; see also Doc. 110, p. 2 nn.1 & 4.) Although Plaintiff does not dispute that its Amended Complaint included no claim based on the Your Work Exclusion, it contends that the parties sufficiently discussed such exclusion in the SJ Briefing. (See Doc. 111; see also Doc. 117.)

         Upon reconsideration, the Court finds that it did not err by raising the Your Work Exclusion in the SJ Order because the matter was raised in the pleadings-specifically, the Your Work CCAD.[11] (See Doc. 56, p. 8.) Nonetheless, the Court did err in finally resolving the Your Work CCAD because: (1) the parties' limited discussion of the Your Work Exclusion in the SJ Briefing was both insufficient and obtuse; (2) the Court should have given DiMucci notice before entering summary judgment against it based on a legal theory and arguments not properly and explicitly raised by the parties in their SJ Briefing;[12] and (3) due to the insufficient briefing and lack of notice, the SJ Order included clear error, which is properly addressed in accordance with Rule 59(e).

         VI. The Duty to Defend

         As discussed in the SJ Order, under Florida law, the test for determining whether an insurer owes a duty to defend is resolved by comparing the facts alleged in the underlying complaint against the coverage provided under the policy terms.[13] (See Doc. 108, pp. 7, 16-17 (discussing Florida's “Eight-Corners Rule”).) If the factual allegations “fairly and potentially bring the suit within policy coverage, ” then the duty to defend is triggered, [14] and if the allegations “‘leave any doubt regarding the duty to defend, '” courts must resolve such doubt “‘in favor of the insured requiring the insurer to defend.'”[15]

         THE YOUR WORK EXCLUSION & THE SUBC EXCEPTION

         Here, the Court previously determined that Plaintiff does owe DiMucci a duty to defend it in the Towers Case.[16] (See supra at 2, 5 (discussing Duty to Defend Ruling).) Nonetheless, Plaintiff may still prevail against DiMucci by establishing that an exclusion applies. Here, Plaintiff faces a “heavy” burden to demonstrate that the allegations of the Towers Complaint are “cast solely and entirely within the [Your Work Exclusion] and are subject to no other reasonable interpretation.”[17] Further, any doubts must be resolved against Plaintiff.[18] In its SJ Order, the Court failed to hold Plaintiff to this heavy burden. (See Doc. 108.) But it does so now.

         I. The Policies[19]

         The three CGL policies provide for products completed operations hazard (“PCOH”) coverage of one million dollars per occurrence (“PCOH Limit”).[20] (See Doc. 42, ¶¶27, 29, 31; Doc. 54, ¶¶27, 29, 31; see also Docs. 42-5, 42-6, 42-7.) Pursuant to the PCOH provisions, the Policies cover all Property Damage “occurring away from the premises [the insured] own[s] or rent[s] and arising out of” your work except work “that has not yet been completed or abandoned.”[21] (E.g., Doc. 42-6, p. 41, Pt. V, ¶ 15.1.) The Your Work Exclusion-Coverage A, Section I, Paragraph 2.l.-provides that the Policies don't apply to: Property Damage to your work “arising out of it or any part of it and included in the [PCOH].” (Id. at 32.) The SUBC Exception limits the Your Work Exclusion: “This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.” (See Id. (emphasis added).)

         II. Towers Complaint

         A. Factual Allegations Common to All Counts

         On its face, the Towers Complaint names two different defendants (“Defendants”): (1) DiMucci as the “Developer” and “Contractor” of the “Condominium, ” (“which contains 132 condominium units, and appurtenant common elements”); and (2) Wayne's as the “Roofer” of the Condominium. (See Doc. 42-1, p.1 & ¶¶7-9 & 11-13.) Towers (i.e., the ASSOCIATION) further identifies Defendants as the “general contractor” and the “subcontractor” in relation to construction of the Condominium “buildings and improvements.” (See Id. ¶¶12-13.) In paragraphs nine and ten, Tower further alleges that:

9. The causes of action alleged herein, concern matters of common interest to the Condominium's unit owners, including but not limited to, areas of the common elements and other structural components of the Condominium, and various building components serving the Condominium, as follows:
A. Roof: Trapped moisture, bad flashing, missing coping caps, roof leaks, poor scupper installation and code issues with scuppers
B. Generator Exhaust Pipe: Exhaust becomes trapped and creates dangerous condition
C. HVAC: Design of piping and condensation lines create excessive moisture causing severe leaking
D. Water intrusion and Decking/Structural issues: Failure of waterproofing, sloping and/or joint issues with sealant allowing water into units and structural damage to decking and rebar below. Failure of expansion caulking and sealant allowing water intrusion to concrete below balconies and walkways, and creating popped/cracked rile for dangerous conditions. Complete failure of ground floor decking on entire front building driveway. Leaking into garage, waterproofing above garage, cracking, caving, splitting seams and joints, pool deck foundation separating and felling.
10. The ASSOCIATION contends that the DEFENDANTS failed to construct the Condominium in accordance with proper and approved construction plans and specifications and in accordance with good design, engineering and construction practices, and as a result the ASSOCIATION'S buildings and improvements and parcels were sold to the Unit Owners with defects and deficiencies. The defects and deficiencies of the building for which the DEPENDANTS are responsible for as of the filing ...

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