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Auto-Owners Insurance Co. v. Environmental House Wrap, Inc.

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

July 12, 2019

AUTO-OWNERS INSURANCE COMPANY, Plaintiff,
v.
ENVIRONMENTAL HOUSE WRAP, INC., [1]and BISCAYNE BAY HOMEOWNERS ASSOCIATION, INC., Defendants.

          ORDER

          MARCIA MORALES HOWARD UNITED SLATES DISTRICT JUDGE

         THIS CAUSE is before the Court on cross-motions for summary judgment as to Plaintiff Auto-Owners Insurance Company's (Auto-Owners) duty to defend CalAtlantic Group, Inc. (CalAtlantic) in an underlying state court action initiated by Defendant Biscayne Bay Homeowners Association, Inc. (Biscayne Bay). See Defendant CalAtlantic Group, Inc.'s Motion for Summary Judgment and Incorporated Memorandum of Law (Doc. 44; CalAtlantic's Motion); Defendant Biscayne Bay Homeowners Association, Inc.'s Motion for Partial Summary Judgment Against Auto-Owners Insurance Company and Memorandum of Law in Support Thereof (Doc. 46; Biscayne Bay's Motion); Auto-Owners Insurance Company's Motion for Summary Judgment and Incorporated Memorandum of Law (Doc. 47; Auto-Owners' Motion), each filed on December 14, 2018. The parties filed their respective responses on January 7, 2019. See Defendant CalAtlantic Group, Inc.'s Memorandum in Opposition to Plaintiff Auto-Owners Insurance Company's Motion for Summary Judgment (Doc. 53; CalAtlantic's Response to Auto-Owners' Motion); Auto-Owners Insurance Company's Response in Opposition to Biscayne Bay Homeowners Association, Inc.'s Motion for Partial Summary Judgment and Incorporated Memorandum of Law (Doc. 54; Auto-Owners' Response to Biscayne Bay's Motion); Auto-Owners Insurance Company's Response in Opposition to the Ryland Group, Inc.'s Motion for Summary Judgment and Incorporated Memorandum of Law (Doc. 55; Auto-Owners' Response to CalAtlantic's Motion); Defendant Biscayne Bay Homeowners Association, Inc.'s Response in Opposition to Plaintiff Auto-Owners Insurance Company's Motion for Summary Judgment (Doc. 56; Biscayne Bay's Response to Auto-Owners' Motion).

         In their Motions, the parties also moved for summary judgment on the issue of Auto-Owners' duty to defend Environmental. However, at a motion hearing held on April 22, 2019, the Court denied Auto-Owners' Motion to the extent Auto-Owners sought a declaration that it did not have a duty to defend Environmental in the underlying state court action, and in turn granted CalAtlantic and Biscayne Bay's Motions to the extent the Court declared that “Auto-Owners has a duty to defend and must defend Environmental against the claims alleged in the underlying state court action[.]” See Order (Doc. 76). In light of new arguments raised by Auto-Owners at the hearing, the Court took the Motions under advisement to the extent they sought declarations regarding Auto-Owners' duty to defend CalAtlantic. Id. The Court directed the parties to submit additional briefing “limited to the duty to defend CalAtlantic for damages that may have occurred before the operations were completed but were not identified until after the completion of the project[, ]” id., which they have since done. See Auto-Owners Insurance Company's Supplemental Brief on the Products-Completed Operations Exclusion (Doc. 81; Auto-Owners' Supplemental Brief); Defendant Biscayne Bay Homeowners Association, Inc.'s Response to Auto-Owners Insurance Company's Supplemental Brief on the Products-Completed Operations Hazard Exclusion (Doc. 83; Biscayne Bay's Supplemental Brief). Accordingly, the remaining issue of whether Auto-Owners had a duty to defend CalAtlantic in the underlying state court action is ripe for review.

         I. Background[2]

         This insurance coverage dispute arises out of a lawsuit filed in state court on May 20, 2016, by Biscayne Bay regarding the construction and development of a 24-townhome community known as the Biscayne Bay Townhomes in Jacksonville, Florida (the Project). See Biscayne Bay Homeowners Ass'n, Inc. v. Evergreen Visibility, LLC, No. 2016-CA-3462 (Fla. 4th Cir. Ct. 2016) (Underlying Lawsuit).[3] Biscayne Bay, which is the homeowners association responsible for the maintenance of the townhomes, sued CalAtlantic and Environmental, along with more than 30 other defendants, in state court for damages caused by alleged defects in the construction of the Project. See id. On July 18, 2017, Auto-Owners initiated the instant action for declaratory judgment, seeking a declaration that it is not obligated to defend or indemnify Environmental or CalAtlantic in the Underlying Lawsuit.[4] See Complaint for Declaratory Relief (Doc. 1).

         On April 19, 2019, Biscayne Bay and CalAtlantic notified the Court that they had settled their claims in the Underlying Lawsuit, and that “[t]he settlement included an assignment of . . . CalAtlantic's rights, claims, and interests for additional insured coverage under the subject Auto-Owners policy.” See Biscayne Bay Homeowners Association, Inc.'s and CalAtlantic Group, Inc.'s Joint Motion to Substitute (Doc. 74; Motion to Substitute). At Biscayne Bay and CalAtlantic's request, and without objection by Auto-Owners, [5] the Court directed the Clerk of Court to substitute Biscayne Bay, as assignee of CalAtlantic, as Defendant in place of CalAtlantic. See Endorsed Order Granting Motion to Substitute (Doc. 82; May 6, 2019). Thus, the only parties still actively litigating this case are Auto-Owners and Biscayne Bay.

         A. The Allegations of the Underlying Complaint

         For purposes of determining whether Auto-Owners had a duty to defend CalAtlantic in the Underlying Lawsuit before the parties settled, the operative complaint is Biscayne Bay's Third Amended Complaint, filed on September 14, 2018.[6] See Auto-Owners' Motion, Ex. A: Third Amended Complaint (Doc. 47-1; Underlying Complaint). According to the Underlying Complaint, CalAtlantic was the developer and general c o nt racto r fo r t h e Pr o j ect. See id. ¶ 12. Environmental was a subcontractor responsible for installing the “building wrap, flashing, and building envelope waterproof system at all 24 buildings in the community.” Id. ¶¶ 46, 278.

         Biscayne Bay alleged that all of the various state court defendants “failed to reasonably and adequately plan, develop, design, or construct the Townhomes.” Id. ¶ 90. As a result of the defendants' failures, Biscayne Bay asserted that the townhomes suffer from the following defects: “foundations; soils; site work; exterior wall and building envelope defects; waterproofing defects; concrete and flatwork defects; defects in the roofing systems, and cladding systems and related components; and the material and workmanship incident to their installation.” Id. ¶ 91. In addition, Biscayne Bay alleged that the aggregate effect of the defects “has caused and will continue to cause, community-wide water-intrusion damage to other components of the roofs and other components of the building including, but not limited to the building exteriors, building framing, building lath, building sheathing, drywall, paint, interior and exterior finishes, erosion of soils, damages to concrete slabs, driveways, and walks, and damages to site work and other components of the Townhomes . . . .” Id. ¶¶ 95, 104, 112-13, 120-21, 279. Based in part on these allegations, Biscayne Bay brought three claims against CalAtlantic and two claims against Environmental. As to CalAtlantic, Biscayne Bay asserted claims for violation of Florida's building code (Count I), negligence (Count II), and breach of implied warranty (Count XLII). See Underlying Complaint at 22-27, 95-96. As to Environmental, Biscayne Bay asserted claims for negligence (Count III) and violation of Florida's building code (Count XIX). See id. at 27-29, 56-57.

         Notably, in the Underlying Complaint, Biscayne Bay did not allege when the water damage actually occurred or when it was discovered. Instead, Biscayne Bay alleged only that “[t]he defects and deficiencies were not readily discoverable by [Biscayne Bay] or its members through reasonable inspection at the time of purchase, and [Biscayne Bay] and its members became aware of the defects and deficiencies only after inspections performed by expert consultants.” Id. ¶ 94. Additionally, in the Underlying Complaint, Biscayne Bay did not allege when Environmental completed its work on the Project, when certificates of occupancy were issued for the townhomes, or when Biscayne Bay took possession of the townhomes.

         B. The Policy

         Auto-Owners attached the commercial general liability (CGL) policy at issue as an exhibit to its Complaint for Declaratory Relief. See id., Ex. D: Commercial General Liability Insurance Policy Issued by Auto-Owners Insurance Company to Environmental House Wrap, Inc. (Doc. 1-4; Policy). Environmental is the named insured in the Policy and CalAtlantic is named as an additional insured. See Policy at 7-8.[7] The Policy provides coverage for “those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury' or ‘property damage' to which this insurance applies.” See Policy at 8. For the insurance to apply, the “property damage” must be “caused by an ‘occurrence' that takes place in the ‘coverage territory.'” Id. An “occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Id. at 20. In addition, the “property damage” must “occur[ ] during the policy period.” Id. at 8. The Policy defines “property damage, ” in relevant part, as “[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.” Id. at 20-21. The Policy provides that Auto-Owners “will have the right and duty to defend the insured against any ‘suit' seeking . . . damages for . . . “property damage.” Id. at 8.

         The Policy also provides products-completed operations hazard coverage to Environmental, which is defined in the Policy as follows:

[PCOH] [i]ncludes all . . . “property damage” occurring away from premises you own or rent and arising out of . . . “your work” except:
(1) Products that are still in your physical possession; or
(2) Work that has not yet been completed or abandoned. However, “your work” will be deemed completed at the earliest of the following times:
(a) When all of the work called for in your contract has been completed.
(b) When all of the work to be done at the job site has been completed if your contract calls for work at more than one job site.
(c) When that part of the work done at a job site has been put to its intended use by any person or organization other than another contractor or subcontractor working on the same project.
Work that may need service, maintenance, correction, repair or replacement, but which is otherwise complete, will be treated as completed.

Id. at 20.

         In relevant part, the Policy ...


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