Travelers Indemnity v. Tower-Dawson, LLC, No. 07-1525 (4th Cir. 2008)

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UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 07-1525 TRAVELERS INDEMNITY INDEMNITY COMPANY, COMPANY OF AMERICA; THE TRAVELERS Plaintiffs - Appellees, COLONY INSURANCE COMPANY; DONEGAL GROUP, INCORPORATED, Defendants Appellees, and FOUNDATIONS WHITE, UNLIMITED, INCORPORATED; NICHOLAS JOHN ALAN Defendants, v. TOWER-DAWSON, LLC, Defendant Appellant. Appeal from the United States District Court for the District of Maryland, at Baltimore. William D. Quarles, Jr., District Judge. (1:05-cv-02644-WDQ) Argued: September 24, 2008 Decided: October 31, 2008 Before WILKINSON, Circuit Judge, HAMILTON, Senior Circuit Judge, and James C. CACHERIS, Senior United States District Judge for the Eastern District of Virginia, sitting by designation. Affirmed by unpublished per curiam opinion. ARGUED: Michael Evan Jaffe, THELEN, REID, BROWN, RAYSMAN & STEINER, L.L.P., Washington, D.C., for Appellant. Lee Hedgecock Ogburn, KRAMON & GRAHAM, Baltimore, Maryland, for Appellees. ON BRIEF: Todd J. Wagnon, THELEN, REID, BROWN, RAYSMAN & STEINER, L.L.P., Washington, D.C., for Appellant. Stuart M. G. Seraina, KRAMON & GRAHAM, Baltimore, Maryland, for Appellees Travelers Indemnity Company of America and The Travelers Indemnity Company; Laura Campbell Walters, DRECHSLER, LARKIN & WALTERS, P.C., Baltimore, Maryland, for Appellee Colony Insurance Company; Michael B. Mann, MANN & CASEY, P.A., Towson, Maryland, for Appellee Donegal Group, Incorporated. Unpublished opinions are not binding precedent in this circuit. - 2 - PER CURIAM: Tower-Dawson, LLC (Tower), the developer of The Villages at Tower Oaks (Tower Oaks), a residential development in Rockville, Maryland, appeals the district court s grant of summary judgment on its Travelers claim that Travelers Indemnity Indemnity Company, Colony Company Insurance of America, Company, and Donegal Group (collectively the Insureds) had an obligation to indemnify Foundations Unlimited, Inc. (Foundations) for the costs incurred by Tower in installing a new retaining wall in front of the defective one Foundations installed in Tower Oaks and for the costs to repair federally-protected wetlands located adjacent to Tower Oaks which were damaged by Tower during its installation of the new retaining wall. For the reasons that follow, we affirm. I The Insureds issued commercial general liability (CGL) policies (the Policies) to Foundations, covering a time period beginning on August 28, 1995 and ending on August 28, 2003. Policies provided because of coverage property for damages that damage caused by Foundations an The owed occurrence. Property damage is defined as either a [p]hysical injury to tangible property, including all resulting loss of use of that property or [l]oss of use of tangible property that is not - 3 - physically injured. Occurrence is defined as an accident, including continuous or repeated exposure to substantially the same general harmful conditions. The Policies grant of coverage for property damage caused by an occurrence is limited by a your work exclusion. Specifically, the your work exclusion provides that coverage to the named insured, in this case Foundations, does not apply to property damage [due] to your work arising out of it or any part of it. In August 1995, Tower contracted with Foundations construct a 770-foot retaining wall at Tower Oaks. began shortly thereafter, and Foundations to Construction completed the retaining wall some time in 1996. In 2001, the retaining wall began to show signs of failure, and eventually collapsed in property and a seventy-foot 2003, causing section damage of to the retaining several federally-protected wetlands to damage wall homeowners adjacent to the development. In order prevent further to the homeowners property and the federally-protected wetlands adjacent to the development, Tower stabilized the area around the retaining wall by installing wood and gravel bracing. Once the slope was stabilized, Tower constructed a new retaining wall immediately in front of the defective one. With the two retaining walls in - 4 - place, the land both above and below the walls was stabilized. To construct the new retaining wall, Tower decided to access the site through the federally-protected wetlands, but this caused further damage to those wetlands. Following the construction of the new retaining wall, Tower repaired the homeowners property and remediated the federally-protected wetlands. it incurred, Tower instituted arbitration For the costs proceedings against Foundations, which resulted in an award to Tower in the sum of $2,015,603, an amount which has not been paid. Travelers Indemnity Indemnity Company Company (collectively of America Travelers) and Travelers instituted this declaratory judgment action, seeking a declaration that it had no duty under the CGL policies it issued to Foundations to indemnify Tower for any portion of the arbitration award Tower obtained against Foundations. Travelers joined as defendants Colony Insurance Company and Donegal Group, each of whom filed counterclaims seeking a declaration that their policies did not require them to indemnify Tower in connection with the arbitration award. On cross-motions for summary judgment, the district court held that the Insureds were obligated to indemnify Tower for some of its costs, but not others. More specifically, the district court held that the damage to the homeowners property and the federally-protected wetlands caused by the collapse of - 5 - the original Policies. retaining wall was a covered loss under the The district court also held that the cost of the emergency bracing was a covered loss as well, concluding that the cost was incurred to prevent imminent or further damage to third party property. The district court held that the cost of installing the new retaining wall was not a covered loss under the Policies because it was not caused by an occurrence or, alternatively, the loss was barred by the your work exclusion. Finally, the district court held that the cost of repairing the further damage to the federally-protected wetlands brought about by the installation of the new retaining wall was not a covered loss because the loss was not accidental. Tower appeals the portion of the district court s decision adverse to its interests. The Insureds have not challenged any portion of the district court s decision. II We review de novo the district court s grant of summary judgment. Ellis v. Metro. Life Ins. Co., 126 F.3d 228, 232 (4th Cir. 1997). We will affirm the district court s decision if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). - 6 - We view the record and all reasonable inferences drawn therefrom in favorable to the nonmoving party, here Tower. the light most Williams v. Giant Food Inc., 370 F.3d 423, 428 (4th Cir. 2004). On appeal, Tower argues that the district court erred when it determined that the cost of installing the new retaining wall and the cost of repairing the damage to the federally-protected wetlands brought about by the installation of the new retaining wall were not covered losses under the Policies. In resolving this argument, we apply Maryland s substantive law regarding the interpretation of an insurance policy, which the parties agree applies to this case. French v. Assurance Co. of Am., 448 F.3d 693, 700 (4th Cir. 2006). Under Maryland law, [a]n insurance policy is interpreted in the same manner as any other contract. Maryland courts do not follow the rule that an insurance policy must be strictly construed against the insurer. The principal rule in the interpretation of contracts is to effect the intentions of the parties. When a contract s wording is clear, the court will presume that the parties intended what they expressed, even if the expression differs from the parties intentions at the time they created the contract. If reasonably possible, effect must be given to every clause and phrase of a contract, so as not to omit an important part of the agreement. Nationwide Ins. Co. v. Rhodes, 732 A.2d 388, 390-91 (Md. Ct. Spec. App. 1999) (citations and internal quotation marks omitted). The Policies provided coverage for damages that Foundations owed because of property damage caused by an occurrence. - 7 - The Policies define an occurrence as an accident, including continuous or repeated exposure to substantially the same general harmful conditions. Under Maryland law, in order for there to be an occurrence under a CGL policy, there must be an accident. Lerner Corp. v. Assurance Co. of Am., 707 A.2d 906, 911 (Md. Ct. Spec. App. 1998). Typically, a CGL policy does French, 448 F.3d at 698. accident. not define there term However, under Maryland law, an act of negligence constitutes an accident under a liability insurance policy when the resulting damage takes place without the insured s actual foresight or expectation. Id. Our decision in French is instructive on the question of what constitutes contractor an accident a single built under family Maryland home for law. There, a the appellants. Pursuant to the parties contract, the exterior of the home was clad with a synthetic stucco system Insulating Finishing System (EIFS). known as Id. at 696. the Exterior Nearly five years after the home was completed, the appellants discovered extensive moisture and water damage to the walls of their home, resulting from the defective cladding of the home with the EIFS. Id. The appellants spent over $500,000 to correct the defects in the EIFS exterior of the home and to remedy the resulting damage to the otherwise nondefective structure and walls of the home. Id. The appellants brought - 8 - an action against the contractor, and the question before this court was whether the contractor s insurer was required to cover the claim under the contractor s CGL policy. Id. Applying Maryland law, we concluded that the insurer was required to cover any unexpected property damage that occurred to something other than the defective object as a result of the defective object, but the insurer was not required to cover any damage to the defective object itself: [I]f the defect causes unrelated and unexpected property damage to something other than the defective object itself, the resulting damages . . . may be covered. For example, if a collapse of [a] veneer had injured a user of the facility or damaged property other than the veneer itself, these may well be covered. Id. at 702 (alterations and internal quotation marks omitted). Thus, when there is no property damage to otherwise nondefective parts of [a] building, there is no accident or occurrence. remedy Id. unexpected at and 703. Thus, unintended coverage exists only to property damage to the contractor s otherwise nondefective work-product caused by the . . . defective workmanship. Id. at 706. And if a product does not meet the contract requirements of a sale, it should not be unforeseen that the purchaser will be entitled to correction of the defect. Id. at 702. The Maryland Court of Appeals decision in Woodfin Equities Corp. v. Harford Mutual Insurance Co., 678 A.2d 116 (Md. Ct. - 9 - Spec. App. 1996), overruled in part on procedural grounds, 687 A.2d 652 (Md. 1997), also is instructive on the question of what constitutes an accident under Maryland law. In that case, a hotel hired the insured to install a Heating, Ventilation, and Air Conditioning (HVAC) system. Id. at 118-19. The HVAC system was defective, and carpeting and drywall had to be destroyed to remedy the coverage defect. for the Id. costs at of 121, The insured carpeting the 131. and sought drywall. The Maryland Court of Special Appeals found that the insurer was not required to cover the property damage because pulling up carpeting and breaking through drywall to access the HVAC system was not property damage, but rather the replacing and repairing the HVAC systems. Woodfin court further explained: cost incurred Id. at 132 n.8. Voluntarily pulling in The up carpeting or breaking through dry-wall to access the HVAC units is not property damage. . . . Even if it could be considered property damage, we would hold that it was not caused by an occurrence, because the so-called damage was not accidental. Id. Under these authorities, it is evident that the cost of installing the new retaining wall and the cost of repairing the Even though Woodfin was overruled on procedural grounds, Maryland courts continue to find Woodfin instructive on the interpretation of CGL policies generally. Lerner Corp., 707 A.2d at 910. - 10 - damage to the federally-protected wetlands brought about by the installation of the new retaining wall are not covered losses under the Policies. With regard to the installation of the new retaining wall, Foundations contractual obligation to Tower was to furnish a retaining wall, one capable of protecting the land both above and below the retaining wall. wall did not fulfill repaired or replaced. wall, either by this purpose The original retaining and needed to be either The correction of the defective retaining replacing the original retaining wall or installing a new one, simply was not unforeseen, just like it was not unforeseen in French that the EIFS exterior would have to be replaced as it was not capable of keeping moisture and water out of the appellants home. With regard to the cost of repairing the damage to the federally-protected wetlands brought about by the installation of the new retaining wall, these costs are not covered losses as well. This damage was not caused by an accident; rather, it was caused by the intentional act of Tower. Just like the carpeting and drywall that had to be removed or destroyed in Woodfin to remedy the defect in the HVAC units, the further damage to the federally-protected wetlands was necessary to correct the defect (inability to protect the land both above retaining wall) in the original retaining wall. - 11 - and below the In an attempt to make an end-run around these well- established authorities, Tower states that the outcome of this case is controlled by Aetna Ins. Co. v. Aaron, 685 A.2d 858 (Md. Ct. Spec. App. 1996). In that case, the Maryland Court of Special Appeals addressed whether remediation expenses incurred in connection with the insured homeowner s own property were covered losses under a homeowner s insurance policy covering property damages, even though the policy contained an owned property exclusion, which provided that coverage did not apply if the property damage was to property owned by the insured. Id. at 860. exclusion did The not Aaron court preclude held that coverage the for owned the property costs of preventative measures undertaken on the insured s property to prevent imminent damage to third-party property. Aaron is of no help to Tower. Id. at 866-70. Aaron did not involve a CGL policy that provided for coverage for damages that were caused by an occurrence. The inclusion of the occurrence provision brings into play the well-settled Maryland law construing what constitutes an accident in the construction context. to accept Tower s invitation to apply Aaron If we were outside of the homeowner s context and in the construction context, we would turn the Maryland law on what constitutes an occurrence on its head, as redoing the insured contractor s work routinely has the effect of preventing further or imminent damage to third-party - 12 - property. We also note that the Court of Appeals of Maryland has rejected a claim for coverage under a similar CGL policy to the one in our case for measures taken property damage in the construction context. to avoid imminent See W.M. Schlosser Co., Inc. v. Ins. Co. of North America, 600 A.2d 836, 840 (Md. 1992) ( We conclude that under Maryland law, the liability policy at issue here [which defines occurrence as an accident] did not provide coverage for the preventive costs incurred by Schlosser. ). III For the reasons stated herein, the judgment of the district court is affirmed. AFFIRMED - 13 -

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