JAMES McHUGH CONSTRUCTION CO., Plaintiff, v. TRAVELERS PROPERTY CASUALTY CO. OF AMERICA, Defendant.

 

Civil Action No. PX 16-1099

 

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

 

2016 U.S. Dist. LEXIS 176112

 

 

December 20, 2016, Decided

December 20, 2016, Filed

 

 

COUNSEL:  [*1] For James McHugh Construction Co., Plaintiff: Brian A Loffredo, LEAD ATTORNEY, Offit Kurman PA, Fulton, MD; Eric J Pelletier, LEAD ATTORNEY, Offit Kurman PA, Bethesda, MD; Christopher Michael Cano, Robert J Franco, PRO HAC VICE, Franco Moroney LLC, Chicago, IL.

 

For Travelers Property Casualty Company of America, Defendant: Craig David Roswell, LEAD ATTORNEY, Niles Barton and Wilmer LLP, Baltimore, MD; Kirk M Zapp, PRO HAC VICE, Foran Glennon, Chicago, IL; Matthew S Ponzi, PRO HAC VICE, Foran Glennon Palandech Ponzi and Rudloff PC, Chicago, IL.

 

JUDGES: Paula Xinis, United States District Judge.

 

OPINION BY: Paula Xinis

 

OPINION

 

MEMORANDUM OPINION

Pending in this insurance action are Plaintiff’s and Defendant’s cross-motions for summary judgment (ECF Nos. 6, 33). The issues are fully briefed and the Court now rules pursuant to Local Rule 105.6 because no hearing is necessary. For the reasons stated below, Defendant’s motion is granted and Plaintiff’s motion is denied.

 

1. BACKGROUND

The following facts are undisputed. James McHugh Construction Company (“Plaintiff”) was selected to be the general contractor for the construction of a high-rise apartment building at 360 West Hubbard in Chicago, Illinois. Pl.’s Resp. to Undisputed Facts, ECF [*2]  No. 36-1 at 2-3. 360 West Hubbard Joint Venture LLC, as the owner of the project, purchased an insurance policy from Defendant Travelers Property Casualty Company of America (“Defendant”) covering Builders Risk and Inland Marine risks for 360 Hubbard. See Insurance Policy, ECF No. 31-2. The insurance policy contains a blanket named insured endorsement and names all contractors, including Plaintiff, as named insureds on the Policy. Pl.’s Resp. to Undisputed Facts, ECF No. 36-1 at 19. The insurance policy also contains a broad form insuring agreement, which states that all loss to the project is covered except for those claims which are excluded:

 

1. COVERAGE

 

 

We will pay for direct physical loss of or damage to Covered Property from any of the Covered Causes of Loss . . . . Covered Causes of Loss means RISKS OF DIRECT PHYSICAL LOSS OR DAMAGE except those causes of loss listed in the Exclusions . . . .

 

 

Insurance Policy, ECF No. 31-2 at 23 (emphasis in original).

In the fall of 2013, tenants began moving into the 360 West Hubbard building, and so the project owner requested Plaintiff to clean the exterior glass windows. Pl.’s Resp. to Undisputed Facts, ECF No. 36-1 at 5. Plaintiff engaged a [*3]  subcontractor, Corporate Cleaning Services, Inc. (“CCS”), to clean the exterior glass. Id. The subcontract between Plaintiff and CCS describes CCS’s scope of work as all “Exterior Window Washing.” Specifically, the subcontract states:

 

Without limiting the generality of [the term “Exterior Window Washing”], the following items are specifically included:

1. Exterior washing of windows and surrounding frames.
2. Protection of all existing finishes from damage during sitework.
3. Rubbish removal to dumpsters provided by others.
4. Daily cleanup, including load out of debris to dumpsters provided by the Contractor.
5. Cooperation and coordination with all project personnel and other trades.
6. Coordination with all agencies having jurisdiction over subcontractor work.
7. All applicable taxes.

 

 

CCS-McHugh Subcontract, ECF No. 31-4. CCS was tasked with removing both dirt and “construction debris” that had settled on the window surfaces during the construction process. Construction debris includes dried mortar, concrete, cement, and paint. Pl.’s Resp. to Undisputed Facts, ECF No. 36-1 at 7. The construction debris on the exterior glass could not be removed using standard cleaning methods, Id. at 8, so CCS removed [*4]  the debris using a metal scraper or similar tool. Id. at 12. CCS failed to follow industry standards when removing debris from the glass designed to eliminate or reduce the risk of damaging glass. see id. at 12-17 (“McHugh believes that CCS failed to properly execute its work method because it was not in conformance with the Subcontract and all applicable industry standards.”). As a result, the glass surfaces were scratched.

The scratched windows were rejected by the building’s owner and thus Plaintiff was forced to incur the costs of repairing and replacing the scratched windows. Pl.’s Mot. Sum. Judgment, ECF No. 31 at 3. Plaintiff reported the loss and claim to Defendant. On July 15, 2014, Defendant denied the claim. The sole basis for Defendant’s denial was Exclusion B(3)(d)(2) in the insurance policy for “Omission or faulty, inadequate or defective: Materials, workmanship or maintenance.” Def.’s Rejection Letter, ECF No. 31-3. The insurance policy’s exclusion clause states, in pertinent part:

 

1. We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence [*5] to the loss or damage.

***

3. We will not pay for loss or damage caused by or resulting from any of the following. But if loss or damage by a Covered Cause of Loss results, we will pay for that resulting loss or damage.

***

1. Omission in, or faulty, inadequate or defective:

***

(2) Materials, workmanship or maintenance.

 

 

Insurance Policy, ECF No. 31-2 at 30-32. According to Defendant, CCS’s cleaning of the windows is “considered faulty, inadequate or defective maintenance” under the policy. Def.’s Rejection Letter, ECF No. 31-3.

On February 5, 2016, Plaintiff filed a complaint in the Circuit Court for Montgomery County alleging breach of contract and seeking a declaratory judgment that Plaintiff’s claim is covered by the insurance policy. ECF No. 2. On April 13, 2016, Defendant timely removed the case to this Court based on diversity of citizenship pursuant to 28 U.S.C. § 1332. ECF No. 1. That same day, Plaintiff filed a motion for summary judgment. ECF No. 6.

On August 1, 2016, Plaintiff filed an amended memorandum in support of its motion for summary judgment. ECF No. 31. It argues that it prevails as a matter of law because the “faulty workmanship” exclusion, which served as the sole basis for Defendant’s [*6]  denial of Plaintiff’s claim, is ambiguous and the ambiguity should be resolved in favor of Plaintiff as the insured. Plaintiff’s position is that the term “faulty workmanship” does not cover the damage caused by CCS. ECF No. 31 at 2. And even if this Court finds that Defendant has met its burden in proving the faulty workmanship exception applies, the “ensuing loss” exception to the faulty workmanship exclusion applies to Plaintiff’s loss, and thus policy covered the loss. Defendant filed a cross-motion for summary judgment on August 15, 2016. ECF No. 34. It argues that the faulty workmanship exclusion justifies its denial of Plaintiff’s claim and that the ensuing loss exception does not apply. Id.

 

1. STANDARD OF REVIEW

“The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986) (citing predecessor to current Rule 56(a)). The burden is on the moving party to demonstrate the absence of any genuine dispute of material fact. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S. Ct. 1598, 26 L. Ed. 2d 142 (1970). If sufficient evidence exists for a reasonable jury to render a verdict in favor of the party opposing the motion, then a genuine dispute of material fact [*7]  is presented and summary judgment should be denied. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). However, the “mere existence of a scintilla of evidence in support of the [opposing party’s] position” is insufficient to defeat a motion for summary judgment. Id. at 252. The facts themselves, and the inferences to be drawn from the underlying facts, must be viewed in the light most favorable to the opposing party, Scott v. Harris, 550 U.S. 372, 378, 127 S. Ct. 1769, 167 L. Ed. 2d 686 (2007); Iko v. Shreve, 535 F.3d 225, 230 (4th Cir. 2008), who may not rest upon the mere allegations or denials of his pleading but instead must, by affidavit or other evidentiary showing, set out specific facts showing a genuine dispute for trial, Fed. R. Civ. P. 56(c)(1).

When a court is called upon to decide cross-motions for summary judgment, it must review each motion separately on its own merits to decide whether either party deserves judgment as a matter of law. Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir. 2003). Thus, as with any motion for summary judgment, the court must review the facts and reasonable inferences therefrom in the light most favorable to the party opposing that motion. Id. Here, the underlying facts are largely undisputed. The parties’ arguments center on the proper interpretation of the insurance policy.

 

III. ANALYSIS

Because the parties executed the insurance policy in Maryland, the parties agree that Maryland law applies to [*8]  the “faulty workmanship” and “resulting loss” issues addressed in the cross-motions. Def.’s Mot. Summ. J., ECF No. 34 at 8-9. The Court will therefore apply Maryland law.

 

1. Defendant’s Cross-Motion for Summary Judgment

 

1. The Faulty Workmanship Exclusion

Defendant’s principal argument against coverage is that CCS’s “faulty workmanship” damaged the windows, and so the policy expressly excludes the claim. Insurance Policy, ECF No. 31-2 at 32. Plaintiff responds that the term “faulty workmanship” is ambiguous because the contract does not specify whether it applies to processes, like cleaning windows, or final products such as the windows themselves, or both. Second, Plaintiff argues that it is unclear whether the term applies where originally the contracted-for work was completed properly (clean, debris-free glass), but thereafter subject to collateral damage (glass scratched during cleaning). Plaintiff urges the court to construe this supposed ambiguity in its favor and find that the exclusion of coverage does not reach this case.

Maryland courts interpret the language of an insurance policy with the same principles and rules of construction used to interpret other contracts. Connors v. Gov’t Employees Ins. Co., 442 Md. 466, 480, 113 A.3d 595 (2015). Like any [*9]  other contract, an insurance contract is “measured by its terms unless a statute, a regulation, or public policy is violated thereby.” Id. (quoting Pacific Indem. Co. v. Interstate Fire & Cas. Co., 302 Md. 383, 388, 488 A.2d 486 (1985)). The words of insurance contracts are given their customary, ordinary, and accepted meaning, as determined by the fictional “reasonably prudent lay person.” Id. (quoting Beale v. Am. Nat’l Lawyers Ins. Reciprocal, 379 Md. 643, 660, 843 A.2d 78 (2004)). When contractual language is plain and unambiguous, Maryland courts enforce the terms of the contract as a matter of law. Calomiris v. Woods, 353 Md. 425, 445, 727 A.2d 358 (1998); Pacific Indem. Co., 302 Md. at 389.

If the language of the contract is ambiguous, Maryland courts turn to extrinsic evidence to determine the intent of the parties. Connors, 442 Md. at 480-81. This is where Maryland courts depart from the rule followed in many other jurisdictions–i.e., that any ambiguity is interpreted in favor of the insured as a matter of course. A policy term is considered “ambiguous if, to a reasonably prudent person, the term is susceptible to more than one meaning.” Id. at 481 (quoting Cole, 359 Md. at 305-06). If either no extrinsic evidence or parol evidence is introduced, or such evidence does not resolve the ambiguity, only then do Maryland courts construe the policy against the insurer “as the drafter of the instrument.” Id. at 483 (quoting Megonnell v. United Servs. Auto. Ass’n., 368 Md. 633, 655, 796 A.2d 758 (emphasis in original)).

Maryland courts often turn to dictionary definitions as [*10]  a starting point in resolving ambiguous contractual or statutory language. See Cole v. State Farm Mut. Ins. Co., 359 Md. 298, 305, 753 A.2d 533 (2000); Bottini v. Dep’t of Fin., 450 Md. 177, 195, 147 A.3d 371 (2016). The term “workmanship” is defined as “something effected, made or produced” or “the art or skill of a workman; also: the quality imparted to a thing in the process of making <a vase of exquisite workmanship>.” Merriam-Webster’s Collegiate Dictionary 1443 (2012). These definitions demonstrate that the term can be used to describe the quality of a finished product (something effected, made or produced) or the process of creating a product but before the product is completed.

Plaintiff views the product and process definitions of “workmanship” as separate and distinct. According to Plaintiff, because the term carries at least two meanings and it is not clear which definition the parties adopted when it execute the insurance contract, the Court should resolve the ambiguity in favor of Plaintiff.

The Court disagrees with Plaintiff’s characterization of the term “workmanship.” Whether one uses the term “workmanship” to describe the quality of work in progress or the quality of a final product, the term is being used to refer to the quality or skill of the work performed in the process of creating the product. [*11]  Take, for example, the following sentences:

“The problems were caused by cheap materials and poor workmanship.”

“The excellent workmanship of the cabinets is remarkable.”

The first sentence clearly describes the process of creating a thing and the problems that resulted. The second sentence, while certainly describing a finished cabinet, uses the term workmanship to refer to the quality of the process of creating the cabinet. Thus, the dictionary distinguishes between two different uses of the term workmanship, but the term itself carries a single meaning.

Although dictionary definitions are helpful in resolving potentially ambiguous contractual language, the Court must still consult the context in which the parties entered into their agreement. Sy-Lene of Washington, Inc. v. Starwood Urban Retail II, LLC, 376 Md. 157, 167, 829 A.2d 540 (2003) (“When the clear language of a contract is unambiguous, the court will give effect to its plain, ordinary, and usual meaning, taking into account the context in which it is used.”); cf. Connors v. Gov’t Employees Ins. Co., 442 Md. 466, 480, 113 A.3d 595 (2015) (a contract must be construed in its entirety). The insurance policy’s exclusionary provision states:

 

3. We will not pay for loss or damage caused by or resulting from any of the following. But if loss or damage by a Covered Cause of Loss results, we will pay for [*12] that resulting loss or damage.
4. Hidden or latent defect, mechanical breakdown or failure (including rupture or bursting caused by centrifugal force), or any quality in the property that causes it to damage or destroy itself.
5. Corrosion, rust or dampness.
6. Wear and tear, gradual deterioration.
7. Omission in or faulty, inadequate or defective:

 

(1) Planning, zoning, development, surveying, siting, design, or specifications; or

(2) Materials, workmanship or maintenance.

 

 

1. Settling, cracking, shrinking or expanding.

 

 

Insurance Policy, ECF No. 31-2 at 32 (emphasis added). The term “workmanship” appears in a list of words that include “planning,” “zoning,” and “development” and “maintenance,” which are all parts of the building process. The fact that “workmanship” falls between these terms is evidence that the term was intended to refer to another part of the building process. See Schultz v. Erie Ins. Grp., 754 N.E.2d 971, 976-77 (Ind. Ct. App. 2001) (interpreting a similar exclusion and concluding that the word “‘workmanship,’ falling between planning and maintenance, at the very least signifies a component of the building process leading up to a finished product.”). Therefore, in the context of this policy, the definition of “faulty workmanship” at minimum [*13]  refers to the execution of a process.

Our analysis of the term “workmanship” within the insurance policy’s exclusion is in accord with the state and federal courts that have deemed the faulty workmanship exclusion unambiguous. See, e.g., U.S. Indus., Inc. v. Aetna Cas. & Sur. Co., 690 F.2d 459, 462-63 (5th Cir. 1982); Bangert Bros. Const. Co. v. Americas Ins. Co., 888 F. Supp. 1069, 1073 (D. Colo.), aff’d, 66 F.3d 338 (10th Cir. 1995); L.F. Driscoll Co. v. Am. Prot. Ins. Co., 930 F. Supp. 184, 187 (E.D. Pa. 1996), aff’d, 114 F.3d 1172 (3d Cir. 1997); Kroll Const. Co. v. Great Am. Ins. Co., 594 F. Supp. 304, 307 (N.D. Ga. 1984); Schultz v. Erie Ins. Grp., 754 N.E.2d 971 (Ind. Ct. App. 2001).1 Plaintiff’s “either/or approach” to the two definitions of “workmanship” “creates a false distinction, failing to take into account that a flawed process will often lead to a flawed product.” Schultz v. Erie Ins. Grp., 754 N.E.2d 971, 976 (Ind. Ct. App. 2001). Additionally, to allow an insured to recover for faulty work performed by a subcontractor, whether in the process of creating a product or the product itself, would turn insurance policies into something they are not: performance bonds or guarantees of contractual work. Bangert Bros. Const. Co., 888 F. Supp. at 1073.

 

1   “[T]hese exclusions unambiguously prevent recovery for any damages caused by defects in the building materials themselves or by defective work by builders during the construction process.” 11 Steven Plitt et al., Couch on Insurance § 153: 79 (2016) (emphasis added) (citing cases).

Plaintiff’s reliance on Allstate Ins. Co. v. Smith, 929 F.2d 447 (9th Cir. 1991) does not alter this analysis. There, the Ninth Circuit Court of Appeals found a similarly-worded faulty workmanship provision to be ambiguous in part because it concluded that the term could mean the flawed quality of a finished product or a flawed process. Id. at 449. California law required application of the most favorable construction for the insured. Thus, the Allstate court concluded that the exclusion only applied to flawed products, not processes. [*14]

Allstate is an outlier in its rationale. See, e.g., Schultz v. Erie Ins. Grp., 754 N.E.2d 971, 976 (Ind. Ct. App. 2001); Fourth St. Place v. Travelers Indem. Co., 127 Nev. 957, 967, 270 P.3d 1235 (2011); Wider v. Heritage Maint., Inc., 14 Misc. 3d 963, 974-75, 827 N.Y.S.2d 837 (N.Y. Sup. Ct. 2007); City of Oak Harbor v. St. Paul Mercury Ins. Co., 139 Wash. App. 68, 74, 159 P.3d 422 (2007). Most courts have interpreted “workmanship” as both “‘the quality or mode of execution, as of a thing made’ (a process) and ‘the product or result of labor and skill; work executed’ (a product).” Fourth St. Place, 127 Nev. at 967 (quoting Webster’s New Universal Unabridged Dictionary 2189 (1996)). In this way, “workmanship” covers both a process and a product unambiguously. Id. at 968 (citing cases).2

 

2   Notably, courts have relied on Allstate where, although errors in workmanship contributed in the causation, the loss or damage resulted fortuitously from events extraneous to the construction process itself. See, e.g., Century Theaters, Inc. v. Travelers Prop. Cas. Co. of Am., No. C-05-3146 JCS, 2006 U.S. Dist. LEXIS 15766, 2006 WL 708667 (N.D. Cal. Mar. 20, 2006) (heavy rain damaged interior of building after contractor failed to install temporary covering to prevent water intrusion); M.A. Mortenson Co. v. Indem. Ins. Co. of N. Am., No. CIV.98-2319/RHK/JMM, 1999 U.S. Dist. LEXIS 22641, 1999 WL 33911358 (D. Minn. Dec. 23, 1999) (heavy rainstorms and severe flooding damaged property before contractor could construct subgrades). Here, the damage to the windows was directly caused by CCS’s error in workmanship, not some event extraneous from the glass-cleaning process itself.

In Carney v. Assurance Co. of America, No. JFM-04-3434, 2005 U.S. Dist. LEXIS 6640, 2005 WL 899843 (D. Md. Apr. 19, 2005), the Court applied this precise rationale. Defendant subcontractor was tasked with painting and treating the wood siding with preservative on the Plaintiffs’ deck house. The subcontractor’s improper application of the preservative destroyed the wood siding. 2005 U.S. Dist. LEXIS 6640, [WL] at *1. Defendant insurer claimed the faulty workmanship exclusion applied because the wood was not treated and protected properly by the contractor. The plaintiffs tried to distinguish “between ‘accidentally improperly timed but otherwise proper installation’ of the wood and the improper staining of that wood,” asserting that because the former caused their damages, the policy exclusion does not apply. [*15]  Id. This Court deemed the plaintiffs’ distinction “insignificant”:

 

Assuming that the installation of the wood was otherwise proper, the “untimeliness” of the installation itself was faulty workmanship. Likewise, the improper staining of the wood equally constituted “faulty workmanship.” Therefore, however the subcontractor’s mistakes are characterized, the policy exclusion applies.

 

 

Id. Similarly here, the distinction between the scratched glass and the cleaning process which produced the scratched glass is as insignificant as the distinction parsed in Carney.

Plaintiff alternatively argues that the term faulty workmanship is ambiguous regarding “whether it applies to a contractor who, like CCS, does the job it was retained to do (it cleaned the glass) but causes other damage in the course of performing that work.” Pl.’s Resp. in Opp. to Def.’s Mot. Summ. J., ECF No. 36 at 2. In other words, Plaintiff is not seeking from Defendant or CCS any costs of re-doing the cleaning work, but recovery due to CCS’s scratching of the glass. “The scratching was ‘an unusual or unexpected result attending the operation or performance of a usual or necessary act or event,’ which resulted in ‘fortuitous [*16]  loss sustained during the construction of the building.'” ECF No. 36 at 7. Covering such “fortuitous loss,” Plaintiff posits, “is the purpose of all risks policies.” Id.

The Court first notes that Plaintiff’s characterization of CCS’s duties is too narrow. Plaintiff seems to suggest that CCS was only required to clean the windows in the ordinary sense–i.e., remove everyday dust and dirt from the windows using cleaning solution and a cloth. But CCS’s task was more involved than just removing dirt and grime. The subcontract between Plaintiff and CCS states that CCS was responsible for “[e]xterior washing of the windows and surrounding frames.” CCS-McHugh Subcontract, ECF No. 31-4 at 2. It is undisputed that “exterior washing” in this context included the removing of mortar, concrete, cement, paint, and other construction debris from the exterior glass.3 Thus, the scratches were a direct result of the task CCS was asked to complete–cleaning the windows–and not just “collateral damage.”

 

3   From the deposition of Daniel G. Rosenberg, Plaintiff’s 30(b)(6) witness:

 

1. Was there mortar, concrete, cement, or paint or other construction debris on the exterior glass that needed to be removed by CCS during cleaning?
2. Yes.

 

 

ECF No. 34-3 at 71. See also ECF No. 36-1 at 7.

Further, describing the process of scratching the glass [*17]  as “fortuitous loss” does not make the faulty workmanship exclusion ambiguous or save Plaintiff’s claim. The Court agrees that an all-risk policy, like the one here, generally insures against all fortuitous losses, defined by the Fourth Circuit as a loss “dependent on chance.” Ins. Co. of N. Am. v. U.S. Gypsum Co., 870 F.2d 148, 151 (4th Cir. 1989).4 However the types of fortuitous losses covered are obviously limited to those not expressly excluded by the insurance policy. Goodman v. Fireman’s Fund Ins. Co., 600 F.2d 1040, 1042 (4th Cir. 1979). Thus, even if the scratches were considered a “fortuitous loss,” as Defendant concedes for the purpose of this motion, ECF No. 38, such fortuitous losses are nonetheless excluded if they resulted from faulty workmanship.5

 

4   As this Court has explained, “Maryland’s appellate courts have not addressed the fortuity requirement in the context of an all-risks policy, they have construed the term “accident” from the perspective of an unplanned and unintentional loss.” Icarom, PLC v. Howard Cty., Md., 981 F. Supp. 379, 389 (D. Md. 1997) (citing Sheets v. Brethren Mut. Ins. Co., 342 Md. 634, 652, 679 A.2d 540 (1996) (holding that “an ‘accident’ under a liability insurance policy [occurs] when the resulting damage was ‘an event that takes place without [the insured’s] foresight or expectation.'”)).

5   General liability policies expressly exclude coverage of the insured’s faulty workmanship. 9A Couch on Insurance § 129:18 (2016). “The primary purpose of this exclusion is to prevent liability policies from insuring against an insured’s own faulty workmanship, which is a normal risk associated with operating a business.” Id. (citing cases).

Accordingly, the faulty workmanship exclusion is unambiguous and the court may enforce the terms of the policy as a matter of law. Further, the Court concludes that “faulty workmanship” unambiguously applies to processes including commercial glass cleaning.

 

1. Whether CCS’s Conduct Constitutes “Faulty Workmanship”

Defendant bears the burden of proving that the “faulty workmanship” exclusion applies to the glass cleaning that CSS performed. See Bao v. Liberty Mut. Fire Ins. Co., 535 F. Supp. 2d 532, 535 (D. Md. 2008) (“An insurer has the burden of establishing that the policy excludes a particular loss.”). Moreover where, as here, the material [*18]  facts are not in dispute, the moving party on a motion for summary judgment still bears the initial burden of showing that the undisputed facts, when viewed through the prism of applicable legal principles, entitle it to judgment as a matter of law. 7-Eleven, Inc. v. McEvoy, 300 F. Supp. 2d 352, 355-56 (D. Md. 2004) (“If the moving party would bear the burden of proof at trial, it discharges its initial burden by offering evidence that, if undisputed would entitle it to judgment.”) (citing Brinkley v. Harbour Recreation Club, 180 F.3d 598, 614 (4th Cir. 1999)). After the initial showing, summary judgment will be granted unless the opponent produces evidence upon which a reasonable jury could return a verdict in its favor. Id. (citing Celotex, 477 U.S. at 323-25).

Having reviewed Defendant’s Statement of Undisputed Facts and Plaintiff’s response to that Statement, the Court finds that Defendant has established a factual basis upon which to conclude that CCS’s conduct constitutes faulty workmanship. Plaintiff does not challenge Defendant’s factual basis and therefore has not produced enough evidence for a reasonable jury to render judgment in its favor.

In support of its position that CCS’s cleaning constitutes faulty workmanship, Defendant has introduced the affidavit of Mark K. Schmidt. Schmidt Aff., ECF 34-21. Schmidt is an engineer who specializes [*19]  in building facades. He focuses on the evaluation of glass, particularly blemished glass surfaces. Id. at 2. He is prepared to testify that “the glass cleaning work by CCS was not performed in accordance with the glass manufacturer’s recommendations and industry standards.” Id. at 9. Because CCS’s glass cleaning work did not conform to industry standards, Defendant argues that CCS’s performance constitutes faulty workmanship.

Plaintiff responds that the Court cannot rely on Schmidt’s opinion because it is offered only to interpret the faulty workmanship term in the contract which is solely a court determination. Id. at 3 (citing several cases). The Court agrees that expert testimony typically cannot be offered to support the interpretation of a contract term. See, e.g., Forrest Creek Associates, Ltd. v. McLean Sav. & Loan Ass’n, 831 F.2d 1238, 1242 (4th Cir. 1987); Truck Ins. Exch. v. Marks Rentals, Inc., 288 Md. 428, 433, 418 A.2d 1187 (1980). But here, the Court need not decide whether Schmidt’s opinions are admissible because Plaintiff concedes that CCS failed to conform to “the Subcontract and all applicable industry standards . . . .” ECF No. 36-1 at 18. Thus, the Court will accept as true that CCS’s glass-cleaning process fell below the industry standards.

More particularly, it is undisputed that GANA 01-0300, Proper Procedures for Cleaning Architectural Glass Products, published [*20]  by the Glass Association of North America (GANA), provides the industry standards that CCS should have followed while cleaning the glass. Pl.’s Resp. to Undisputed Facts (stating that CCS was required to abide by “all applicable industry standards, including . . . GANA 01-0300”). CCS was required to perform its work “in accordance with the Subcontract and all applicable industry standards.” Id. GANA 01-0300 includes the following glass cleaning recommendations or admonitions:

 

(1) first clean a small area of glass and evaluate prior to implementing cleaning techniques on a widespread basis, with the understanding that careful communication between involved parties should precede the use of cleaning techniques that could damage the glass surface; (2) using razor blades larger than nominally 1 inch results in a large probability of damaging the glass; (3) razor blades, if necessary to remove construction debris, should only be used on small affected areas; (4) scraping with razor blades should be performed in one direction only with a new blade and not in a back and forth motion, since scratches can result when debris is trapped under the blade; and (5) the glass surface should be soaked [*21]  with clean water and soap solution to loosen dirt and debris, and rinsed to remove excessive dirt and debris.

 

 

See Schmidt Aff., ECF No. 34-21 at 7-8.

It is further undisputed that CCS should have used a metal scraper or razor blade about an inch or an inch and half wide to clean the glass. CCS instead used a six-inch wide metal scraper. Pl.’s Resp. to Undisputed Facts, ECF No. 36-1 at 11-12 (“Undisputed that CCS used a 6-inch wide metal scraper to clean the glass.”). Neither party is aware whether any mock-up was done. Pl.’s Resp. to Undisputed Facts, ECF No. 36-1 at 10. CCS did not use scrapers in only small affected areas as per the industry standard. Pl.’s Resp. to Undisputed Facts, ECF No. 36-1 at 14 (“Undisputed.”). CCS did not scrape the glass in only one direction but instead scraped the glass in many directions in violation of the industry standard. Pl.’s Resp. to Undisputed Facts, ECF No. 36-1 at 13 (“Undisputed that CCS scraped the glass in many different directions.”). Lastly, Plaintiff states that CCS “failed to use water and a squeegee on the glass before scraping the glass.” Id. at 14. As a result, the glass was scratched beyond the expectations of McHugh and the building’s owner. [*22]  Pl.’s Resp. to Undisputed Facts, ECF No. 36-1 at 18 (“McHugh believes CCS had an obligation to provide the Owner with glass that was not scratched.”).

Based on the above undisputed facts, the Court concludes that CCS’ “faulty workmanship” damaged the glass. It is also undisputed that CCS failed to follow industry standards in cleaning the windows and scratched the glass as a result. Thus, taking these facts in light most favorable to the non-moving party, the faulty workmanship exclusion applies and Plaintiff is not entitled to coverage.

 

iii. Applicability of the “Ensuing Loss” Exception to the Exclusion

Plaintiff argues that even if CCS’s glass cleaning falls within the policy’s faulty workmanship exclusion, the damage that resulted is nonetheless covered under the policy’s “ensuing loss” clause. See, e.g., ECF No. 31 at 9. The pertinent sections of the policy provide that defendant “will not pay for loss or damage caused by or resulting from any of the following. But if loss or damage by a Covered Cause of Loss results, we will pay for that resulting loss or damage.” Insurance Policy, ECF No. 31-2 at 32 (emphasis added). As this Court has stated, an ensuing loss clause like the one [*23]  italicized above “operates to ensure coverage for damage from a covered cause of loss that results from an excluded cause of loss.” Selective Way Ins. Co. v. Nat’l Fire Ins. Co. of Hartford, 988 F. Supp. 2d 530, 538 (D. Md. 2013). Insurance coverage under an ensuing loss clause is well recognized in Maryland case law, id., and the burden is on the insured to demonstrate that the damage in question falls within an exception to the exclusion. Bao v. Liberty Mut. Fire Ins. Co., 535 F. Supp. 2d 532, 535 (D. Md. 2008) (“[I]f the insurer successfully establishes that the loss is excluded, the burden shifts to the insured to demonstrate that the damage falls within an exception to the exclusion.”).

Plaintiff’s position is that the scratches CCS made in cleaning the glass are considered a resulting or ensuing loss because CCS did not install the windows –it simply cleaned them and damage resulted. ECF No. 31 at 14. Defendant responds that the ensuing loss exception to the faulty workmanship exclusion only provides for coverage when an excluded peril causes a separate and independent covered peril that damages property wholly separate from the defective property itself. ECF No. 34 at 17-18. In other words, ensuing loss clauses do not cover the initial damage due to faulty workmanship itself, but instead cover any independent damages that ensue because of the faulty [*24]  workmanship.

Here, the damage–scratched glass–was directly the result of faulty workmanship. Thus, the ensuing loss clause does not apply. In this regard, the Court once again finds Carney v. Assurance Co. of America persuasive. Carney v. Assurance Co. of Am., No. CIV. JFM-04-3434, 2005 U.S. Dist. LEXIS 6640, 2005 WL 899843, at *1 (D. Md. Apr. 19, 2005), aff’d, 177 F. App’x 282 (4th Cir. 2006). In addition to finding that the “faulty workmanship” exclusion applied to the damages arising from the treatment of the wood siding, the Court found that plaintiff had not proffered sufficient evidence to trigger the ensuing loss provision. Alternatively, the Court reasoned that even if plaintiffs had proffered such evidence, they still could not recover because damage excluded under the faulty workmanship provision cannot be an ensuing loss. See 2005 U.S. Dist. LEXIS 6640, [WL] at *2 n.4.

In contrast, in Selective Way Ins. Co. v. Nat’l Fire Ins. Co. of Hartford, 988 F. Supp. 2d 530 (D. Md. 2013), the plaintiff hired a company to construct a new building at a university. The company hired a subcontractor to install a water supply line to a water cooler on the third floor of the building. Id. at 532. The water supply line leaked, resulting in water damage to the finishes in the building as well as other items of work. Plaintiff filed a claim with the defendant insurer for “water damage to 3 floors from fitting coming loose.” Id. at 532-33. An insurance investigator determined that the resulting damage flowed [*25]  directly from the faulty installation of a plumbing fitting by the subcontractor. Id.

The Selective Way Court held that the faulty installation of the pipe fitting fell within the insurance policy’s faulty workmanship exclusion. Id. at 538. It also held, however, that “the exclusion for faulty installation does not, by the terms of the policy, exclude water damage that resulted from the faulty installation.” Id. Such damage is covered by the ensuing loss clause. Id. Put simply, the excluded cause of loss (faulty pipe installation) resulted in a covered cause of loss (water leaking from damaged pipes). Because the plaintiff was seeking to recover only for the water damage due to the faulty installation of the pipe fitting, the ensuing loss provision applied.

Here as in Carney, Plaintiff seeks recovery for the initial damage caused by CCS’s faulty workmanship–the scratched glass. Plaintiff does not allege any other damage that ensued from CCS’s faulty workmanship such as was averred in Selective Way. Thus, Plaintiff cannot obtain recovery under the ensuing loss clause.

 

1. Plaintiff’s Motion for Summary Judgment

Plaintiff’s motion for summary judgment is based on the same issues and undisputed facts [*26]  which constituted Defendant’s grounds for summary judgment. Plaintiff specifically contends that Defendant, as a matter of law, failed to meet its burden that the faulty workmanship exclusion applies, and that uncontroverted evidence warrants coverage for ensuing loss. For the reasons discussed above, Plaintiff’s motion is denied because the claim is covered by the faulty workmanship exclusion, and the damage does not fall under the ensuing loss clause of the insurance agreement.

 

1. CONCLUSION

The Court finds that the undisputed facts demonstrate the faulty workmanship exclusion applies to Plaintiff’s claim and the ensuing loss provision does not reach claimed damage. Accordingly, Defendant’s motion for summary judgment is granted and Plaintiff’s motion for summary judgment is denied. A separate order will follow.

12/20/2016

Date

/s/ Paula Xinis

United States District Judge

 

 

 

 

FALLS LAKE NATIONAL INSURANCE COMPANY, Plaintiff, v. ISRAEL MARTINEZ, JR., et al., Defendants.

 

Civil Action No. 7:16CV00075

 

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF VIRGINIA, ROANOKE DIVISION

 

2016 U.S. Dist. LEXIS 177909

 

 

December 22, 2016, Decided

December 22, 2016, Filed

 

 

COUNSEL:  [*1] For Falls Lake National Insurance Company, Plaintiff, Counter Defendant Carson Waldrop Johnson, LEAD ATTORNEY, Harman Claytor Corrigan & Wellman, Richmond, VA; Michael F. Nerone, LEAD ATTORNEY, PRO HAC VICE, Pion, Nerone, Girman Winslow & Smith, PC, Pittsburg, PA.

 

For United Specialty Insurance Company, Defendant, Cross Claimant, Counter Claimant, Cross Defendant: James Hall Revere, III, KALBAUGH PFUND & MESSERSMITH PC, RICHMOND, VA.

 

For Brandon Lester, Defendant, Counter Claimant, Cross Defendant: Johneal Moore White, LEAD ATTORNEY, Melissa Walker Robinson, Glenn Robinson & Cathey PLC, Roanoke, VA.

 

Fr Anthony Ray Shifflett, Cross Defendant, Cross Claimant, Counter Claimant: Derrick L. Walker, Breith Drescher & Imprevento Walker PC, Virginia Beach, VA.

 

For Brandon Lester, Cross Claimant, Cross Defendant: Melissa Walker Robinson, Glenn Robinson & Cathey PLC, Roanoke, VA.

 

For Falls Lake National Insurance Company, Counter Defendant: Carson Waldrop Johnson, LEAD ATTORNEY, Harman Claytor Corrigan & Wellman, Richmond, VA; Michael F. Nerone, LEAD ATTORNEY, Pion, Nerone, Girman Winslow & Smith, PC, Pittsburg, PA.

 

JUDGES: Hon. Glen E. Conrad, Chief United States District Judge.

 

OPINION BY: Glen E. Conrad

 

OPINION

 

MEMORANDUM OPINION [*2]

In this insurance coverage dispute, Falls Lake National Insurance Company (“Falls Lake”) seeks a declaratory judgment that it has no obligation to indemnify Israel Martinez, Jr., Salinas Express, LLC (“Salinas Express”), or SMC Transport, LLC (“SMC”) in connection with a personal injury action that Brandon Lester filed against Martinez, Salinas Express, SMC, and others in this court. See Lester v. SMC Transport, LLC, No. 7:15CV00665 (W.D. Va.) (the “underlying personal injury action”). The case is presently before the court on cross-motions for partial summary judgment filed by Falls Lake, Lester, and United Specialty Insurance Company (“United Specialty”). For the reasons set forth below, Falls Lake’s motion will be granted in part and denied in part, Lester’s motion will be granted, and United Specialty’s motion will be denied.

 

Background

 

1. The Underlying Personal Injury Action

Before sunrise on October 26, 2015, Lester was traveling southbound on Interstate 81 in Botetourt County. At approximately the same time, Martinez was operating a semi-tractor owned by and registered to SMC (the “SMC Tractor”), a commercial motor carrier based in Texas. The SMC Tractor had been driven to Virginia [*3]  to pick up a disabled semi-tractor utilized by Salinas Express (the “Salinas Express Tractor”), another commercial motor carrier based in Texas. The disabled tractor had been left in the parking lot of a rest stop adjacent to the interstate.

Martinez, Roy Salinas (“Roy”), and Eddie Lozano used the SMC Tractor to tow a third tractor (the “Lozano Tractor”) to Virginia, so that Lozano could deliver the goods that remained in the trailer attached to the disabled Salinas Express Tractor. Upon arriving at the rest stop, the Lozano Tractor was unhooked from the SMC Tractor and then used to deliver the remaining goods. The Salinas Express Tractor was then hooked up to the SMC Tractor, so that it could be towed back to Texas.

Just before 6:00 a.m., Martinez and Roy attempted to leave the rest stop in the SMC Tractor with the Salinas Express Tractor in tow. To do so, Martinez drove north, on the entrance ramp to the rest stop, so that he could make a U-turn onto southbound I-81. In attempting to make the U-turn, Martinez caused the SMC Tractor, towing the Salinas Express Tractor, to block at least the right lane of travel.

At the same time, Lester approached the entrance ramp to the rest stop while [*4]  traveling in the right lane. He was unable to stop or maneuver his vehicle in time to avoid hitting the SMC Tractor. A second vehicle, operated by Anthony Shifflett, then struck Lester’s vehicle.

On December 9, 2015, Lester filed the underlying personal injury action against SMC, Martinez, Salinas Express, and Shifflett. On September 2, 2016, the court ruled on a number of motions filed by the parties in that action, including Lester’s motion for partial summary judgment. As is relevant in the instant action, the court ruled that Martinez and Roy were employees of Salinas Express at the time of the accident, that they were acting within the scope of their employment, and, thus, that Salinas Express is “vicariously liable for [their] negligent conduct.” Lester v. SMC Transport, LLC, No. 7:15CV00665, 2016 U.S. Dist. LEXIS 118946, at *27-28 (W.D. Va. Sept. 2, 2016). Although Lester also moved for partial summary judgment on the issue of whether SMC is vicariously liable for the negligence of Martinez and Roy, the court denied that motion on the basis that a reasonable jury could find that Martinez and Roy were not agents of SMC.

 

1. The Insurance Policies

 

1. The Policy Issued by Falls Lake

At the time of the accident, Salinas Express was insured under [*5]  a motor carrier liability policy issued by Falls Lake (the “Falls Lake Policy”), under which the Salinas Express Tractor was a “covered ‘auto.'” The Falls Lake Policy obligates Falls Lake to “pay all sums an ‘insured’ legally must pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies, caused by an ‘accident’ and resulting from the ownership, maintenance or use of a covered ‘auto.'” Falls Lake Motor Carrier Coverage Form § II(A), Docket No. 1-2. Section II(A)(1) of the Falls Lake Policy defines “Who Is An Insured.” That section provides, in pertinent part, as follows:

 

The following are “insureds”:

1. You for any covered “auto”.
2. Anyone else while using with your permission a covered “auto” you own, hire or borrow except:

 

(1) The owner or any “employee”, agent or driver of the owner, or anyone else from whom you hire or borrow a covered “auto”.

(2) Your “employee” or agent if the covered “auto” is owned by that “employee” or agent or a member of his or her household.

 

 

. . .

1. Anyone liable for the conduct of an “insured” described above but only to the extent of that liability.

However, none of the following is an “insured”:

 

(1) Any “motor carrier” for [*6]  hire or his or her agents or “employees”, other than you and your “employees”:

 

(a) If the “motor carrier” is subject to motor carrier insurance requirements and meets them by a means other than “auto” liability insurance . . . .

 

 

 

 

 

 

Id. at § II(A)(1).

In addition to the scheduled vehicles for which the Falls Lake Policy provides coverage, the policy lists three types of vehicles which “are also covered ‘autos’ for Covered Autos Liability Coverage.” Id. at § I(C). Those vehicles include “Temporary Substitute Autos,” specifically:

 

Any “auto” you do not own while used with the permission of its owner as a temporary substitute for a covered “auto” you own that is out of service because of its:

1. Breakdown;
2. Repair;
3. Servicing;
4. “Loss”; or
5. Destruction.

 

 

Id. at § I(C)(3).

 

1. The Policy Issued by United Specialty

During the time period at issue, SMC was insured under a motor carrier liability policy issued by United Specialty (the “United Specialty Policy”). It is undisputed, however, that the SMC Tractor was not listed on the United Specialty Policy’s schedule of covered autos at the time of the accident, and, thus, that it was not insured under that policy. Accordingly, there is no liability coverage [*7]  under the United Specialty Policy for the underlying accident.

The United Specialty Policy contains an MCS-90 endorsement.1 That endorsement provides, in pertinent part, as follows:

 

In consideration of the premium stated in the policy to which this endorsement is attached, the insurer (company) [United Specialty] agrees to pay, within the limits of liability described herein, any final judgment recovered against the insured [SMC] for public liability resulting from negligence in the operation, maintenance or use of motor vehicles subject to the financial responsibility requirements of Sections 29 and 30 of the Motor Carrier Act of 1980 regardless of whether or not each motor vehicle is specifically described [in] the policy and whether or not such negligence occurs on any route or in any territory authorized to be served by the insured or elsewhere. Such insurance as is afforded, for public liability, does not apply to injury or death of the insured’s employees while engaged in the course of their employment or property transported by the insured, designated as cargo. It is understood and agreed that no condition, provision, stipulation, or limitation contained in the policy, this endorsement, or [*8]  any other endorsement thereon, or violation thereof, shall relieve the company from liability or from the payment of any final judgment, within the limits of liability herein described, irrespective of the financial condition, insolvency or bankruptcy of the insured.

However, all terms, conditions, and limitations in the policy to which the endorsement is attached shall remain in full force and effect as binding between the insured and the company. The insured agrees to reimburse the company for any payment made by the company on account of any accident, claim, or suit involving a breach of the terms of the policy, and for any payment that the company would not have been obligated to make under the provisions of the policy except for the agreement contained in this endorsement . . . .

 

 

United Specialty MCS-90 Endorsement at 2, Docket No. 65-8.

 

1   “An MCS-90 endorsement is an endorsement added to a trucker’s insurance policy to satisfy federal motor-carrier regulations requiring minimum levels of financial responsibility.” Nat’l Specialty Ins. Co. v. Martin-Vegue, 644 F. App’x 900, 903 n.4 (11th Cir. 2016) (citing 49 U.S.C. § 31139(b); 49 C.F.R. § 387.15).

 

III. The Instant Action

After the underlying personal injury action was commenced by Lester, Falls Lake brought this action seeking a declaratory judgment that it does not have a duty to indemnify Salinas Express, Martinez, or SMC with respect to any claims asserted against them as a result of the accident. The declaratory judgment action is now before the court on [*9]  cross-motions for partial summary judgment filed by Lester, United Specialty, and Falls Lake. Lester urges the court to conclude that Salinas Express is entitled to liability coverage under the Falls Lake Policy. United Specialty urges the court to conclude that its insured, SMC, is entitled to liability coverage under the Falls Lake Policy. Falls Lake, on the other hand, moves the court to conclude that coverage is not owed to Salinas Express, SMC, Martinez, or Roy.2

 

2   The court notes that Roy is not named as a defendant in the underlying personal injury action.

 

Standard of Review

An award of summary judgment is appropriate “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). In determining whether a genuine dispute of material fact exists, the court must “view the facts and all justifiable inferences arising therefrom in the light most favorable to the nonmoving party.” Libertarian Party of Va. v. Judd, 718 F.3d 308, 313 (4th Cir. 2013); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). “When faced with cross-motions for summary judgment, [courts] consider each motion separately on its own merits to determine whether [any] of the parties deserves judgment as a matter of law.” Bacon v. City of Richmond, 475 F.3d 633, 636-37 (4th Cir. 2007). “The court must deny [the] motions if it finds that there is a genuine dispute of material fact, but if there is no genuine [*10]  issue and one or the other party is entitled to prevail as a matter of law, the court will render judgment.” Sky Angel U.S., LLC v. Discovery Commc’ns., LLC, 95 F. Supp. 3d 860, 869 (D. Md. 2015) (citation and internal quotation marks omitted).

 

Discussion

 

1. Applicable Law

Under Texas law, which the parties agree applies in the instant case, the interpretation of an insurance policy presents a question of law. Seahawk Liquidating Trust v. Certain Underwriters at Lloyds London, 810 F.3d 986, 990 (5th Cir. 2016). Courts interpret insurance policies using the same rules of construction applicable to other contracts. Tesoro Ref. & Mktg. Co., LLC v. Nat’l Union Fire Ins. Co., 833 F.3d 470, 474 (5th Cir. 2016) (citing American Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex. 2003)). The court’s “primary concern” is “[e]ffectuating the parties’ expressed intent.” Don’s Bldg. Supply, Inc. v. OneBeacon Ins. Co., 267 S.W.3d 20, 23 (Tex. 2008). When a policy uses unambiguous language, the court “must enforce it as written.” Id. “If, however, a contract is susceptible to more than one reasonable interpretation, [the court must] resolve any ambiguity in favor of coverage.” Id. “Policy terms are given their ordinary and commonly understood meaning unless the policy itself shows the parties intended a different, technical meaning.” Id.

 

1. Coverage under the Falls Lake Policy

 

1. Salinas Express

In their respective motions, Falls Lake and Lester dispute whether Salinas Express is entitled to indemnification under the Falls Lake Policy. Although Salinas Express is the named “insured” under the Falls Lake Policy and the Salinas Express [*11]  Tractor is a “covered ‘auto,'” Falls Lake argues that coverage is unavailable for Lester’s injuries because they arose from an accident involving Lester’s vehicle, the SMC Tractor, and Shifflett’s vehicle, and did not “result[] from the ownership, maintenance or use of” the Salinas Express Tractor. See Falls Lake Policy § II(A) (“We will pay all sums an ‘insured’ legally must pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies, caused by an ‘accident’ and resulting from the ownership, maintenance, or use of a covered ‘auto’.”). For the following reasons, the court disagrees with Falls Lake and concludes, as matter of law, that Salinas Express is entitled to coverage.

Under Texas law, the insuring language at issue is interpreted broadly. See Lincoln Gen. Ins. Co. v. Aisha’s Learning Ctr., 468 F.3d 857, 859-60 (5th Cir. 2006). “The term ‘use’ is the general catchall of the insuring clause, designed and construed to include all proper uses of the vehicle . . . .” State Farm Mut. Auto Ins. Co. v. Pan Am. Ins. Co., 437 S.W.2d 542, 545 (Tex. 1969). For liability to “arise out of or “result from” the use of a covered motor vehicle, “a causal connection or relation must exist between the accident or injury and the use of the motor vehicle.” Mid-Century Ins. Co. v. Lindsey, 997 S.W.2d 153, 156 (Tex. 1999); see also Lancer Ins. Co. v. Garcia Holiday Tours, 345 S.W.3d 50, 55 (Tex. 2011). This “is interpreted to mean that there is but-for causation, [*12]  though not necessarily direct or proximate causation.” Utica Nat’l Ins. Co. v. Am. Indem. Co., 141 S.W.3d 198, 203 (Tex. 2004). Moreover, “the use required is of the vehicle qua vehicle, rather than simply as an article of property.” Lindsey, 997 S.W.2d at 156. If the vehicle at issue “is only the locational setting for an injury, the injury does not arise out of any use of the vehicle.” Id.

In Lindsey, the Texas Supreme Court articulated a three-part test for determining whether an injury arises from the use of a motor vehicle for purposes of liability insurance coverage:

 

For an injury to fall within the “use” coverage of an automobile policy (1) the accident must have arisen out of the inherent nature of the automobile, as such, (2) the accident must have arisen within the natural territorial limits of an automobile, and the actual use must not have terminated, [and] (3) the automobile must not merely contribute to cause the condition which produces the injury, but must itself produce the injury.

 

 

Id. at 157. The Supreme Court has since held that “the analysis is the same whether the policy requires that an injury ‘result from’ or ‘arise out of the covered auto’s use.” Lancer Ins. Co., 345 S.W.3d at 55.

The Supreme Court’s decision in Lindsey “demonstrates just how broadly its test for ‘use’ is interpreted.” Lincoln Gen. Ins., 468 F.3d at 859. That case involved [*13]  a child who attempted to enter his parents’ parked and locked truck through the truck’s sliding rear window to retrieve an article of clothing. Lindsey, 997 S.W.2d at 154. In so doing, the child accidentally touched a loaded shotgun resting in a gun rack mounted over the rear window, causing they gun to discharge and injure a passenger in another vehicle. Id. On these facts, the Supreme Court concluded that the passenger’s injury “arose out of the use of the . . . truck as a matter of law.” Id. at 158. The Court reasoned that the child’s sole purpose was to gain entry into the truck, that his unorthodox method of entry was not an unexpected or unnatural use of the vehicle, and that it was the child’s efforts to enter the vehicle that directly caused the gun to discharge and the nearby passenger to become injured. Id. Although the case was a “close” one, the Court ultimately held that the “truck ‘produced’ . . . the injury,” and “was not merely the situs of activity, unrelated to any use of the truck that resulted in the accident.”3 Id. at 159.

 

3   “Where a vehicle is a mere situs of injury, fungible with any other situs, it is not being ‘used.'” Lincoln Gen. Ins., 468 F.3d 857, 860 n.2. For instance, in Lancer Insurance Company v. Garcia Holiday Tours, the Texas Supreme Court ruled that the transmission of tuberculosis from a bus driver to his passengers “did not result from the vehicle’s use but rather from the bus company’s use of an unhealthy driver.” 345 S.W.3d at 59. The Court reasoned that “the bus was the mere physical situs of the exposure to the infected person, which could have occurred anywhere.” Id. at 58.

Applying the Lindsey factors to the instant case, the court concludes that Lester’s injuries resulted from the use of the Salinas Express Tractor. [*14]  First, the accident occurred while the Salinas Express Tractor was being towed from the rest area. Using a vehicle in this manner is not “unexpected or unnatural.” Lindsey, 997 S.W.2d at 158; see also State Farm Fire and Casualty Co. v. Pinson, 984 F.2d 610, 612 (4th Cir. 1993) (emphasizing that “a towed vehicle is a ‘used’ vehicle”) (collecting cases). Instead, it is part of the inherent nature of a vehicle. Accordingly, the first factor is met.

The second factor is whether the accident arose within the vehicle’s natural territorial limits before its use terminated. See Lindsey, 997 S.W.2d at 157. Because the accident occurred on a roadway, while the Salinas Express Tractor was being towed by the SMC Tractor, the court concludes that this factor is also satisfied. The mere fact that Lester’s vehicle made contact with the SMC Tractor, rather than the Salinas Express Tractor, is not dispositive. See, e.g., State & County Mut. Fire Ins. Co. v. Trinity Universal Ins. Cos., 35 S.W.3d 278, 282 (Tex. App. El Paso 8th Dist. 2000) (holding that an accident “unmistakably” occurred within the natural territory of an insured vehicle where a woman “died on a roadway,” after jumping out of the vehicle and being struck by another car); see also Lindsey, 997 S.W.2d at 160 (finding this factor satisfied even though the injuries occurred in an adjacent vehicle).

The third factor is whether the covered vehicle “produce[d] the injury” in question. Lindsey, 997 S.W.2d at 157. As discussed above, the causation [*15]  inquiry in this context involves “but-for causation, though not necessarily direct or proximate causation.” Utica Nat’l Ins. Co., 141 S.W.3d at 203. A but-for cause is “one without which the event would not have occurred.” Transcon. Ins. Co. v. Crump, 330 S.W.3d 211, 223 (Tex. 2010).

Based on the undisputed evidence in the instant case, the court concludes that the Salinas Express Tractor produced the injuries at issue. The underlying accident would not have occurred if the Salinas Express Tractor had not broken down along the interstate and needed to be towed from the rest stop. The Salinas Express Tractor was connected to the SMC Tractor at the time of the accident, and the presence and positioning of the Salinas Express Tractor at the rest stop resulted in the effort to make a U-Turn from the entrance ramp onto southbound I-81. While Falls Lake emphasizes that Lester’s vehicle only made contact with the SMC Tractor and that the Salinas Express Tractor sustained no damage, the court finds these facts to be of no consequence, especially in light of Lindsey. In Lindsey, even though a shotgun inflicted the injury, the Texas Supreme Court found that the insured truck “produced” the injury, since the accident would not have occurred but for the child’s efforts to gain entry to the truck. [*16]  Lindsey, 997 S.W.2d at 160. Likewise, in this case, while Lester’s vehicle struck the SMC Tractor, the disabled Salinas Express Tractor “produced” Lester’s injuries, since the accident would not have occurred but for the actions undertaken to remove the disabled truck from the rest stop.

For these reasons, the court concludes that the accident at issue resulted from the use of the Salinas Express Tractor, and, thus, that Salinas Express is entitled to liability coverage under the Falls Lake Policy. Accordingly, the court will deny Falls Lake’s motion for partial summary judgment on this issue, and grant Lester’s motion for partial summary judgment.4

 

4   In addition to arguing that Salinas Express is not entitled to coverage, Falls Lake argues that coverage is not owed to Salinas Express’ employees, Martinez and Roy. In light of the court’s conclusion that Salinas Express is entitled to coverage under the Falls Lake Policy, and its earlier ruling that Salinas Express is vicariously liable for the negligent conduct of Martinez and Roy, the issue of whether Martinez and Roy are also entitled to coverage is ultimately of no consequence. In any event, this issue involves a dispute of material fact regarding the ownership of the Salinas Express Tractor and whether Martinez and Roy were acting on behalf of the owner. Accordingly, it cannot be resolved at this stage of the proceedings.

 

1. SMC

The parties also dispute whether SMC is entitled to coverage under the Falls Lake Policy. United Specialty, SMC’s insurer, argues that SMC is an additional “insured” under the Falls Lake Policy, and that the SMC Tractor is a “covered ‘auto’ under that policy. For the following reasons, the court disagrees with United Specialty and concludes, as a matter of law, that SMC is not entitled to coverage under the Falls Lake Policy.

First, SMC is not an additional “insured” under the Falls Lake Policy. In arguing to the contrary, SMC cites to subsection (e) of § II(A)(1), which provides [*17]  that the following are “insureds”: “Anyone liable for the conduct of an ‘insured’ described above but only to the extent of that liability.” Falls Lake Motor Carrier Coverage Form § II(A)(1)(e), Docket No. 1-2. SMC contends that its “only exposure in the underlying suit is based on vicarious liability,” and that “it is very probable that . . . any vicarious liability would have to flow through the named insured Salinas Express.” United Specialty’s Br. in Response to Falls Lake’s Mot. for Partial Summ. J. 10, Docket No. 67. In response, Falls Lake and Lester dispute this assertion and argue that even if SMC could be deemed an “insured” under subsection (e), the subsequent “motor carrier” exclusion precludes coverage for SMC. The court agrees with Falls Lake and Lester.

After defining “Who Is an Insured,” the Falls Lake Policy excludes certain motor carriers from the definition. As is relevant in the instant case, the policy provides that “none of the following is an ‘insured'”:

 

(1) Any “motor carrier” for hire or his or her agents or “employees”, other than you and your “employees”:

 

(a) If the “motor carrier” is subject to motor carrier insurance requirements and meets them by a means other than “auto” [*18]  liability insurance.

 

 

 

 

Falls Lake Motor Carrier Coverage Form § II(A)(1), Docket No. 1-2. “Accordingly, coverage is extended under the policy to non-employee [motor carriers] only if their insurance policies offer reciprocal coverage.” Ill. Nat’l Ins. Co. v. Temian, 779 F. Supp. 2d 921, 926 (N.D. Ind. 2011).

In this case, it is undisputed that SMC is a “motor carrier” subject to motor carrier insurance requirements. Moreover, the court agrees with Falls Lake and Lester that SMC met those requirements by means other than ‘auto’ liability insurance.” Indeed, it is undisputed that the SMC Tractor was not insured at the time of the accident under any policy of insurance procured by SMC. Although the United Specialty Policy issued to SMC contains an MCS-90 endorsement, that endorsement “does not provide insurance coverage.” Real Legacy Assurance Co. v. Santori Trucking, Inc., 560 F. Supp. 2d 143, 147 (D.P.R. 2008) (collecting cases); see also Carolina Casualty Ins. Co. v. Yeates, 584 F.3d 868, 884 (10th Cir. 2009) (emphasizing that “the MCS-90 endorsement is not an ordinary insurance provision to protect the insured”) (citation and internal quotations marks omitted). Instead, “[t]he endorsement creates a suretyship by the insurer to protect the public when the underlying insurance policy otherwise provides no coverage,” and “carries with it a right to reimbursement [from the insured].” Real Legacy Assurance Co., 560 F. Supp. 2d at 147-148; see also Canal Ins. Co. v. Carolina Cas. Ins. Co., 59 F.3d 281, 283 (1st Cir. 1995) (holding that the endorsement [*19]  is a “suretyship by the insurance carrier to protect the public — a safety net — but not insurance”). Thus, “[w]here as here, a policy does not provide coverage for nonlisted vehicles except to third-party members of the public through operation of [the] form endorsement . . . , the policy provides no coverage for purposes of disputes among insurers over ultimate liability.” Canal Ins. Co. v. First Gen. Ins. Co., 889 F.2d 604, 611 (5th Cir. 1989). Accordingly, because SMC met its motor carrier insurance requirements by a means other than “‘auto’ liability insurance,” SMC is not an “insured” under the Falls Lake Policy. Falls Lake Policy § II(A)(1), Docket No. 1-2.

Additionally, the court agrees with Falls Lake and Lester that the SMC Tractor is not a “covered ‘auto'” under the Falls Lake Policy. In arguing to the contrary, United Specialty relies on § I(C) of the Falls Lake Policy, which provides that the following types of vehicles are “also covered ‘autos’ for Covered Autos Liability Coverage”:

 

Any “auto” you do not own while used with the permission of its owner as a temporary substitute for a covered ‘auto’ you own that is out of service because of its:

1. Breakdown;
2. Repair;
3. Servicing;
4. “Loss”; or
5. Destruction.

 

 

Id. at § I(C). United Specialty emphasizes [*20]  that it is undisputed that the Salinas Express Tractor was “broken down,” and that its “broken down condition was the sole reason for Martinez, Roy Salinas, Eddie Lozano . . . and Salinas Express to be using the SMC truck.” United Specialty’s Br. in Response to Falls Lake’s Mot. for Partial Summ. J. 8-9, Docket No. 67.

Even assuming that United Specialty’s recitation of the “undisputed” evidence is correct, the mere fact that the SMC Tractor was used to tow the Salinas Express Tractor from the rest stop does not mean that it was a “temporary substitute” for the disabled vehicle. Because the term “temporary substitute” is not defined in the Falls Lake Policy, the court must consider its “ordinary, everyday meaning.” Progressive County Mut. Ins. Co. v. Sink, 107 S.W.3d 547, 552 (Tex. 2003). The plain and ordinary meaning of the word “substitute” is a “a person or thing that takes the place or function of another.” Merriam-Webster Online Dictionary, http://www.merriam-webster.com/dictionary/substitute (last visited Dec. 20, 2016). Thus, the court believes that the term “temporary substitute” clearly refers to a vehicle that is used in place of an insured vehicle that is broken down or otherwise in need of repair. Accordingly, “in order for coverage to attach in this case, the temporary substitute vehicle must [*21]  have been performing a function that the disabled insured vehicle would have been performing but for its temporary disability.” Duncan Auto Realty, Ltd. v. Allstate Ins. Co., 754 So.2d 863, 865 (Fla. Ct. App. 3d Dist. 2000) (citing Couch on Insurance §§ 117:83 & 117.89 (3d rev. ed. 1997)); see also Stonehocker v. Gulf Ins. Co., 368 P.3d 1187, 1194 (Mont. 2016) (emphasizing that “[t]he critical focus under the temporary substitute auto provision is whether the pickup truck was in fact being used as a substitute for the Suburban”).

Applying this standard, the court fails to see how the SMC Tractor could be deemed a “temporary substitute” for the Salinas Express Tractor. Instead, the only “temporary substitute” was the tractor used by Eddie Lozano to complete the delivery of goods that the Salinas Express Tractor was supposed to make. By completing the interstate job in question, the Lozano Tractor took the place of the disabled Salinas Express Tractor and performed the function that it would have performed but for its temporary disability. The same cannot be said for the SMC Tractor, which was merely used as a tow truck. Accordingly, the SMC Tractor is not a “covered ‘auto'” and SMC is not entitled to coverage under the Falls Lake Policy.

 

Conclusion

For the reasons stated, Falls Lake’s motion for partial summary judgment will be granted in part and denied in part, [*22]  Lester’s motion for partial summary judgment will be granted, and United Specialty’s motion for partial summary judgment will be denied. The Clerk is directed to send certified copies of this memorandum opinion and the accompanying order to all counsel of record.

DATED: This 22d day of December, 2016.

/s/ Glen E. Conrad

Chief United States District Judge