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Country Mutual Insurance Co. v. AAA Construction LLC

United States District Court, W.D. Oklahoma

July 12, 2019

COUNTRY MUTUAL INSURANCE COMPANY, an Illinois corporation, Plaintiff,
AAA CONSTRUCTION LLC, a/k/a CONSTRUCTION, POOLS & BUILDINGS, LLC, an Oklahoma limited liability company, Defendant.



         Before the Court is Plaintiff's Motion for Summary Judgment [Doc. No. 17]. Defendant has responded and Plaintiff has replied [Doc. Nos. 18 and 19]. The matter is fully briefed and ready for determination.[1]

         I. Introduction

         In this declaratory judgment action, Plaintiff, Country Mutual Insurance Company (“CMIC”), seeks a ruling from the Court that it has no duty to defend or indemnify Defendant, AAA Construction Pools & Buildings, LLC (AAA Construction), for claims made against AAA Construction in an underlying state court action. CMIC has filed a motion for summary judgment asserting the undisputed factual record demonstrates the claims at issue in the state court action are not covered by the insurance policy issued to AAA Construction and/or are subject to the policy's coverage exclusions. CMIC also moves for summary judgment as to AAA Construction's counterclaim for bad faith breach of insurance contract. For the reasons set forth below, the Court finds CMIC is not entitled to summary judgment on the coverage issue and that CMIC fails to meet its burden of proof to show the Policy's exclusions preclude coverage. The Court further finds CMIC is not entitled to summary judgment on AAA Construction's bad faith counterclaim.

         II. Summary Judgment Standard

         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 reviewing a motion for summary judgment, the court views “the facts and all reasonable inferences those facts support, in the light most favorable to the nonmoving party.” iMatter Utah v. Njord, 774 F.3d 1258, 1262 (10th Cir. 2014) (citation omitted).

         “If the movant meets this initial burden, the burden then shifts to the nonmovant to set forth specific facts from which a rational trier of fact could find for the nonmovant.” Teets v. Great-West Life & Annuity Ins. Co., 921 F.3d 1200, 1211 (10th Cir. 2019) (quotations omitted). “These facts must establish, at a minimum, an inference of the presence of each element essential to the case.” Savant Homes, Inc. v. Collins, 809 F.3d 1133, 1137-38 (10th Cir. 2016) (quotations omitted). The movant is entitled to summary judgment if the nonmoving party cannot provide facts “to make a sufficient showing on an essential element of her case with respect to which she has the burden of proof.” Id. at 1138 (quotations omitted). The essential inquiry for the court is “whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one- sided that one party must prevail as a matter of law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986).

         III. Undisputed Facts

         AAA Construction is the named insured under Policy No. AM 9102725-05 (Policy) issued by CMIC with a policy period of August 10, 2016 through August 10, 2017. See Policy [Doc. No. 17-8].

         On October 21, 2015, Jeffrey T. Shaver, M.D. and Tammy Shaver (the Shavers), entered into two contracts with AAA Construction for the construction of a garage (the Garage Contract) and the construction of a barn (the Barn Contract) on their property located in Edmond, Oklahoma. See Garage Contract [Doc. No. 17-9] and Barn Contract [Doc. No. 17-10]. The Contracts each contain the same provisions and warranties. See id.

         On September 19, 2016, the Shavers filed a state-court action (the State Action) against Timothy Berry (Mr. Berry) d/b/a AAA Construction Buildings, Concrete & Landscaping & AAA Construction, Pools & Buildings, L.L.C. (AAA Construction) for: (1) Deceptive Trade Practices; (2) Actual Fraud; (3) Constructive Fraud; (4) Negligent Misrepresentation; (5) Breach of Contract; and (6) Rescission. See Petition, No. CJ-2016-167, District Court of Logan County, State of Oklahoma [Doc. No. 17-1].[2]

         In the State Action, the Shavers allege, inter alia, that after substantial completion of the Garage, a Land Representative of Southern Star Central Gas Pipeline (Southern Star) notified the Shavers and Mr. Berry that AAA Construction had improperly constructed the Garage over two high-pressure gas pipelines and the utility easements associated with them. Pet., ¶ 9; see also Am. Pet., ¶ 9.

         On February 16, 2017, CMIC advised AAA Construction that it was denying coverage under the Policy for the claims asserted in the State Action. CMIC acknowledged that allegations in the Petition “that AAA Construction damaged [the Shavers'] property through negligent construction of the garage . . . meet the requirements of the Policy's definition of “property damage[.]” See Correspondence [Doc. No. 17-11] at 8. But CMIC denied coverage on grounds the “alleged faulty workmanship of AAA Construction does not constitute an “occurrence” under the Policy. See id. at 8-10. CMIC further identified multiple exclusions that applied to preclude coverage under the Policy. See id. at 10-13.

         On March 21, 2017, counsel for AAA Construction sent correspondence to CMIC in reference to a motion filed in the State Action for leave to amend the Petition and specifically referenced a claim for negligence and “eight areas of damage” most of which did “not fall within the exclusions” referenced in CMIC's February 16, 2017 letter. CMIC did not respond to the correspondence but instead filed the instant action for declaratory relief on April 26, 2017.

         Thereafter, on May 19, 2017, the Shavers filed the Amended Petition in the State Action and brought the following claims: (1) Deceptive Trade Practices; (2) Actual Fraud; (3) Constructive Fraud; (4) Negligent Misrepresentation; (5) Breach of Contract; (6) Negligence; (7) Economic and Actual Damages; (8) Multiple Damages; (9) Exemplary Damages; (10) Rescission and Other Orders to Restore; and (11) Attorney Fees. See Am. Pet. [Doc. No. 17-5]. The Shavers allege AAA Construction was negligent for constructing “on top of a working utility line[.]” See Am. Pet., ¶¶ 33-36. And the Shavers' claim for damages includes expenses to remove trees, fix sprinklers and fix a fence. Am. Pet., ¶ 37. The Shavers also seek damages for “loss of use, ” “[c]ost of replacement, ” “[c]osts of repairs, ” “[r]emedial costs and/or costs of completion, ” and “[r]easonable and necessary engineering and/or consulting fees.” Id.[3]

         IV. Governing Law

         Oklahoma law governs the issues presented in this action, where federal subject matter jurisdiction is predicated on diversity of citizenship. See, e.g., Universal Underwriters, Ins. Co. v. Winton, 818 F.3d 1103, 1105-06 (10th Cir. 2016). Neither party disputes that the Policy should be interpreted in accordance with Oklahoma law.

         A. Interpretation of Insurance Contracts

         Under Oklahoma law, “[w]hen policy provisions are clear, consistent, and unambiguous, [the court must] look to the plain and ordinary meaning of the policy language to determine and give effect to the parties' intent.” Porter v. Okla. Farm Bureau Mut. Ins. Co., 330 P.3d 511, 515 (Okla. 2014). “The interpretation of an insurance contract and whether it is ambiguous is a matter of law for the Court to determine and resolve accordingly.” Dodson v. St. Paul Ins. Co., 812 P.2d 372, 376 (Okla. 1991).[4]

         The insured has the burden of showing that a covered loss occurred, while the insurer has the burden of showing that a loss falls within an exclusionary clause of the policy. See Pitman v. Blue Cross & Blue Shield of Okla., 217 F.3d 1291, 1298 (10th Cir. 2000) (Once coverage is established, “the insurer has the burden of showing that a loss falls within an exclusionary clause of the policy.”); McGee v. Equicor-Equitable HCA Corp., 953 F.2d 1192, 1205 (10th Cir. 1992) (“It is a basic rule of insurance law that the insured carries the burden of showing a covered loss has occurred and the insurer must prove facts that bring a loss within an exclusionary clause of the policy.”); Fehring v. Universal Fid. Life Ins. Co., 721 P.2d 796, 799 (Okla. 1986) (insurer bears burden of proving applicability of exclusionary clause). An exclusion is a policy term eliminating coverage where it otherwise would have existed under the general declaration. Dodson, 812 P.2d at 377. “[P]olicy exclusions are read seriatim; each exclusion eliminates coverage and operates independently against the general declaration of insurance coverage and all prior exclusions by specifying other occurrences not covered by the policy . . . In case of doubt, exclusions exempting certain specified risks are construed strictly against the insurer.” Id. at 377 n. 11.

         B. Duty to Defend / Indemnify

          Under Oklahoma law, “[a] liability insurance policy generally contains two basic duties - the duty to defend and the duty to indemnify[.]” First Bank of Turley v. Fid. & Deposit Ins. Co. of Md., 928 P.2d 298, 303 (Okla. 1996). “The insurer's primary duty is to provide indemnity for loss or to pay a specified amount upon determinable contingencies.” Id. “The duty to defend is separate from, and broader than, the duty to indemnify.” Id. An insurer has a duty to defend if the facts raise the mere “potential of liability.” Id. “[O]nce an insurer's duty to defend is triggered, it must defend all claims in a lawsuit” even those that are not covered. Automax Hyundai South, L.L.C. v. Zurich Am. Ins. Co., 720 F.3d 798, 806 (10th Cir. 2013) (applying Oklahoma law and noting insurer “offered no authority demonstrating that Oklahoma deviates from this rule and circumscribes the duty to defend if the majority of the conduct alleged in the lawsuit would not be covered under an indemnity provision”).[5]

         V. Discussion

         A. Coverage

         CMIC first seeks summary judgment on grounds “the alleged faulty workmanship of AAA Construction” does not constitute an “occurrence” under the Policy. The Policy defines an “occurrence” as “an accident, including continuous or repeated exposure to substantially the same harmful conditions.” See Policy at 88, ...

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