United States District Court, W.D. Oklahoma
COUNTRY MUTUAL INSURANCE COMPANY, an Illinois corporation, Plaintiff,
AAA CONSTRUCTION LLC, a/k/a CONSTRUCTION, POOLS & BUILDINGS, LLC, an Oklahoma limited liability company, Defendant.
L. PALK, UNITED STATES DISTRICT JUDGE
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.
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.
Summary Judgment Standard
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
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).
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].
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.
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.
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.
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.
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.
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.
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.
Interpretation of Insurance Contracts
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).
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.
Duty to Defend / Indemnify
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
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, ...