United States District Court, W.D. Oklahoma
EVANSTON INSURANCE COMPANY, an Illinois corporation, as successor by merger with Essex Insurance Company, Plaintiff,
A&S ROOFING, LLC, an Oklahoma limited liability company, et al., Defendants.
L. PALK, UNITED STATES DISTRICT JUDGE.
the Court is Plaintiff Evanston Insurance Company's
Motion for Summary Judgment and Brief in Support [Doc. Nos.
44-45]. Defendant A&S Roofing Company has responded [Doc.
No. 56] and Plaintiff has replied [Doc. No.
The matter is fully briefed and ready for decision. For the
reasons set forth, the Court grants summary judgment in favor
declaratory judgment action, Plaintiff, Evanston Insurance
Company (Evanston), contends that two Commercial General
Liability (CGL) insurance policies issued to Defendant,
A&S Roofing Company (A&S), by Essex Insurance Company
(Essex) do not provide coverage for the claims
raised in an underlying lawsuit styled Oklahoma Property
Investors, III, LLC v. A&S Roofing, LLC and Jason P.
Lakin, No. CJ-2017-4548, District Court of Oklahoma
County, State of Oklahoma (the OPI Lawsuit).Alternatively,
Evanston argues that multiple exclusions apply that eliminate
coverage. Evanston seeks a declaratory judgment that it has
no duty to defend or indemnify A&S under the CGL
Standard Governing Summary Judgment
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). In deciding whether summary judgment is
proper, the court does not weigh the evidence and determine
the truth of the matter asserted, but determines only whether
there is a genuine issue for trial. Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986); see also
Birch v. Polaris Indus., Inc., 812 F.3d 1238, 1251 (10th
Cir. 2015). An issue is “genuine” if there is
sufficient evidence on each side so that a rational trier of
fact could resolve the issue either way. Adler v.
Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir.
1998). An issue of fact is “material” if under
the substantive law it is essential to the proper disposition
of the claim. Id. In evaluating a motion for summary
judgment, a district court must consider the evidence in the
light most favorable to the nonmoving party and draw all
reasonable inferences from those facts in favor of that
party. Sylvia v. Wisler, 875 F.3d 1307, 1328 (10th
issued two CGL policies to A&S. Essex Policy I had a
policy period extending coverage from September 16, 2010 to
September 16, 2011. Essex Policy II had a policy period
extending coverage from September 16, 2011 to September 16,
2012. See CGL policies [Doc. Nos. 45-1 and 45-2].
Applicable Provisions of the CGL Policies
coverage language of the two CGL policies is virtually
identical. Essex agreed to provide coverage for
“those sums that the insured becomes legally obligated
to pay as damages because of . . . ‘property
damage' to which this insurance applies.”
See CGL policies at 19, Section I, Coverages, ¶
1(a). The insurance applies only to “property
damage” that is “caused by an
‘occurrence.'” Id., ¶ 1(b).
“Property damage” is defined as “[p]hysical
injury to tangible property, including all resulting loss of
use of that property . . . .” Id. at 33,
Section V, Definitions, ¶ 17. And,
“occurrence” is defined as “an accident,
including continuous or repeated exposure to substantially
the same general harmful conditions.” Id. at
32, ¶ 13.
relevant here, the CGL policies contain three endorsements:
(1) a Combination General Endorsement; a Combination
Construction Related Endorsement; and a Roofing Endorsement.
See CGL policies at 9-10, 12-13 and 16,
respectively. The terms of the endorsements are more fully
set forth below.
policies contain multiple exclusions. Evanston relies on the
following exclusions to defeat any coverage under the CGL
policies: (1) Exclusion 2.j6 - the faulty workmanship
exclusion; (2) Exclusion 2.k - the “your product”
exclusion; (3) Exclusion 2.l - the “your work”
exclusion; (4) Exclusion 2.m - the “impaired
property” exclusion; (5) the Combination General
Endorsement exclusion for claims arising out of breach of
contract; and (6) the exclusions for operations involving
heat applications and membrane roofing set forth in the
Combination Construction Related Endorsement and the Roofing
Endorsement. The exclusions are addressed more fully below.
A&S Roofing Work
2010, A&S entered into a subcontract agreement with Eagle
to replace roofs on three buildings owned by either Oklahoma
Property Investors, LLC; Oklahoma Property Investors II, LLC
or Oklahoma Property Investors III, LLC (collectively, OPI).
The roofing systems installed by Eagle on all three buildings
were membrane roofing systems.The roofing installation on the
building located at 3700 North Classen Boulevard was
substantially completed on August 1, 2010. The roofing
installation on the building located at 3800 N. Classen
Boulevard was substantially completed on August 5, 2010.
Finally, the roofing installation on the building located at
2915 North Classen Boulevard was substantially completed, at
the latest, on December 15, 2010.
The OPI Lawsuit
Lawsuit filed by OPI against A&S on August 11, 2017,
alleges that A&S provided 15-year warranties for the
roofing work performed on the three buildings owned by OPI
and that A&S “breached each warranty by performing
the work in a poor craftsmanship like manner resulting in
failures to each of the . . . properties' roofs.”
Pet. [Doc. No. 45-3], ¶¶ 2-6. OPI seeks damages
including “damages to its properties, damages to the
properties of its tenants and costs of repairs to its
properties.” Id., ¶ 10.
written warranties A&S provided to OPI are virtually
identical. Each warranty states that it “covers any
failing portion of the roof due to poor craftsmanship during
the installation of this roof” and that the warranty is
“a labor warranty which covers any and all labor
related issues, if any should arise.” See
Warranties [Doc. Nos. 45-4, 45-5 and 45-6].
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 CGL
policies should be interpreted in accordance with Oklahoma
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). “An insurance contract is
ambiguous only if it is susceptible to two constructions on
its face from the standpoint of a reasonably prudent
layperson, not from that of a lawyer.” Haworth v.
Jantzen, 172 P.3d 193, 196 (Okla. 2006). In determining
whether a contract is ambiguous, the court “will not
indulge in forced or constrained interpretations to create
and then construe ambiguities[.]” Id.
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
claims it is entitled to summary judgment because coverage
does not exist under the CGL policies. Evanston makes two
arguments in support. First, Evanston points to the
“legally obligated to pay” language of the CGL
policies and argues this language makes clear that coverage
only extends to tort-based claims. Evanston contends the OPI
Lawsuit does not allege any tort claims, only warranty claims
arising from contract. Second, Evanston contends the alleged
“poor craftsmanship” giving rise to the claims in
the OPI Lawsuit does not constitute an
“occurrence” under the CGL policies. The Court
addresses each of these arguments in turn.
Legally Obligated to Pay
Evanston argues coverage only extends to property damage for
which “the insured becomes legally obligated to
pay” because of “property damage” and that
the phrase “legally obligated to pay” applies
only to claims arising from tort, not claims arising from
contract. According to Evanston, the claims in the OPI
Lawsuit made by OPI against A&S arise from breach of
warranty and under Oklahoma law, warranty claims flow from
contract. Therefore, Evanston argues the CGL policies do not
extend coverage to those claims. As support, Evanston relies
upon VBF, Inc. v. Chubb Group of Ins. Cos., 263 F.3d
1226, 1231 (10th Cir. 2001).
VBF, Inc. the insured, VBF, sought a declaration
that coverage existed under a CGL policy for claims brought
against it by Foster Wheeler USA Corp. (Foster Wheeler). VBF
manufactured certain electrical equipment and contracted with
Foster Wheeler to sell the equipment to Foster Wheeler for a
job in China. A subcontractor of VBF, Brand Export Packing of
Oklahoma, Inc. (Brand Export), packaged the equipment.
shipment, the electrical equipment was damaged due to the
containers provided by Brand Export. As a result, Foster
Wheeler had to replace the damaged equipment. Foster Wheeler
filed suit against VBF to recover its costs in replacing the
equipment and asserted claims for breach of contract and
breach of express and implied warranties. Foster Wheeler
later amended its complaint and asserted a claim for
negligence against VBF for failing to follow contract
policy at issue, like the CGL policies involved in this case,
provided that the insurer would “pay damages the
insured becomes legally obligated to pay by reason of
liability imposed by law . . . .” Id. at 1231.
Applying Oklahoma law, the Tenth Circuit held that the
phrases “legally obligated to pay” and
“liability imposed by law” “refer only to
tort claims and not contract claims.” Id. The
court found that Foster Wheeler's suit against VBF was
based on contract, not tort, as it sought recovery for costs
in replacing the defective electrical equipment. Id.
Additionally, amendment of the complaint to include a claim
for “negligently failing to follow contract
specifications” did not alter the “underlying
nature of the Foster Wheeler suit.” Id. The
court cited, in part, well-established Oklahoma law that
“tort products liability suits cannot be brought for
damage to the product itself” and that “a
consumer is protected from damage to the defective product
only by contract law.” Id. (citation omitted).
contends that under Oklahoma law, breach of warranty claims
arise from contract and, therefore, under the holding of
VBF, Inc., no coverage exists. See
Pl.'s Br. at 21 (citing, Jaworsky v. Frolich,
850 P.2d 1052, 1054 (Okla. 1992); Waggoner v. Town &
Country Mobile Homes, Inc., 808 P.2d 649 (Okla. 1990)).
response, A&S does not address (and necessarily,
therefore, does not dispute) Evanston's contention that a
breach of warranty claim arises from contract. Instead,
A&S argues that the “underlying nature of the
suit” governs rather than any theory of liability
alleged and that OPI's claims “ariseout of
inadequate, improper, faulty or defective construction”
and are “not limited to damages to the goods (the
roofing system) itself.” See Def.'s Resp.
at 19. A&S further relies on the allegation in the OPI
Lawsuit pursuant to which OPI seeks “damages to ...