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Pennsylvania National Mutual Casualty Insurance Co. v. The Retirement Systems of Alabama

United States District Court, N.D. Alabama, Northwestern Division

June 5, 2014



C. LYNWOOD SMITH, Jr., District Judge.

Plaintiff, Pennsylvania National Mutual Casualty Insurance Company ("Penn National"), filed this declaratory judgment action on February 12, 2014.[1] The case currently is before the court on the "Motion to Dismiss or in the Alternative to Stay" filed by defendants The Retirement Systems of Alabama ("RSA") and Alabama Real Estate Holdings ("AREH").[2] Upon consideration of the motion, plaintiff's response, [3] and defendants' reply, [4] the court concludes the motion is due to be denied.


Federal Rule of Civil Procedure 12(b) permits a party to move to dismiss a complaint for, among other reasons, "failure to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). This rule must be read together with Rule 8(a), which requires that a pleading contain only a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). While that pleading standard does not require "detailed factual allegations, " Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 550 (2007), it does demand "more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citations omitted). As the Supreme Court stated in Iqbal :

A pleading that offers "labels and conclusions" or "a formulaic recitation of the elements of a cause of action will not do." [ Twombly, 550 U.S., at 555]. Nor does a complaint suffice if it tenders "naked assertion[s]" devoid of "further factual enhancement." Id., at 557.
To survive a motion to dismiss founded upon Federal Rule of Civil Procedure 12(b)(6), [for failure to state a claim upon which relief can be granted], a complaint must contain sufficient factual matter, accepted as true, to "state a claim for relief that is plausible on its face." Id., at 570. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id., at 556. The plausibility standard is not akin to a "probability requirement, " but it asks for more than a sheer possibility that a defendant has acted unlawfully. Ibid. Where a complaint pleads facts that are "merely consistent with" a defendant's liability, it "stops short of the line between possibility and plausibility of entitlement to relief.'" Id., at 557 (brackets omitted).
Two working principles underlie our decision in Twombly. First, the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice. Id., at 555 (Although for the purposes of a motion to dismiss we must take all of the factual allegations in the complaint as true, we "are not bound to accept as true a legal conclusion couched as a factual allegation" (internal quotation marks omitted)). Rule 8 marks a notable and generous departure from the hyper-technical, code-pleading regime of a prior era, but it does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions. Second, only a complaint that states a plausible claim for relief survives a motion to dismiss. Id., at 556. Determining whether a complaint states a plausible claim for relief will, as the Court of Appeals observed, be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense. 490 F.3d, at 157-158. But where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not "show[n]" - "that the pleader is entitled to relief." Fed. Rule Civ. Proc. 8(a)(2).
In keeping with these principles a court considering a motion to dismiss can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth. While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations. When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief.

Iqbal, 556 U.S. at 678-79 (emphasis added).


Plaintiff seeks a judgment from this court declaring that it has no duty to defend or indemnify defendant Quality Coatings & Drywall, Inc. ("Quality Coatings"), and its sureties, Ohio Casualty Insurance Company ("Ohio Casualty"), and Liberty Mutual Group, Inc. ("Liberty Mutual"), for claims asserted against Quality Coatings by defendants RSA and AREH in the case styled The Retirement Systems of Alabama, et al. v. Quality Coatings and Drywall, Inc., et al., Civil Action No. CV-2013900131 in the Circuit Court of Lauderdale County, Alabama ("the underlying litigation").[5] The underlying litigation arose from the construction of the River Heritage Hotel in Florence, Alabama ("the Hotel").

Quality Coatings entered into a Construction Trade Contract with AREH in March of 2004. Among other work to be performed, Quality Coatings was responsible for cold formed metal framing, gypsum drywall, and wall installation at the Hotel.[6] AREH and Ohio Casualty later executed a surety bond in the amount of $2, 151.655. Ohio Casualty subsequently was acquired by Liberty Mutual, and both companies are parties to the underlying litigation, based upon Ohio Casualty's agreement to act as a surety for Quality Coatings under the Construction Trade Contract.[7]

RSA is a successor-in-interest to AREH on the Construction Trade Contract. Both RSA and AREH filed the underlying litigation against Quality Coatings and its bond companies, Ohio Casualty and Liberty Mutual, seeking to recover for the improper installation of drywall in the Hotel, and remediation of mold that developed as a result. Specifically, RSA and AREH assert claims for breach of contract, breach of warranty, negligence, and a declaratory judgment. They allege that Quality Coatings "constructed the demising walls on [the Hotel] such that there was a separation in the firewall, a separation which renders the firewall non-compliant with the City of Florence's ordinances and defective, and caused the growth of mold in [the Hotel]."[8]

RSA and AREH seek to recover damages in the amount of $252, 073.19 for expenses incurred in repairing, replacing, and remedying the allegedly defective drywall installed by Quality Coatings. They also seek to recover $322, 380.30 for the costs of remediating the mold damage caused by the allegedly defective drywall. RSA and AREH have declared Quality Coatings in default of its contractual obligations, and demanded that Ohio Casualty and/or Liberty Mutual make payment under the performance bond. Both of those entities have refused payment. In addition, RSA and AREH have withheld payment due to Quality Coatings in the amount of $76, 999.76 for work it performed on another project.[9]

Plaintiff issued Commercial General Liability Policy No. CX9 0675702 ("the Policy") to Quality Coatings for the period of September 1, 2011 to January 1, 2014.[10] Plaintiff currently is providing a defense to Quality Coatings in the underlying litigation under a reservation of rights, and Ohio Casualty and Liberty Mutual also have sought a defense and indemnity from plaintiff.[11]

Plaintiff asks this court to issue a judgment declaring that it does not have a duty to defend or indemnify Quality Coatings, or either of its sureties. Specifically, Penn National asserts:

37. Quality Coatings did not employ subcontractors to perform the subject work. Quality Coatings['] faulty construction of the firewall is not an accident and thus not an "occurrence" as defined by the Policy. Moreover, the firewall was constructed in 2004/2005[, ] more than six years before the Penn National Policy was issued. To the extent that any "property damage" arising from Quality Coatings' faulty workmanship occurred prior to the Penn National Policy[, ] there is no "occurrence."
38. The Fungi or Bacteria Exclusion expressly provides that the insurance does not apply to the claim in the Underlying Litigation. Moreover, damages sought in the Underlying Litigation, including... damages for the remediation of Quality Coatings['] faulty construction, are expressly excluded under the terms of the Policy, and therefore would not give rise to an "occurrence." Thus, there is no "occurrence" under the Policy, and even if there ware, said "occurrence" would be ...

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