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Auto-Owners Insurance Co. v. Wier-Wright Enterprises Inc.

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

March 15, 2017

AUTO-OWNERS INSURANCE COMPANY, Plaintiff,
v.
WIER-WRIGHT ENTERPRISES, INC. d/b/a DOUG WIERSIG HOMES, et al., Defendants.

          MEMORANDUM OPINION AND ORDER

         Auto-Owners Insurance Company seeks a declaration that there is no coverage under commercial liability insurance policies it issued to Weir-Wright Enterprises, Inc., doing business as “Doug Wiersig Homes, ” and Jason Roop, doing business as “Jason Roop Home Improvement, ” for claims asserted against those businesses by Justin Kane Bell and Amy Bell in an underlying action pending in the Circuit Court of Madison County, Alabama.[1] The controversy now is before the court on plaintiff's two motions motion for summary judgment: doc. no. 44, seeking summary judgment against defendant Jason Roop; and doc. no. 46, seeking the same relief against defendant Wier-Wright Enterprises, Inc. Upon consideration of both motions, as well as the parties' briefs and evidentiary submissions, the court concludes the motions are due to be granted in part and denied in part.

         I. SUMMARY JUDGMENT STANDARD

         Federal Rule of Civil Procedure 56 provides that a 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 other words, summary judgment is proper “after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). “In making this determination, the court must review all evidence and make all reasonable inferences in favor of the party opposing summary judgment.” Chapman v. AI Transport, 229 F.3d 1012, 1023 (11th Cir. 2000) (en banc) (quoting Haves v. City of Miami, 52 F.3d 918, 921 (11th Cir. 1995)). Inferences in favor of the non-moving party are not unqualified, however. “[A]n inference is not reasonable if it is ‘only a guess or a possibility, ' for such an inference is not based on the evidence, but is pure conjecture and speculation.” Daniels v. Twin Oaks Nursing Home, 692 F.2d 1321, 1324 (11th Cir. 1983) (alteration supplied). Moreover,

[t]he mere existence of some factual dispute will not defeat summary judgment unless that factual dispute is material to an issue affecting the outcome of the case. The relevant rules of substantive law dictate the materiality of a disputed fact. A genuine issue of material fact does not exist unless there is sufficient evidence favoring the nonmoving party for a reasonable jury to return a verdict in its favor.

Chapman, 229 F.3d at 1023 (quoting Haves, 52 F.3d at 921) (emphasis and alteration supplied). See also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986) (asking “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”).

         II. PROCEDURAL HISTORY OF THIS CASE

         The operative pleading in this case is Auto-Owners' First Amended Complaint for Declaratory Judgment.[2] Auto-Owners filed that pleading on November 16, 2015, naming as defendants Justin Kane Bell, Amy Bell, Wier-Wright Enterprises, Inc., doing business as “Doug Wiersig Homes” (“Wier-Wright”), and Jason Roop, doing business as “Jason Roop Home Improvement” (“Roop”).[3] Neither Wier-Wright nor Roop answered the First Amended Complaint or otherwise appeared in the case. Accordingly, this court entered partial default judgments against Wier-Wright on December 22, 2015, [4] and against Roop on July 28, 2016.[5] In doing so, this court wrote that, because those defendants had failed to participate in the litigation, they would “not be allowed to appear at any later stage of [the] litigation and assert substantive positions.”[6] Even so, out of fairness to the remaining defendants, Justin Kane Bell and Amy Bell, who are the plaintiffs in the underlying state court case, this court found that “judgment on the merits will not be entered until the issue of insurance coverage has been fully litigated in the present, declaratory judgment proceeding between plaintiff, Auto-Owners Insurance Company, and the remaining defendants, Justin Kane Bell and Amy Bell.”[7]

         Auto-Owners filed its motion for summary judgment with regard to Jason Roop, doing business as “Jason Roop Home Improvement, ” on August 24, 2016.[8] It filed its motion for summary judgment with regard to Weir-Wright Enterprises, Inc., doing business as “Doug Wiersig Homes, ” on August 31, 2016.[9] Both of those motions were filed prior to the completion of discovery. The Scheduling Order entered in this case on July 11, 2016, required all discovery to be commenced in time to be completed by December 2, 2016, and it required all dispositive motions to be filed by January 6, 2017.[10] The parties later filed a joint motion to extend the dispositive motion deadline, asserting that the underlying state court action was not set for trial until March 27, 2017, and it would be preferable to have access to the record developed in preparation for that state-court trial prior to filing any further dispositive motions in this case.[11] This court granted the parties' joint motion, and extended the dispositive motion deadline to May 1, 2017.[12]

         III. ALLEGATIONS OF THE COMPLAINT IN THE UNDERLYING STATE COURT ACTION

         The underlying state court suit is styled Justin Kane Bell and Amy Bell vs. Wier-Wright Enterprises, Inc. d/b/a Doug Wiersig Homes; Bulldog Construction, LLC; Timothy Widner d/b/a Timothy Widner Construction; Alabama Fireplace and Construction Specialists, LLC; Jason Roop d/b/a Roop Roofing, and it is pending as Civil Action No. CV 2013-902000 JPS in the Circuit Court of Madison County, Alabama.[13] That suit was commenced on September 9, 2013.[14]

         Auto-Owners was granted permission to intervene in the state court action on August 20, 2014, as the liability insurer for Wier-Wright. Since its intervention, Auto-Owners has received electronic notice of all of the filings in the state-court action.[15]

         The Bells filed a Second Amended Complaint on January 29, 2015, adding “Jason Roop, d/b/a Roop Roofing, ” as a defendant.[16] Other defendants also were added by the Second Amended Complaint, but the claims against those defendants are not relevant to the outcome of this declaratory judgment action.

         The Bells alleged in their state-court Second Amended Complaint that Justin Kane Bell entered into an agreement with Wier-Wright for the construction of a new home in Gurley, Alabama, and that his wife, Amy Bell, was a third party beneficiary of that agreement.[17] The cost of construction was $393, 980.00, including a down payment of $15, 000.00.[18] The Bells also alleged that:

14. As agreed, Mr. Bell paid Wier-Wright in full for all amounts for which he was invoiced under the Agreement. Wier-Wright knowingly, intentionally, and fraudulently represented that a portion of these payments would be used to pay the subcontractors and suppliers for the construction of the house. The Plaintiffs relied upon these fraudulent representations. However, contrary to the misrepresentations of Wier-Wright and in breach of the terms of the Agreement, Wier-Wright fraudulently, knowingly, and deliberately failed to pay the suppliers and subcontractors, pocketed and/or misappropriated the money paid by the Plaintiffs intended for the supplies and subcontractors, and eventually stopped construction of the Plaintiffs' home.
15. Wier-Wright fraudulently suppressed from the Plaintiffs the fact that Wier-Wright was not paying the suppliers and subcontractors as required under the terms of the Agreement.
16. As a direct result of Wier-Wright's breach of contract and fraud, many of the suppliers and subcontractors for the construction of the home, including Alabama Concrete, Cell-Pak Services, Dean & Sons Plumbing, Henley Supply, Inc., and L & W Supply Corporation, doing business as Alabama Drywall, filed materialmens liens against the Plaintiffs' home.
17. After Wier-Wright abandoned the construction of the Plaintiffs' home, the Plaintiffs had to borrow an additional One Hundred Thousand Dollars ($100, 000.00) in order to complete the construction of the home. This money had to be borrowed and financed under less favorable terms and conditions than the Plaintiffs' previous loan due to the liens filed against their home due to Wier-Wright's fraud and breach of contract. The Plaintiffs also had to borrow additional funds because the Plaintiffs were given incorrect and grossly low estimates by Wier-Wright for the home's electrical work, HVAC, plumbing, and other material components of the home.
18. Though the liens have since been released, the suppliers and subcontractors who worked on the home were not paid by Wier-Wright as required by the Agreement.
19. On or about February of 2013, the home's roof began to leak. The leaking roof was proximately caused by the negligence, wantonness, and incompetence of Wier-Wright, and, upon information and belief, Bulldog Construction, Timothy Widner d/b/a Timothy Widner Construction, Alabama Fireplace and Construction Specialists, LLC, Roop, and Fictitious Party Defendants “J, ” “K, ” and “L.” The leaking roof caused damage to the remainder of the house, furnishings, appliances, and other property belonging to the Plaintiffs. The resulting damage to the house has substantially reduced its value, as well as the Plaintiffs' enjoyment of and ability to utilize the house as their residence. The costs of repairing the roof, the resulting damage to the house and the Plaintiffs' property, and the diminished value of the house are in excess of $100, 000.00.
20. Wier-Wright, and, upon information and belief, Bulldog Construction, Timothy Widner d/b/a Timothy Widner Construction, Alabama Fireplace and Construction Specialists, LLC, Roop, and Fictitious Party Defendants “J, ” “K, ” and “L” failed to construct the Plaintiffs' home in a workmanlike manner and otherwise in compliance with established building standards. Wier-Wright, and, upon information and belief, Bulldog Construction, Timothy Widner d/b/a Timothy Widner Construction, Alabama Fireplace and Construction Specialists, LLC, Roop, and Fictitious Party Defendants “J, ” “K, ” and “L” failed to perform its work [sic] in accordance with the parties' Agreement regarding the construction of the Plaintiffs' home. Wier-Wright, and, upon information and belief, Bulldog Construction, Timothy Widner, Alabama Fireplace and Construction Specialists, LLC, Roop, and Fictitious Party Defendants “J, ” “K, ” and “L” negligently and/or wantonly constructed the Plaintiffs' home, and failed to ensure that the home was constructed in a workmanlike manner, and/or in compliance with applicable standards.
21. As a proximate result of the Defendants' conduct, the Plaintiffs have incurred substantial compensatory damages, and suffered mental anguish. The Plaintiffs will also incur further losses and damages in the future.

Doc. no. 46-4 (Second Amended Complaint in State Court Case), at ¶¶14-21. Based upon those allegations, the Bells asserted claims against Wier-Wright for breach of contract (Count One), fraud (Count Two), gross negligence/misconduct (Count Three), and breach of the implied warranty of habitability (Count Six). The Bells asserted claims against both Wier-Wright and Roop (and against other defendants who are not relevant to this federal declaratory judgment action) for negligence (Count Four) and wantonness (Count Five).[19] They demanded compensatory and punitive damages, as well as attorneys' fees and costs.[20]

         Wier-Wright filed a First Amended Cross-Claim Complaint in the state court action on February 5, 2015, asserting claims for common law indemnification, breach of implied and express warranties, and breach of duty against “Jason Roop d/b/a Roop Roofing, ” as well as against other cross-claim defendants who are not relevant to the outcome of this federal declaratory judgment action.[21]

         Jason Roop was served with copies of the Bells' Second Amended Complaint and Wier-Wright's First Amended Cross-Claim Complaint on March 17, 2015.[22] The attorney assigned by Auto-Owners to represent Roop under a reservation of rights filed an answer to Wier-Wright's First Amended Cross-Claim on June 18, 2015, [23] and he filed an answer to the Bells' Second Amended Complaint on June 19, 2015.[24]

         IV. ADDITIONAL FACTS RELEVANT TO THE PRESENT CONTROVERSY

         A. Wier-Wright's Auto-Owners Policy

         Auto-Owners issued Policy Number 054617-38583084-11 (the “Wier-Wright policy”) to Wier-Wright Enterprises, Inc., on February 2, 2011. The policy term was from 12:01 a.m. on February 19, 2011 to 12:01 a.m. on February 19, 2012.[25] Under the terms of that policy, Auto-Owners agreed to “pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury' or ‘property damage' to which this insurance applies. We will have the right and duty to defend the insured against any ‘suit' seeking those damages.”[26] The Wier-Wright policy stated that it applied to “bodily injury” and “property damage” only if

(1) The “bodily injury” or “property damage” is caused by an “occurrence” that takes place in the “coverage territory”;
(2) The “bodily injury” or “property damage” occurs during the policy period; and
(3) Prior to the policy period, no insured listed under Paragraph 1 of Section II - Who is An Insured and no “employee” authorized by you to give or receive notice of an “occurrence” or claim, knew that the “bodily injury” or “property damage” had occurred, in whole or in part. If such a listed insured or authorized “employee” knew, prior to the policy period, that the “bodily injury” or “property damage” occurred, then any continuation, change or resumption of such “bodily injury” or “property damage” during or after the policy period will be deemed to have been known prior to the policy period.

Doc. no. 46-3 (Wier-Wright Policy), at ECF 8, Section I(A)(1)(b). The policy also provided that:

“Bodily injury” or “property damage” will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph 1 of Section II - Who is An Insured or any “employee” authorized by you to give or receive notice of an “occurrence” or claim:
(1) Reports all, or any part, of the “bodily injury” or “property damage” to us or any other insurer;
(2) Receives a written or verbal demand or claim for damages because of the “bodily injury” or “property damage”; or
(3) Becomes aware by any other means that “bodily injury” or “property damage” has occurred or has begun to occur.

Id., Section I(A)(1)(c).

         The Wier-Wright policy also contained certain exclusions that are relevant to the current controversy. For example, the policy stated that it did not apply to:

         a. Expected Or Intended Injury

         “Bodily injury” or “property damage” expected or intended from the standpoint of the insured. . . .

         b. Contractual Liability

“Bodily injury” or “property damage” for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement. . . .

Id., Section I(A)(2)(a)-(b) (boldface type in original, ellipses supplied). The policy also provided that it did not apply to “property damage” to “[t]hat particular part of any property that must be restored, repaired or replaced because ‘your work' was incorrectly performed on it.” Id., at ECF 12, Section I(A)(2)(j)(7) (alteration supplied).

         The policy outlined the following duties of an insured in the event of an occurrence, offense, claim or suit:

a. You must see to it that we are notified as soon as practicable of an “occurrence” or an offense which may result in a claim. To the extent possible, notice should include:
(1) How, when and where the “occurrence” or offense took place;
(2) The names and addresses of any injured persons and witnesses; and
(3) The nature and location of any injury or damage arising out of the “occurrence” or offense.
b. If any claim is made or “suit” is brought against any insured, you must:
(1) Immediately record the specifics of any claim or “suit” and the date received; and
(2) Notify us as soon as practicable.

         You must see to it that we receive written notice of any claim or “suit” as soon as practicable.

c. You and any other involved insured must:
(1) Immediately send us copies of any correspondence, demands, notices, summonses or papers in connection with any claim or “suit”;
(2) Authorize us to obtain records and other information;
(3) Cooperate with us in the investigation or settlement of any claim or defense of any “suit”; and
(4) Assist us, upon our request, in the enforcement of any right against any person or organization which may be liable to the insured because of injury or damage to which this insurance may also apply.

Id. at ECF 21, Section IV(2).

         The Wier-Wright policy defines the term “bodily injury” as meaning “bodily injury, bodily sickness or bodily disease sustained by a person, including death resulting from any of these at any time.” Id. at ECF 24, Section V(4). An “occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Doc. no. 46-3 (Wier-Wright policy), at ECF 26, Section V(14). “Property damage” is defined as:

a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or
b. Loss of use of tangible property that is not physically injured. All such loss shall be deemed to occur at the time of the “occurrence” that caused it.

Id. at ECF 27, Section V(18). The term “suit” means “a civil proceeding in which damages because of ‘bodily injury' [or] ‘property damage' . . . to which this insurance applies are alleged.”[27] “Your product” is defined as

(1) Any goods or products, other than real property, manufactured, sold, handled, distributed or disposed of by:
(a) You;
(b) Others trading under your name; or
(c) A person or organization whose business or assets you have acquired; and
(2) Containers (other than vehicles), materials, parts or equipment furnished in connection with such goods or services.

Id. at ECF 28, Section V(26)(a). The term “your product” also includes:

(1) Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of “your product”; and
(2) The providing of or failure to provide warnings or instructions.

Id., Section V(26)(b). The term “your work” a. Means:

(1) Work or operations performed by you or on your behalf; and
(2) Materials, parts or equipment furnished in connection with such work or operations.
b. Includes:
(1) Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of “your work”; and
(2) The providing of or failure to provide warnings or instructions.

Id., Section V(27).

         B. Jason Roop's Auto-Owners Policy

         Auto-Owners issued Policy Number 142317-38696744-14 (the “Jason Roop policy”) to “Jason Roop DBA Jason Roop Home Improvement” on January 7, 2014. The original policy term was from 12:01 a.m. on January 3, 2014, to 12:01 a.m. on January 3, 2015, [28] but the policy was cancelled effective March 9, 2014, for nonpayment of premiums.[29] The Jason Roop policy contained all of the same operative language as the Auto-Owners policy outlined above.

         C. Wier-Wright's Contract with Justin Kane Bell

         Wier-Wright entered into an “Agreement for the Construction of a Single Family Residence Fixed Contract” with Justin Kane Bell on June 21, 2011. (Amy Bell did not sign the contract, but the parties do not appear to dispute that she was an intended third-party beneficiary of the agreement between her husband and Wier-Wright.) Wier-Wright agreed to build a home for Bell “in a good, workmanlike, and substantial manner” for the price of $393, 980.00, including a $15, 000.00 down payment.[30] The home was to be “substantially completed” within 180 days of the contract date, with exceptions permitted for

acts of God, acts of the Owner or Owner's agent, inclement weather, wet or muddy grounds, acts of public utilities, public bodies, or inspectors, extra work, failure of the Owner to make progress payments promptly, or other contingencies unforseeable by the Contractor and beyond the reasonable control of the Contractor.

Doc. no. 46-4 (Doug Wiersig Homes Agreement for the Construction of a Single Family Residence Fixed Contract), at ECF 15, ΒΆ 9. The contract contained the ...


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