Hardwood Plywood v. Massachusetts Bay In ( 1998 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
HARDWOOD PLYWOOD AND VENEER
ASSOCIATION, an Illinois Corporation
for its own use and for the use of
Gulf Underwriters Insurance
Company,
Plaintiff-Appellant,
No. 97-2498
v.
MASSACHUSETTS BAY INSURANCE
COMPANY, a New Hampshire
Corporation,
Defendant-Appellee.
Appeal from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Albert V. Bryan, Jr., Senior District Judge.
(CA-97-434-A)
Argued: April 7, 1998
Decided: July 27, 1998
Before MURNAGHAN, NIEMEYER, and MOTZ, Circuit Judges.
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Affirmed by unpublished per curiam opinion.
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COUNSEL
ARGUED: Brock R. Landry, VENABLE, BAETJER, HOWARD &
CIVILETTI, Washington, D.C., for Appellant. John Mason Claytor,
HARMAN, CLAYTOR, CORRIGAN & WELLMAN, Richmond,
Virginia, for Appellee. ON BRIEF: Michael W. Robinson, VEN-
ABLE, BAETJER & HOWARD, McLean, Virginia, for Appellant.
Elizabeth E.S. Skilling, HARMAN, CLAYTOR, CORRIGAN &
WELLMAN, Richmond, Virginia, for Appellee.
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Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
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OPINION
PER CURIAM:
Appellant, Hardwood Plywood and Veneer Association (HPVA),
brought suit against its insurer, Massachusetts Bay Insurance Co.
(MBI), seeking to require MBI to provide a defense in a lawsuit
brought against HPVA by the Sizemore family. The Sizemores were
injured in a house fire which they maintained was worsened by hard-
wood paneling manufactured by one of HPVA's member organiza-
tions, Georgia-Pacific Corporation. The district court granted
summary judgment to MBI on the ground that the Sizemores' allega-
tions were excluded from coverage by the policy's"Products-
Completed Operations Hazard" provision. On appeal, HPVA argues
that the district court's interpretation of the insurance policy was erro-
neous. Finding no error, we affirm.
I.
On December 1, 1991, a fire broke out in the South Carolina home
of the Sizemore family, causing injuries to the family and their prop-
erty. Believing that the fire was made more dangerous by the presence
of unusually flammable paneling in their kitchen, the Sizemores filed
a products liability action against the manufacturer of the paneling,
Georgia-Pacific, and its trade association, HPVA.
HPVA is a not-for-profit trade association whose members are
manufacturers and distributors of hardwood plywood and veneer
2
products and suppliers to the industry. HPVA provides a wide range
of services to its members, including advocacy with federal agencies,
participation in the development of model building codes, industry
promotion, and certain research and testing services, including the
testing of hardwood paneling for various aspects of flammability.
For a number of years prior to the Sizemore fire and thereafter,
HPVA purchased an occurrence-based general commercial lines
insurance policy (Policy) from MBI. The Policy required MBI to
defend and indemnify HPVA with respect to claims alleging bodily
injury or property damage. Upon learning of the Sizemores' lawsuit,
HPVA contacted MBI and requested a defense.1 MBI refused on the
grounds that the Sizemores' claims were outside the scope of the Pol-
icy.
In March of 1996, HPVA requested and was granted summary
judgment against the Sizemores. See Sizemore v. Georgia Pacific
Corp., No. CIV.A.94-2894-96, 1996 WL 498410 (D.S.C. March 8,
1996). The Sizemores appealed that judgment to the United States
Court of Appeals for the Fourth Circuit, which affirmed summary
judgment in favor of HPVA. See Sizemore v. Hardwood Plywood &
Veneer Ass'n, No. 96-1587 (4th Cir. June 4, 1997).
On March 28, 1997, HPVA commenced the present lawsuit against
MBI in the United States District Court for the Eastern District of Vir-
ginia, seeking a declaration that MBI owed a duty of defense to
HPVA and damages and attorneys' fees arising from the breach of
such duty. Following discovery, the district court granted summary
judgment to MBI on the ground that the Policy's Products-Completed
Operations Hazard exclusion applied to each of the Sizemores' alle-
gations. This appeal followed.
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1 HPVA also notified Gulf Underwriters Insurance Company (Gulf),
which had issued a specialty errors and omissions policy for claims made
between December 1, 1994 and December 1, 1995. Gulf agreed to pro-
vide a defense to HPVA pursuant to a reservation of rights letter and,
thereafter, paid the legal fees and expenses incurred by HPVA in the
Sizemore litigation. It is undisputed that the MBI Policy, if it applies, is
primary vis-a-vis the Gulf policy. Therefore, the current litigation is to
determine if Gulf will be reimbursed by MBI for defense expenditures
Gulf made on behalf of HPVA.
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II.
HPVA maintains that the district court erred in granting summary
judgment to MBI. We review the district court's grant of summary
judgment de novo, applying the same standard as the trial court. See
M & M Med. Supplies & Serv., Inc. v. Pleasant Valley Hosp., Inc.,
981 F.2d 160, 163 (4th Cir. 1992) (en banc) (citation omitted). Pursu-
ant to Fed. R. Civ. P. 56(c), summary judgment is appropriate if there
is no genuine issue of material fact and the moving party is entitled
to judgment as a matter of law. See also M & M , 981 F.2d at 162-63.
We begin by addressing the threshold issue of which forum's law
governs the parties' dispute. A federal court exercising diversity juris-
diction, as in the present case, must apply the substantive law of the
state in which it sits. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78-
79 (1938). That includes applying the forum state's choice of law
rules. See Klaxon Co. v. Stentor Elec. Mfg. Co. , 313 U.S. 487, 496
(1941). Under Virginia law, contracts are interpreted according to the
law of the lex loci, meaning the state where the contract was made.
See Frye v. Commonwealth, 345 S.E.2d 267, 272 (Va. 1986)
("[Q]uestions of substantive law are governed by the law of the place
of the transaction . . . ."). In the present case, the parties agree that our
interpretation of the Policy, which was issued and delivered in Vir-
ginia, is governed by the law of that state.
In Virginia, an insurer has no common law or statutory duty to
defend a policy holder. Therefore, a duty to defend, if one exists,
arises only as a matter of contract. See Town Crier, Inc. v. Hume, 721
F. Supp. 99, 101 (E.D. Va. 1989). To determine whether a duty to
defend arises under Virginia law, courts typically follow a two-step
inquiry. See Fuisz v. Selective Ins. Co. of America, 61 F.3d 238, 242
(4th Cir. 1995) (citing Town Crier, 721 F. Supp. at 103). First, the
court examines the scope of coverage provided by the policy, includ-
ing all relevant coverage and exclusion clauses. See id. Next, the court
determines whether the allegations contained in the complaint fall
within the scope of the policy. See id. The insurer has a duty to defend
so long as at least one of the complaint's allegations is arguably cov-
ered by the policy. See Donnelly v. Transp. Ins. Co., 589 F.2d 761,
767 (4th Cir. 1978) ("If a complaint, however ambiguous, may be
read as premising liability on alternative grounds, and either ground
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states liability potentially or arguably covered by the policy, the
insured is entitled to a defense.") (citation omitted).
Virginia courts interpret insurance policies according to the stan-
dard rules of contract construction, modified slightly for special cir-
cumstances arising in the insurance context. See Town Crier, 721 F.
Supp. at 101 (citation omitted). As with other contracts, the starting
point for an interpretation of an insurance policy is the plain language
of the parties' agreement. See State Farm Fire & Cas. Co. v. Walton,
423 S.E.2d 188, 191 (Va. 1992) (citation omitted). If the language of
the policy is unambiguous, courts simply apply the terms of the agree-
ment as written. See id. (citations omitted). If, on the other hand, the
policy contains an ambiguity, courts construe the uncertain language
in favor of the policy holder. See Town Crier , 721 F. Supp. at 101.
Hence, ambiguous policy provisions are construed to grant coverage
rather than deny it. See id.
The scope of coverage provided by a policy may be limited by the
presence of exclusions. However, it is well-settled that an exclusion
applies only when it "unambiguously bring[s] the particular act or
omission within its scope." Fuisz, 61 F.3d at 242 (quoting Floyd v.
Northern Neck Ins. Co., 427 S.E.2d 193, 196 (Va. 1993)). Where, as
here, the policy contains more than one exclusion, the court must
determine whether the allegations contained in the complaint survive
each of the various exclusions. See generally American Reliance Ins.
Co. v. Mitchell, 385 S.E.2d 583, 585-87 (Va. 1989) (discussing
whether either of two exclusions bar coverage for injuries alleged);
Fuisz, 61 F.3d at 242-46 (same). Therefore, no duty to defend arises
if each of the allegations falls within at least one of the policy's exclu-
sions. See Nationwide Mut. Ins. Co. v. Wenger , 278 S.E.2d 874, 875-
76 (Va. 1981).
With these principles in mind, we now turn to the facts of the pres-
ent case to determine whether the Policy gives rise to a duty to defend
on the part of MBI. Following the two-step analysis described above,
we first consider the terms of the Policy, including all relevant cover-
age and exclusion clauses. We then consider whether the allegations
contained in the Sizemores' complaint fall within the scope of the
Policy.
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A. The Policy
The Policy requires MBI to defend and indemnify HPVA with
respect to claims arising between May 1, 1991 and May 1, 1992. The
following provision, subject to exclusions, defines the scope of cover-
age:
a. We will pay those sums that the insured becomes
legally obligated to pay as damages because of bodily injury
and property damage to which this insurance applies. . . .
The "bodily injury" or "property damage" must be caused by
an "occurrence." . . . We will have the right and duty to
defend any "suit" seeking those damages.
Under the Policy, an "``occurrence' means an accident, including con-
tinuous or repeated exposure to substantially the same general harm-
ful conditions."
The Policy contains three potentially relevant exclusions. The first
is the Intended-Expected Injury exclusion, which denies coverage for
"``bodily injury' or ``property damage' expected or intended from the
standpoint of the insured." The second is the Products-Completed
Operations Hazard exclusion, which bars coverage for"all ``bodily
injury' and ``property damage' occurring away from premises you
own or rent and arising out of ``your product'2 or ``your work'3. . . ."
The third and final exclusion is the Designated Professional Services
exclusion, which bars coverage for "``bodily injury' [or] ``property
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2 The Policy defines "your product" as "[a]ny goods or products, other
than real property, manufactured, sold, handled or disposed of by: (1)
You; [or] (2) Others trading under your name . . . ." It includes "warran-
ties or representations made at any time with respect to the fitness, qual-
ity, durability or performance of any of the items[listed] . . . above."
3 The Policy defines "your work" as "[w]ork or operations performed
by you or on your behalf . . . ." It includes "warranties or representations
made at any time with respect to the fitness, quality, durability or perfor-
mance of any of the items [listed] . . . above."
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damage' . . . [arising from] the rendering or failure to render any pro-
fessional service."4
B. The Complaint
The complaint is divided into three claims, each of which makes
multiple allegations of wrongdoing on the part of HPVA. We have
carefully considered each of the allegations in light of the Policy. For
the reasons stated below, we hold that each of the allegations falls
within at least one of the Policy's exclusions.
The first claim raises thirteen separate allegations. Because the pre-
cise language of the allegations is relevant, we find it necessary to
quote them at length:
HPVA was grossly negligent, reckless, willful, wanton,
and fraudulent in the following and other particulars, to-wit:
a) In assisting its members, including Georgia-Pacific in
placing into the stream of commerce panelling [sic]
which HPVA knew was unreasonably dangerous to the
end user, Sizemore, in that it would rapidly accelerate
a fire beyond the expectations of the ordinary consumer
in a matter of minutes;
b) In misrepresenting to the public, building code officials,
federal and state governmental agencies the physical
properties and flammability of such panelling [sic];
c) In failing to warn builders, governmental agencies, and
users of the panelling [sic] of the dangers associated
therewith;
d) In making a conscious decision against incorporating
the use of fire retardants in such panelling [sic] despite
the knowledge that such use would dramatically reduce
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4 The exclusion is expressly limited to the work of "analytical chem-
ists."
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the flame spread of the panelling [sic] in the event of
a fire;
e) In withholding from federal and state governmental
agencies, building code officials, the construction
industry, and the consuming public, test results showing
the benefits and reduction of flame spread through the
use of flame retardants associated with such panelling
[sic];
f) In placing concerns of profit of its members, including
Georgia-Pacific, above the safety of the consuming pub-
lic as it relates to the addition of fire retardants to such
Panelling;
g) In suppressing and covering up the existence of safer
alternative designs of such panelling [sic];
h) In sponsoring testing of such panelling [sic], by so-
called independent laboratories and thereafter manipu-
lating the test procedures and conclusions of the inde-
pendent laboratory prior to publishing its report;
i) In using manipulated test results and conclusions when
vigorously opposing the passage of more restrictive reg-
ulatory codes which would have made such panelling
[sic] dramatically safer to the consuming public;
j) In hiding from federal and state governmental agencies,
building code officials, and the consuming public the
feasibility of safer alternatives in the design of such pan-
elling [sic] to reduce flame spread;
k) In assisting Georgia-Pacific in falsely advertising to the
consuming public that its panelling [sic] with acryglass
finish was fifty per cent (50%) more effective in reduc-
ing flame spread than other panelling [sic] when, in
fact, such statement was false;
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l) In failing to notify the consuming public (including
Sizemore) and/or any regulatory agencies, including
the Consumer Product Safety Commission, of the haz-
ardous and unsafe condition of the panelling [sic] in
Sizemore's home when HPVA knew of its unsafe con-
dition from the date of its entry into the stream of com-
merce until the date of the fire; and
m) In disseminating or assisting in the dissemination of
false and misleading reports and publications concern-
ing the flammability and safety of such panelling[sic].
With the language of the first claim in mind, the relevant question is
whether any of the allegations triggers a duty to defend on the part
of MBI.
We conclude that they do not. As an initial matter, we hold that the
allegations in paragraphs (b), (g), (h), (i), (j), (k), and (m) are plainly
excluded from coverage, since those paragraphs make claims of inten-
tional misconduct on the part of HPVA.5 With respect to the remain-
ing paragraphs of the first claim, we agree with the district court that
each of the allegations pertains to HPVA's "work" and is, therefore,
properly excluded by the Products-Completed Operations Hazard
exclusion.6 Consequently, we hold that none of the allegations in the
first claim triggers a duty to defend on the part of MBI.
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5 Claims of intentional misconduct fall outside the Policy's definition
of an "occurrence," which is expressly limited to accidental injuries.
Likewise, such claims are barred from coverage by the Policy's Inten-
tional or Expected Injury exclusion. We are aware that, under a generous
reading, other allegations in the first claim might also be interpreted as
allegations of intentional injury. However, for purposes of the Intentional
or Expected Injury exclusion, those claims are ambiguous, and thus not
excludable, since it is not clear whether the injuries alleged are based on
intentional, reckless, or negligent misconduct.
6 As the district court properly found, the allegations in paragraphs (a),
(d), (e), and (f) relate to the advertising, marketing, and testing of hard-
wood paneling. The same can be said of the allegations in paragraphs (c)
and (l), since underlying the alleged failure to warn is an implied duty
arising from HPVA's research and testing of hardwood paneling.
9
Notwithstanding our conclusion with respect to the first claim, if
a duty to defend is created by the second or third claims, MBI has a
duty to defend the entire lawsuit. See Donnelly , 589 F.2d at 767.
Therefore, we must determine whether the allegations in those claims
survive the Policy's exclusions.
The second and third claims provide in pertinent part as follows:
[T]he Conspirators [including HPVA] conspired among
themselves to sponsor so-called independent laboratory test-
ing of the Panelling . . . .
During the course of testing, the Conspirators conspired
to manipulate the testing procedures utilized . . . to manipu-
late the results and conclusions drawn by the laboratory and,
further, to limit dissemination of test results using hardwood
panelling [sic] treated with fire retardant . . . while making
the . . . manipulated [non-fire retardant results] readily avail-
able to [government agencies and others]. . . .
...
[T]he flammability of the Panelling constituted a substan-
tial product hazard within the meaning and provisions of the
Consumer Product Safety Act . . . .
HPVA . . . knowingly violated the Act and the rules and
regulations of the Consumer Product Safety Commission . . .
in the following respects:
a) By concealing from the Commission the substantial
product hazard of the Panelling;
b) By failing to report to the Commission the substantial
product hazard of the Panelling . . .
c) By the acts and omissions set forth . . . above.
We have carefully considered the second and third claims in light
of the Policy, and we are persuaded that they are properly excluded
10
from coverage. The majority of the allegations are of intentional mis-
conduct, and the remainder are readily excluded as pertaining to
HPVA's "work." We therefore conclude that the second and third
claims, like the first, create no duty to defend on the part of MBI.
III.
In summary, we hold that each of the allegations contained in the
Sizemores' complaint is excluded from coverage by either the Inten-
tional or Expected Injury exclusion or the Products-Completed Opera-
tions Hazard exclusion.7 The judgment of the district court is,
therefore,
AFFIRMED.
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7 This conclusion renders it unnecessary to consider MBI's alternative
contention that certain allegations may also be barred by the Designated
Professional Services exclusion.
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