Atain Specialty Insurance Co. v. Siegen 7 Developm ( 2020 )

Case: 19-30827 Document: 00515501938 Page: 1 Date Filed: 07/24/2020
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
FILED
No. 19-30827 July 24, 2020
Lyle W. Cayce
ATAIN SPECIALTY INSURANCE COMPANY, Clerk
Plaintiff - Appellee
v.
SIEGEN 7 DEVELOPMENTS, L.L.C.,
Defendant - Appellee
v.
ANDREA WARREN,
Defendant - Appellant
Appeal from the United States District Court
for the Middle District of Louisiana
USDC No. 3:18-CV-850
Before STEWART, DENNIS, and HAYNES, Circuit Judges.
PER CURIAM:*
This appeal involves the owner of a flooded home, the contractor that
constructed the home, and the contractor’s commercial general liability
(“CGL”) insurer. The homeowner, Andrea Warren, obtained arbitrator’s
awards against the contractor, Siegen 7 Developments, L.L.C. (“Siegen 7”), for
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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part of her flood damages. Siegen 7’s insurer, Atain Specialty Insurance
Company (“Atain”), provided its insured, the contractor, a defense in
arbitration but reserved its right to deny policy coverage for indemnity of the
damages awarded against the contractor by the arbitrator. Following
arbitration, a state court rendered judgment for Warren confirming the
arbitral awards against Siegen 7.
Atain then brought the present federal court action in the district court
for declaratory judgment that it owes only partial indemnification of the
contractor’s liability as per the arbitrator’s awards for the homeowner’s flood
damages. The district court’s final judgment in the present case concludes that
Atain’s policy affords coverage and indemnity for the arbitration awards for
the damage and loss of Warren’s movable property inside the flooded house,
but excludes coverage or indenmity for damage caused by, or arising out of,
Siegen 7’s work product, including damage to the residential building itself, as
well as damage caused by, or arising out of, the contractor’s failure to achieve
minimum elevation of the building slab, and damage caused by, or arising out
of, Siegen 7’s failure to provide positive storm water drainage for the lot,
prepare a drainage plan for the house and lot, and comply with the
International Building Code regarding drainage and slope adjacent to the
house. For the following reasons, we AFFIRM.
I. Arbitrator’s Findings and Award
The flooding of the residence occurred in August 2016 after it was
substantially completed by Siegen 7 and after Warren had occupied it in July
2016. The flooding damage to the residence itself, including the floors, walls,
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and trim, was repaired at an actual cost of $110,053.07; and damage to
Warren’s personal movable property inside the residence totaled $18,008.47. 1
The arbitrator made the following findings and awards:
[Siegen 7] failed to achieve the minimum finish slab elevation
required by the Contract, some 24.3 [feet]. Actual finish elevation
of the slab was 23.8 [feet], some 0.5 [feet] or 6 [inches] low. Had
the house been constructed in accordance with the Contract, its
interior would not have flooded in August 2016, and no significant
flooding damage would have occurred. [Warren] is, therefore,
awarded flooding related damages in the amount of $128,061.54
against [Siegen 7], plus Louisiana legal interest from . . . July 24,
2017, until paid.
[Siegen 7] was required by the Contract as written to provide
positive storm water drainage for the lot, prepare a drainage plan
for the house and lot, and comply with the International Building
Code regarding drainage and slope adjacent to the house. [Siegen
7] failed to comply with the contract as written. [But Warren’s]
husband, a party to the Contract, orally changed the Contract and
deleted certain of the back-yard drainage improvements from
[Siegen 7’s] Contract scope of work. Oral changes to written
construction contracts in Louisiana are enforceable. However,
because the exact scope of the work deleted is less than certain,
and because the back-yard drainage issues are exacerbated if not
caused in part by the fact that the slab was constructed below the
contractually required minimum finish slab elevation, which
minimum elevation was not changed by [Warren] or her husband,
[Siegen 7] shares responsibility for the back-yard drainage
problems and must share in the cost of correction. As a result, I
find that:
[Warren’s] claim for $18,480 for gutters on the house is DENIED.
Of [Warren’s] claim of $35,950 for back yard improvements
including catch basins, downspout tie ins, piping, regrading, re-
sodding, and related expenses, [Warren] is AWARDED half of the
1The $18,008.47 loss included certain of Warren’s movables in the house, less than
three months old, that were replaced at an actual cost of $5,493.47, and several other
movables that were damaged so severely as to be lost and had an estimated value of $12,515.
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estimated costs, or $17,975 plus Louisiana legal interest from the
date of the final award herein until paid.
In the final award dated September 12, 2018, the arbitrator also awarded
Warren “$45,657.53 against [Siegen 7] regarding [Warren’s] attorneys’ fees
and costs and an equal sharing of AAA and Arbitrator fees and expenses.” 2
Because no party in this appeal challenges or seeks to extend the award of
attorney’s fees or the state court judgment confirming it, we intimate no view
on that subject.
In state court, pursuant to Louisiana Revised Statute 9:4209, the 19th
Judicial District Court for the Parish of East Baton Rouge granted Warren a
judgment confirming the arbitrator’s awards on December 11, 2018. Warren
v. Siegen 7 Devs., No. 675,038 (19th JDC, Dec. 11, 2018). A confirmed
arbitration award is a valid and final judgment. LA. REV. STAT. § 9:4214; see
In re Interdiction of Wright, 10-1826 (La. 10/25/11), 75 So. 3d 893, 897-98.
II. The Present Case
Atain filed its complaint in the present case in the United States District
Court for the Middle District of Louisiana against Siegen 7 and Warren,
seeking declaratory judgment that it is not obliged to indemnify Siegen 7 for a
portion of Siegen 7’s liability under Warren’s arbitration award judgment.
Atain agreed to indemnify Siegen 7 for the amounts awarded to Warren for
damaged personal movable property inside the flooded residence ($18,008.47)
and for arbitration fees and costs ($2,675), but requested a declaratory
judgment that all other damages awarded to Warren—for damage to the
residential building itself ($110,053.07) and for damages associated with
2Atain argued in the district court that it did not have to indemnify Siegen 7 for the
attorneys’ fees award, and Siegen 7 and Warren opposed Atain’s arguments. The court
concluded that coverage for the awarded attorney’s fees did not attach under the policies and
denied all parties’ motions for summary judgment on the subject of attorneys’ fees. All parties
agree that the subject of attorneys’ fees is not before us on appeal.
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Siegen 7’s failure to prepare a drainage plan for the house and lot, and comply
with the International Building Code regarding drainage and slope adjacent to
the house ($17,975)—were excluded under the policy. The district court
granted summary judgment in favor of Atain, concluding that it did not have
to indemnify Siegen 7 for damage to the residence itself ($110,053.07) or for
the arbitration award arising out of Siegen 7’ s failures to provide positive
storm water drainage for the lot, to prepare a drainage plan for the house and
lot, and to comply with the International Building Code regarding drainage
and slope adjacent to the house, as required by its contract with Warren.
($17,975). Warren and Siegen 7 appeal.
All three parties—Warren, Siegen 7, and Atain—are bound by the state
court judgment confirming the arbitrator’s factual findings and quantification
of the damages awarded. Atain is not bound monetarily as a judgment debtor,
but it is bound in subsequent litigation by the arbitrator’s factual findings
because it participated in the arbitration by conducting the defense of its
insured therein. See RESTATEMENT (SECOND) OF JUDGMENTS § 38 (1982);
Souffront v. La Compagnie Des Sucreries De Porto Rico, 217 U.S. 475, 487
(1910). Therefore, this federal case essentially calls upon the district court,
and this court on appeal, to apply the CGL policy provisions to the facts found
and the awards made by the arbitrator that were confirmed by the state court
judgment. Applying the policy provisions to the facts found by the arbitrator
as judicially confirmed, we conclude that the district court correctly
determined coverage vel non as to each award.
Discussion
The CGL policy here does not apply to “Damage to Your Product.” That
exclusion states that “’[p]roperty damage’ to ‘your product’ arising out of it or
any part of it” is not covered. As relevant here, “[p]roperty damage” is defined
in the policy as “[p]hysical injury to tangible property,” and “your product” as
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“[a]ny goods or products, other than real property, manufactured, sold,
handled, distributed or disposed of by” the insured or others “trading under
[the insured’s] name.”
This exclusion “reflect[s] the intent of the insurance industry to avoid
the possibility that coverage under a CGL policy will be used to repair and
replace the insured’s defective products and faulty workmanship.” 15 LA. CIV.
L. TREATISE, INSURANCE LAW & PRACTICE § 6:21 (4th ed.). “The CGL policy is
not intended as a guarantee of the quality of the insured’s products or work.”
Id. (citing McMath Const. Co. v. Dupuy, 2003-1413 (La. App. 1 Cir. 11/17/04),
897 So. 2d 677, 682, writ denied, 2004-3085 (La. 2/18/05), 896 So. 2d 40)).
“Louisiana courts have consistently held that [this] exclusion eliminates
coverage for the cost of repairing or replacing the insured’s own defective work
or defective product.” Supreme Servs. & Specialty Co. v. Sonny Greer, Inc.,
2006-1827 (La. 5/22/07), 958 So. 2d 634, 643.
The district court concluded that Warren’s entire residence was Siegen
7’s “product,” and therefore “all damages to the [residential building were]
excluded from coverage” under the “Your Product” exclusion. Warren and
Siegen 7 argue that the district court erred in applying the “Your Product”
exclusion to the costs to repair damaged non-defective components of the
residence. Essentially, they argue that while the “Your Product” exclusion
bars coverage for damage to defective work—like the faulty slab—it does not
bar coverage for damages to non-defective work—like damages to the wall,
trim, and flooring caused by flooding resulting from the defective slab.
First, the district court did not err in concluding that under Louisiana
CGL insurance law cases Warren’s entire residence was Siegen 7’s “product.”
See Provost v. Homes by Lawrence & Pauline, Inc., 2012-761 (La. App. 3 Cir.
12/5/12), 103 So. 3d 1280, 1285 (treating an entire home as a “product”), writ
denied, 2013-0049 (La. 2/22/13), 108 So. 3d 776; Atain Specialty Ins. Co. v. VIG
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II, LLC, No. CV 15-6499, 2017 WL 3867672, at *6 (E.D. La. Feb. 9, 2017)
(“Louisiana courts apparently do not treat products such as the [plaintiffs’]
home as real property for purposes of the Damage To Your Product exclusion.”)
Second, Louisiana jurisprudence does not support Warren and Siegen 7’s
argument that the “Your Product” exclusion bars coverage only for damage to
defective work and permits coverage for damage to non-defective work. We
have previously noted that Louisiana courts interpret an exclusion like the
“Your Product” exclusion 3 as “unambiguously exclud[ing] coverage for the cost
of repairing or replacing non-defective as well as defective components of the
insured’s work product.” Todd Shipyards Corp. v. Turbine Service, Inc., 674
F.2d 401, 422 (5th Cir. 1982) (citing Franks v. Guillotte, 248 So. 2d 626 (La.
App. 1971)); see also Provost, 103 So. 3d at 1280-81, 1285 (holding that
exclusion applied because claims for damages were for damage to residence,
which was the insured’s product); Vobill Homes, Inc. v. Hartford Accident &
Indemnity Co., 179 So. 2d 496, 498 (La. App. 3d Cir. 1965), writ denied, 181 So.
2d 398 (1966) (holding that similar provision “excluded from coverage any
injury to the work-product itself by reason of its own defectiveness” and
explaining that cases where “coverage was recognized for personal injuries or
damage to property [o]ther than work completed by the insured” were
inapposite because they did not “concern[] damages sought for injury to the
insured’s work-product itself”). And the Louisiana Second Circuit held in Allen
v. Lawton & Moore Builders, Inc. that “coverage is excluded under the work
products exclusion” 4 where damages included the same type of damages
3 The exclusion in Todd Shipyards Corp. v. Turbine Serv., Inc. excluded coverage for
“property damage to work performed by or on behalf of the named insured arising out of the
work or any portion thereof.” 674 F.2d 401, 420 (5th Cir. 1982).
4 The “Your Product” exclusion, combined with the “Your Work” exclusion, which
excludes coverage for “‘[p]roperty damage’ to ‘your work’ arising out of it or any part of it and
included in the ‘products-completed operations hazard,’ “are sometimes referred to
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alleged here—flooding and structural defects that resulted from a faulty
foundation—because “[t]he house and lot are the contractor’s work or work
product.” 535 So. 2d 779, 780-81 (La. Ct. App. 1988). Against this backdrop of
Louisiana jurisprudence, we conclude that the district court did not err in
determining that, based on the “Your Product” exclusion, the policy does not
provide coverage for damages to the residential building.
The district court also determined that Atain’s policy excluded coverage
with respect to the arbitrator’s award of damages for Siegen 7’s “failure to
provide positive storm water drainage for the lot, prepare a drainage plan for
the house and lot, and comply with the International Building Code regarding
drainage and slope adjacent to the house.” The district court correctly applied
the “Your Product” exclusion again to conclude that these damages were
excluded because they either resulted in injury to Siegen 7’s work product or
arose out of its deficient work performance. Essentially, that is all that is
required to complete the analysis and the ruling that the Atain policy excluded
coverage for the above listed failures of Siegen 7 linked to its lack of compliance
with the International Building Code, because they all arose out of the
contractor’s work and product.
The district court thought it necessary, however, in response to Warren’s
argument for coverage for the post-flood loss of use of her backyard, due to
perpetual sogginess, to apply still another exclusion—the “Damage To
Impaired Property Or Property Not Physically Injured” exclusion—to defeat
coverage of that particular item. We see no error in the district court’s
application of the exclusion, but it needs to be added that, reading the
arbitrator’s findings in context and in its entirety leads to the conclusion that
collectively as the ‘work-product’ exclusions because they were combined into the same
exclusion in earlier policy forms.” 15 LA. CIV. L. TREATISE, supra, § 6:21. The policy in this
case contained both exclusions.
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almost everything discovered wrong with the residential property in the flood
was caused by or arose out of the incompetent work of subcontractors that must
be attributed to Siegen 7, the general contractor that hired them. Although
the arbitrator did not make every connection crystal clear, he indicated
repeatedly that the failure to achieve minimum elevation of the building slab
was what led to virtually all of the other problems in the flooding. Although
the arbitrator didn’t expressly say so, it can also be inferred that the slab’s lack
of elevation and the other problems were due to Siegen 7’s failure to fill, grade,
and slope the residential property adequately for elevation, storm and
drainage purposes and compliance with the International Building Code.
***
We conclude that the district court correctly interpreted the policy in this
case to require that the damages awards compensating Warren for damage to
the residential building itself and for other reparations due to the contractor’s
deficient work performance were excluded from coverage under the terms of
the policy. We therefore AFFIRM the judgment of the district court.
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