Northland Casualty Co. v. Joseph Mulroy ( 2019 )

FILED
NOT FOR PUBLICATION
DEC 27 2019
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
NORTHLAND CASUALTY COMPANY, No. 19-35085
a Connecticut corporation,
D.C. No. 9:13-cv-00232-DLC
Plaintiff-Counter-
Defendant-Appellee,
MEMORANDUM*
v.
JOSEPH S. MULROY, dba Yorlum Ranch
and Yorlum Ranch, Ltd.;
Defendant-cross-claim Third-
Party-Plaintiff-Appellant,
and
NORTHWEST LOG HOMES, LLC; and
DUANE KEIM,
Defendants - Appellants
v.
GLACIER INSURANCE OF LIBBY,
INC., a Montana corporation,
Third-Party-Defendant.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
Appeal from the United States District Court
for the District of Montana
Dana L. Christensen, District Judge, Presiding
Argued and Submitted December 12, 2019
Seattle, Washington
Before: GRABER and BERZON, Circuit Judges, and EZRA,** District Judge.
Defendants Joseph S. Mulroy, Duane Keim, and Northwest Log Homes,
LLC, timely appeal the district court’s grant of summary judgment to Plaintiff
Northland Casualty Company in this diversity action applying Montana insurance
law. The district court held that the insurance policy does not apply to the
construction of the beetle-infested log home because of exclusion l, which excludes
from coverage certain damages arising out of the insured’s work. Reviewing de
novo, Davis v. Guam, 932 F.3d 822, 829 (9th Cir. 2019), we affirm.
1. The district court correctly held that the exclusion applies because there
was "‘[p]roperty damage’ to ‘your work’ arising out of it or any part of it." The
insured failed to treat the logs, and he installed untreated, beetle-infested logs. The
damage arose from those acts, even if the damage also arose partly because the log
supplier selected beetle-infested logs.
**
The Honorable David A. Ezra, United States District Judge for the
District of Hawaii, sitting by designation.
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2. The subcontractor exemption does not apply. We must "construe
ambiguous provisions against the insurer and in favor of extending coverage."
Fisher ex rel. McCartney v. State Farm Mut. Auto. Ins. Co., 305 P.3d 861, 866
(Mont. 2013) (internal quotation marks omitted). "An insurance contract is
ambiguous if it is reasonably subject to two different interpretations." U.S.
Specialty Ins. Co. v. Estate of Ward, 444 P.3d 381, 383 (Mont. 2019) (internal
quotation marks omitted). We agree with Defendants that the term
"subcontractor"—undefined by the insurance policy—is ambiguous in the abstract.
But we nevertheless conclude that, under any reasonable interpretation of the term,
the log supplier here was merely a materials supplier and not a "subcontractor."
Defendants urge us to apply the Sixth Circuit’s definition of the term
"subcontractor" in Mosser Constr., Inc. v. Travelers Indem. Co., 430 F. App’x 417
(6th Cir. 2011) (unpublished). But Mosser held that, in order to qualify as a
"subcontractor," the materials supplier either had to perform work on site or,
among other things, had to "manufacture the material according to specifications
supplied by the general contractor." Id. at 425; accord 9A Steven Plitt et al., Couch
on Insurance § 129:19 (3d ed. 2010). Here, the log supplier selected the logs by
species and size, and he washed and delivered the logs; the supplier neither
performed work on site nor manufactured the logs. The log supplier here was not a
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"subcontractor" under the Sixth Circuit’s definition or any reasonable
interpretation of the term.
3. The "reasonable expectations" doctrine does not apply. The policy
clearly excludes coverage and no other factor suggests that the insured reasonably
expected coverage. See Fisher, 305 P.3d at 867 (holding that a clear exclusion of
coverage is a factor in determining the reasonableness of expectations).
Defendants properly point to the declarations page as a relevant consideration.
Mitchell v. State Farm Ins. Co., 68 P.3d 703, 709–10 (Mont. 2003). But the
declarations here—for carpentry work and subcontractor work—are not illusory.
Coverage is unavailable in this case only because the damages were to the work
itself (rather than to a bystander), the project had been completed, and the log
supplier was not a subcontractor.
AFFIRMED.
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