Travelers Indemnity Co. v. Miller Building Corp.

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 05-2235
THE TRAVELERS INDEMNITY COMPANY,
Plaintiff - Appellee,
versus
MILLER BUILDING CORPORATION; PVC,
INCORPORATED,
Defendants - Appellants.
Appeal from the United States District Court for the Eastern
District of North Carolina, at Wilmington. Terrence W. Boyle,
District Judge. (CA-02-41)
Argued: February 2, 2007 Decided: March 7, 2007
Before WILKINSON, MOTZ, and TRAXLER, Circuit Judges.
Affirmed by unpublished per curiam opinion.
ARGUED: Daniel K. Bryson, LEWIS & ROBERTS, P.L.L.C., Raleigh, North
Carolina, for Appellants. Lee Hedgecock Ogburn, KRAMON & GRAHAM,
Baltimore, Maryland, for Appellee. ON BRIEF: Geoffrey S. Proud,
LEWIS & ROBERTS, P.L.L.C., Raleigh, North Carolina, for Appellants.
Steven M. Klepper, KRAMON & GRAHAM, Baltimore, Maryland, for
Appellee.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
This declaratory judgment action centers around the
construction of a hotel and the insurance coverage that existed for
losses caused by defects in the building. The district court
determined the extent of coverage under the insurance policy prior
to completion of arbitration proceedings between the builder and
the owner of the hotel. We affirm.
I.
Miller Building Corporation (“Miller”) was hired by PVC, Inc.
to build a hotel at Wrightsville Beach, North Carolina. Upon
completion of the work, PVC asserted that numerous deficiencies
existed and stopped payments to Miller. In September 2000, Miller
initiated arbitration proceedings against PVC, and PVC responded
with counterclaims for construction defects against Miller.
Because Travelers Indemnity Company (“Travelers”) had issued a
commercial general liability policy to Miller for the time period
at issue, Travelers became involved in the controversy and filed
the present declaratory judgment action.
Initially, Travelers denied it had any duty to defend Miller
because of the nature of the claims being made by PVC. We
ultimately resolved this issue in favor of Miller, recognizing the
breadth of an insurer’s responsibility to defend its insured and
the existence of at least one claim for which coverage could exist.
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See Travelers Indem. Co. v. Miller Bldg. Corp., 97 F.App’x 431 (4th
Cir. 2004).
Upon return to the district court after our ruling, Travelers
filed for summary judgment, seeking a decision that any coverage
Travelers might have was limited “to physical injury to tangible
property separate from the hotel and that was delivered to Miller
in an undamaged state.” J.A. 38. Miller opposed summary judgment
and urged the district court to stay the court proceedings until
the pending arbitration could be completed.
The district court found no reason for delay and issued its
order. The district court determined that:
Travelers’ coverage extends to damage to property
separate from the hotel that was not subjectively
foreseeable to Miller Building. Travelers’ coverage
includes consequential damages for the loss of use of
property separate from the hotel, unless Miller building
failed to perform its construction contract with PVC
according to its terms. Travelers’ coverage does not
include consequential damages from the delay in opening
the hotel.
J.A. 82. From this decision the present appeal followed.
II.
The Declaratory Judgment Act provides that in a case within
the district court’s jurisdiction, the court “may declare the
rights and other legal relations of any interested party seeking
such declaration, whether or not further relief is or could be
sought.” 28 U.S.C.A. § 2201(a) (West 2006). The Declaratory
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Judgment Act is “an enabling Act, which confers a discretion on the
courts rather than an absolute right upon the litigant.” Wilton v.
Seven Falls Co., 515 U.S. 277, 287 (1995) (internal quotation marks
omitted). “[A] declaratory judgment action is appropriate when the
judgment will serve a useful purpose in clarifying and settling the
legal relations in issue, and . . . when it will terminate and
afford relief from the uncertainty, insecurity, and controversy
giving rise to the proceeding.” Centennial Life Ins. Co. v.
Poston, 88 F.3d 255, 256 (4th Cir. 1996) (internal quotation marks
omitted). We have long recognized the discretion afforded to
district courts in determining whether to grant declaratory relief.
Thus we review the district court’s decision for an abuse of
discretion. See Penn-America Ins. Co. v. Coffey, 368 F.3d 409, 412
(4th Cir. 2004).
Miller argues first that the district court should not have
defined the scope of the insurance coverage until the cause and
extent of PVC’s damage had been fleshed out and determined in the
arbitration proceedings. Under the circumstances of the case, we
find no error in the decision of the district court to resolve the
coverage issue presented in this declaratory judgment action.
As a general practice, courts wait to decide coverage until
litigation or agreement has determined the particular damage for
which an insured will be responsible. See e.g., Waste Mgmt. of
Carolinas, Inc. v. Peerless Ins. Co., 340 S.E.2d 374, 377 (N.C.
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1986) (“An insurer’s duty to defend is ordinarily measured by the
facts as alleged in the pleadings; its duty to pay is measured by
the facts ultimately determined at trial.”); Wayne Bros., Inc. v.
North River Ins. Co., 2003 WL 22213615 (M.D.N.C. 2003) (concluding
that the circumstances were not ripe for a declaration of the scope
of indemnification because issues involving causation were still
outstanding). When the separate proceeding has defined the
damages, the parties resort to the insurance policy to see whether
all or part of that damage is covered by insurance. Waiting to
decide the scope of indemnification is not, however, a hard and
fast rule, and there may indeed be circumstances where the issues
in the case and the development of the case, along with interests
in judicial economy, present a situation where the court can
materially advance the litigation by deciding the legal outlines of
coverage prior to the completion of litigation over particular
items of damage.
Here, the parties had already been to this court once on the
question of whether Travelers’ policy covered any of the damages
alleged in PVC’s complaint. Our opinion acknowledged that North
Carolina law would severely limit the types of damage for which the
insured would be indemnified, but we identified a narrow claim for
which coverage might exist and found it sufficient to trigger a
duty to defend. See Travelers, 97 F.App’x at 434-35. While we did
not technically decide anything beyond the duty to defend question,
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we implicitly recognized that a vast majority of the alleged
damages would not be covered by the policy.
After our ruling, the North Carolina Court of Appeals further
clarified the coverage question through its decision in Production
Systems Inc. v. Amerisure Insurance Co., 605 S.E.2d 663 (N.C. Ct.
App. 2004). This ruling, discussed infra, provided further
guidance to the parties and the district court as to what the
coverage limitations were in similar circumstances for the type of
damages here alleged. Consequently, at the time the district court
made its ruling, the law controlling the insurance dispute between
Miller and Travelers was fairly well defined.
Additionally, as it arose in this case, the indemnification
issue was a narrow, purely legal question, and in light of our
prior opinion and the North Carolina Court of Appeals decision in
Production Systems, the proper answer to the question raised by
Travelers was relatively clear. Because no substantive progress
had been made in the arbitration proceedings between Miller and
PVC, a prompt ruling on the scope of Travelers’ indemnification
obligation might also provide some guidance and structure for the
arbitration proceedings.
For all of these reasons, we believe the circumstances
permitted the district court in the exercise of its discretion to
define the limits of coverage through Travelers’ motion for summary
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judgment even though there had not been a final determination of
the exact damages for which Miller might be responsible.
III.
Having decided that the district court properly reached the
coverage question, we now consider the issue on its merits. The
district court held that Travelers’ policy covered damage to
property that was separate from the hotel if the occurrence of the
damage was not subjectively foreseeable to Miller. Miller argues
that the district court misinterpreted our prior opinion and erred
in relying on it to reach a decision on the total coverage
question. Miller points out that our previous ruling did not
define the limits of coverage but only determined whether there was
an allegation of potentially covered damage to invoke Travelers’
duty to defend. We believe Miller unduly limits the import of our
prior decision. Because a duty to defend arises only where the
allegations of a complaint establish a covered claim, it was
necessary for us to determine the scope of coverage provided by
Travelers’ policy.
The policy issued by Travelers defined “property damage” as
“[p]hysical injury to tangible property, including all resulting
loss of use of that property . . . [and] [l]oss of use of tangible
property that is not physically injured.” Travelers, 97 F.App’x at
433. The policy limited payment to “those sums that the insured
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becomes legally obligated to pay as damages because of . . .
‘property damage,’” so long as the “‘property damage’ is caused by
an ‘occurrence.’” Id. We concluded in our prior opinion that “to
the extent that [PVC] is seeking to recover from Miller the cost of
correcting Miller’s faulty workmanship, the claims do not fall
within the scope of the policy issued by Travelers, because faulty
workmanship does not constitute ‘property damage.’” Id. at 434
(citing Hobson Constr. Co. v. Great Am. Ins. Co., 322 S.E.2d 632,
635 (N.C. Ct. App. 1984)). Thus, the only claims that could fall
within the definition of “property damage,” as we construed North
Carolina law, were those that alleged damages to the owner’s own
property that was separate from the hotel. Our prior opinion thus
provided guidance on the indemnification question, and the district
court properly applied the formulation we set out in our opinion.
Moreover, the North Carolina Court of Appeals has since our
first opinion adopted the same analysis. See Prod. Sys., 605
S.E.2d 663. The court there examined a situation where a contractor
failed to properly install components of a oven feed line system
causing damages arising from the cost of repairing the line
systems. The court noted that “[t]he term ‘property damage’ in an
insurance policy has been interpreted to mean damage to property
that was previously undamaged, and not the expense of repairing
property or completing a project that was not done correctly or
according to contract in the first instance.” Id. at 666. The
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court further stated that “under the precedent of Hobson, [322
S.E.2d 632,] ‘property damage’ does not refer to repairs to
property necessitated by an insured’s failure to properly construct
the property to begin with.” Id. Thus, the court concluded that
“there was no ‘property damage’ to the oven feed line systems
because the only ‘damage’ was repair of defects in, or caused by,
the faulty workmanship in the initial construction.” Id. at 667.
The state court’s approach in Production Systems mirrors the
approach we took in our prior opinion. The district court,
therefore, committed no error when issuing the declaratory relief
sought by Travelers.
IV.
Accordingly, we affirm the district court’s grant of summary
judgment. Because we find no error in the district court’s
decision to grant declaratory relief to Travelers, we conclude the
court did not err in denying Miller’s motion for a stay.
AFFIRMED
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