Onebeacon Insurance v. Metro Ready-Mix, Inc.

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 06-1563
ONEBEACON INSURANCE COMPANY; PENNSYLVANIA
GENERAL INSURANCE COMPANY,
Plaintiffs - Appellees,
versus
METRO READY-MIX, INCORPORATED,
Defendant - Appellant.
Appeal from the United States District Court for the District of
Maryland, at Baltimore. Andre M. Davis, District Judge. (1:05-cv-
01530-AMD)
Argued: May 24, 2007 Decided: July 13, 2007
Before WILLIAMS, Chief Judge, and WIDENER and SHEDD, Circuit
Judges.
Affirmed by unpublished per curiam opinion.
ARGUED: Brian S. Jablon, SALTZMAN & JABLON, L.L.C., Ellicott City,
Maryland, for Appellant. Stacey Ann Moffet, ECCLESTON & WOLF,
Baltimore, Maryland, for Appellees. ON BRIEF: Larry L. Puckett,
Jr., ECCLESTON & WOLF, Baltimore, Maryland, for Appellees.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
Appellant Metro Ready-Mix, Inc. (Metro) is the named insured
on a commercial general liability policy (the policy) issued by
Appellees OneBeacon Insurance Company and Pennsylvania General
Insurance Company (collectively “OneBeacon”). OneBeacon sought a
declaratory judgment in district court that it was not required to
cover Metro for losses incurred as a result of a defective product
supplied by Metro to a contractor. The district court granted
summary judgment to OneBeacon. For the following reasons, we
affirm.
I.
On April 24, 2003, Metro entered into a supply contract with
Berkel & Company Contractors (Berkel) to supply concrete for
various of Berkel’s construction projects. That same day, Berkel
issued an order to Metro for 1600 cubic yards of grout1 for use on
a parking garage construction job in Baltimore, Maryland. Berkel
constructed piles by first drilling sixty to seventy feet into the
earth and placing steel rebar in the holes. Berkel then filled the
holes with grout manufactured by Metro. After the grout hardened,
1
Grout is a construction material used to connect sections of
pre-cast concrete, fill voids, and seal joints. Grout is generally
composed of a mixture of water, cement, sand and sometimes color
tint. It is applied as a thick liquid and hardens over time, much
like mortar.
2
other contractors constructed concrete pile caps and columns upon
the piles.
When Metro began manufacturing the grout, it inadvertently
mixed the wrong ratio of water to cement, thereby making the grout
defective and weaker than normal. To compound matters, Metro was
not aware of the defect and delivered the grout to Berkel. After
the caps and columns were installed on top of the grout, however,
Berkel learned that the grout’s strength was significantly lower
than was specified.
As a result of the defective grout, Chesapeake Contracting
Group (one of Berkel’s contractors) was required to take remedial
steps. These steps included demolishing certain portions of the
new construction and installing new pilings with new grout.
Berkel paid Chesapeake $195,644.00 for the costs of the repairs.
Berkel also incurred an additional $89,386.25 in costs, for a total
loss of $285,040.25 as a result of the defective grout.
Berkel refused to pay Metro for unpaid invoices in the amount
of $241,254.00 because of the defective grout. On May 6, 2004,
Metro sued Berkel in state court. Berkel filed a counterclaim
against Metro in August 2004, seeking reimbursement for the costs
that it incurred as a result of the defective grout.
Metro notified OneBeacon of the counterclaim, but OneBeacon
refused to provide coverage for the claim. Metro claims that it
expected OneBeacon to provide coverage for the claim because
3
OneBeacon’s predecessor in interest had provided coverage for a
similar claim under the previous year’s policy.
On March 14, 2005, Metro and Berkel settled their dispute.
Metro agreed to issue “a credit memorandum in the full amount of
all of Metro’s invoices to Berkel that are unpaid as of the date of
this settlement . . . , and such Credit shall constitute full and
final payment for the entirety of Berkel net claim.” (J.A. at
161.)2 In effect, Metro agreed to forego payment for the supplied
grout so long as Berkel did not seek payment for its costs incurred
in repairing the defective grout. Thus, no actual payment was made
by Metro. The parties also agreed to dismiss with prejudice all
claims against one another.
On June 8, 2005, OneBeacon -- unaware of the settlement
between Metro and Berkel -- filed a complaint for declaratory
judgment against Metro, seeking a declaration that Metro was not
entitled to coverage under the policy. After learning of the
settlement, OneBeacon filed an amended complaint, seeking an
additional declaration that it was not obligated to indemnify Metro
for the claims asserted in Berkel’s counterclaim because Metro did
not have to pay any damages.
On November 7, 2005, OneBeacon filed a motion for summary
judgment. The district court awarded summary judgment to OneBeacon
2
Citations to the J.A. refer to the joint appendix filed with
this appeal.
4
on April 19, 2006. The district court found that the dispute was
moot with respect to the indemnification question because of the
settlement. With respect to the coverage question, the district
court found that there was no “occurrence” under the policy because
any damage caused by the defective grout did not constitute an
“accident.” The district court, however, failed to address Metro’s
argument that OneBeacon was estopped from denying coverage because
it had provided coverage on a similar claim the previous year.
Metro timely appealed. We have jurisdiction pursuant to 28
U.S.C.A. § 1291 (West 2006).
II.
We review de novo the district court’s grant of summary
judgment in favor of OneBeacon, applying the same standard as did
the district court. See Laber v. Harvey, 438 F.3d 404, 415 (4th
Cir. 2006) (en banc). Summary judgment is appropriate when “the
pleadings, depositions, answers to interrogatories, and admissions
on file, together with the affidavits, if any, show that there is
no genuine issue as to any material fact and that the moving party
is entitled to judgment as a matter of law.” Fed R. Civ. P. 56(c);
see Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). Because
the facts are undisputed and we are presented with a purely legal
question of insurance coverage, the case is ripe for summary
judgment.
5
Metro contends that the district court erred in finding that
there was no “occurrence” under the policy and in failing to
address Metro’s estoppel claim. To answer these questions, we
apply Maryland’s substantive law regarding the interpretation of an
insurance policy. French v. Assurance Co. of Am., 448 F.3d 693,
700 (4th Cir. 2006). We address each of Metro’s arguments in turn.
A.
“Provisions in insurance policies are to be interpreted like
those of any other contract.” Hartford Fire Ins. Co. v. Himelfarb,
736 A.2d 295, 300 (Md. 1999). Maryland law does not require that
an insurance policy be strictly construed against the insurer;
rather, courts must give “effect [to] the intentions of the
parties.” Nationwide Ins. Co. v. Rhodes, 732 A.2d 388, 390 (Md. Ct.
Spec. App. 1999).
Under Maryland law, there is an occurrence under a commercial
general liability (CGL) policy only upon the happening of an
accident. Lerner Corp. v. Assurance Co. of Am., 707 A.2d 906, 911
(Md. Ct. Spec. App. 1998). “While [CGL policies generally] do not
define the term ‘accident,’ controlling Maryland case law provides
that an act of negligence constitutes an ‘accident’ under a
liability insurance policy when the resulting damage takes place
without the insured’s actual foresight or expectation.” French,
448 F.3d at 698.
6
In French, we addressed an insurance question under Maryland
law. Jeffco Development Corporation constructed a single-family
home for the Frenches. Jeffco finished the exterior of the home
with a synthetic stucco system known as EIFS, which was installed
by a contractor. Id. at 696, 703. Years later, the Frenches
discovered extensive moisture and water damage to the walls of
their home, which resulted from the defective EIFS. The Frenches
filed suit against Jeffco and the question on appeal was whether
Jeffco’s insurer needed to cover the claim under their CGL policy.
Id. at 696.
Interpreting Maryland law, we concluded that the insurer was
required to cover any unexpected property damage that occurred to
something other than the defective object as a result of the
defective object, but the insurer was not required to cover any
damage to the defective object itself:
[I]f the defect causes unrelated and unexpected property
damage to something other than the defective object
itself, the resulting damages . . . may be covered. For
example, if a collapse of [a] veneer had injured a user
of the facility or damaged property other than the veneer
itself, these may well be covered.
Id. at 702 (internal quotation marks and alterations omitted).
Thus, when there is no property damage “to otherwise
nondefective parts of [a] building,” there is no “accident” or
“occurrence.” Id. at 703. In other words, coverage exists only
“to remedy unexpected and unintended property damage to the
7
contractor’s otherwise nondefective work-product caused by the . .
. defective workmanship.” Id. at 706.
OneBeacon -- focusing on this distinction -- contends that
Metro’s defective grout did not damage any other property.3 Metro,
on the other hand, argues that the defective grout effectively
damaged other property because the caps and columns that were
placed on top of the grout were required to be removed. Because
that property had to be destroyed to repair the defect, Metro
contends it represents unintended property damage. The district
court rejected this argument, finding it inconsistent with Maryland
law. We agree.
In Woodfin Equities Corp. v. Harford Mutual Insurance Co., a
hotel hired the insured to install an HVAC system. 678 A.2d 116(Md. Ct. Spec. App. 1996), overruled in part on procedural grounds,
687 A.2d 652 (Md. 1997).4 The HVAC system was defective, and
3
In light of the settlement between Metro and Berkel,
OneBeacon further contends that Metro suffered no damages under the
policy because “the amount that Metro now seeks coverage for has
nothing to do with damage to property, but is actually the amount
of the invoices for Metro’s own product, which Berkel refused to
pay.” (Appellee’s Br. at 28.) Although this argument has some
intuitive appeal, we assume, for the sake of argument, that Metro
suffered damages under the policy.
4
The Maryland Court of Special Appeals has since explained the
Court of Appeals’ partial reversal of Woodfin as “based on the
failure of the trial court to issue a declaratory judgment; it had
merely dismissed the suit. What was affirmed was the holding that
(1) Woodfin had standing to bring the declaratory judgment action
against Hartford Mutual and (2) that the insurance policy in
question did cover certain damages sustained by Woodfin.” Howard
v. Montgomery Mut. Ins. Co., 805 A.2d 1167, 1172 (Md. Ct. Spec.
8
carpeting and drywall had to be destroyed to remedy the defect.
Id. at 121, 131. The insured sought coverage for the costs of the
carpeting and drywall. The Maryland court found that the insurer
was not required to cover the property damage because pulling up
carpeting and breaking through drywall to access the HVAC system
was not property damage, but rather the “cost incurred in replacing
and repairing the HVAC systems.” Id. at 132 n.8. The court
further explained: “Voluntarily pulling up carpeting or breaking
through dry-wall to access the HVAC units is not property damage .
. . . Even if it could be considered ‘property damage,’ we would
hold that it was not caused by an ‘occurrence,’ because the so-
called damage was not accidental.” Id.Under this analysis, we agree with the district court that
there was no occurrence under the policy. The caps and columns
that had to be removed or destroyed to remedy the defect in Metro’s
product are on all fours with the carpeting and drywall that had to
be removed or destroyed in Woodfin to remedy the defect in the HVAC
units.
In French, we explained that if a product does not meet the
contract requirements of a sale, it should not be unforseen that
“the purchaser will be entitled to correction of the defect.”
App. 2002). Most important to our inquiry, Maryland courts
continue to find “Woodfin instructive on the interpretation of CGL
policies generally.” Lerner Corp. v. Assurance Co. of Am., 707
A.2d 906, 910 (Md. Ct. Spec. App. 1998).
9
French, 448 F.3d at 701. Here, Metro put forth no evidence showing
that the pile caps and columns that had to be removed were damaged
by Metro’s defective grout. Instead, any harm to the caps and
columns occurred as a result of replacing the defective grout.
This damage was not unforseen insofar as the term has been
interpreted with respect to CGL policies under Maryland law.
Moreover, that understanding is consistent with longstanding
principles of insurance law:
Replacement and repair costs are to some degree within
the control of the insured. They can be minimized by
careful purchasing, inspection of material, quality
control and hiring policies. If replacement and repair
costs were covered, the incentive to exercise care or to
make repairs at the least possible cost would be lessened
since the insurance company would be footing the bill for
all scrap. Replacement and repair losses tend to be more
frequent than losses through injury to other property,
but replacement and repair losses are limited in amount
since the greatest loss cannot exceed the cost of total
replacement. If the insured will stand these losses,
insurance can be provided more cheaply since the company
will be freed from administering many small claims for
repairs, and it can set a rate for the more unusual risk
of injury to property other than the contractor's work or
product. This risk can be the hazardous one since there
are no natural limitations on the damage the contractor
might do to a homeowner's or a neighbor's property.
Stewart Macaulay, Justice Traynor and the Law of Contracts, 13
Stan. L. Rev. 812, 825-26 (1961).
Any damage done to the pile caps and columns while remedying
Metro’s defective grout cannot be deemed caused by an occurrence
under the CGL policy “because the so-called damage was not
accidental.” Woodfin, 678 A.2d at 132 n.8. Just as a company must
10
be presumed to foresee that it will be forced to pay for any
defects in its own property, the company must also foresee that it
will be forced to pay for incidental costs that are incurred in
remedying those defects. Accordingly, under Maryland law, there
was no occurrence, and therefore, Metro is not covered under the
policy for this event.
B.
Metro further contends that even if its damages were not
covered under the language of the policy, OneBeacon was estopped
from denying coverage. The basis for Metro’s contention is that
OneBeacon’s predecessor in interest had previously provided Metro
coverage under a similar scenario.
In 2002, Metro provided defective concrete for a project, and
that concrete was used in fabricating building columns. Metro’s
client was forced to demolish the columns and rebuild them.
OneBeacon’s predecessor in interest provided coverage, stating that
“because the defective columns encased the ‘work and product’ of
others, there is in fact resulting property damage. . . . The only
damages not covered would be the cost of supplying new cement.”
(J.A. at 277.) Metro now argues that it renewed its policy with
OneBeacon in reliance upon the predecessor in interests’ actions
granting coverage on that claim, and OneBeacon should therefore be
estopped from denying coverage.
11
Although Metro clearly presented this argument below, the
district court, for some reason, failed to address it.
Nevertheless, we address the matter de novo, as this is an appeal
of a grant of summary judgment and a remand to the district court
for initial consideration of this issue “would be an unnecessary
waste of judicial and litigant resources.” O’Reilly v. Bd. of
Appeals, 942 F.2d 281, 284 (4th Cir. 1991).
As a general matter, Maryland law does not recognize estoppel
as a means of creating a new contract. In Sallie v. Tax Sale
Investors, Inc., for example, the Maryland court explained that,
under Maryland law, “waiver or estoppel may occur only when it does
not create new coverage; an extension of coverage may only be
created by a new contract.” 814 A.2d 572, 575 (Md. Ct. Spec. App.
2002) (internal quotation marks omitted). “[I]f the loss was not
within the coverage of the policy contract, it cannot be brought
within that coverage by invoking the principle of waiver or
estoppel. Waiver or estoppel can only have a field of operation
when the subject-matter is within the terms of the contract."
Prudential Ins. Co. of Am. v. Brookman, 175 A. 838, 840 (Md. 1934).
Metro, however, argues that there are exceptions to the
general rule. Specifically, Metro relies on an exception outlined
in Nationwide Mutual Insurance Co. v. Regional Electrical
Contractors, 680 A.2d 547 (Md. Ct. Spec. App. 1996). In
Nationwide, one of the insured’s switchboards exploded. A company
12
representative immediately contacted Nationwide, and Nationwide
told the company that it would “take care of it” because “that’s
why you have insurance.” Id. at 549. In reliance on those
specific statements, the company made the repairs. Thereafter,
Nationwide denied coverage. The court held that Nationwide was
estopped from denying coverage because Nationwide told the company
that it was covered, and because of reliance on that
misrepresentation, the insured had repaired damage and incurred
additional costs. Id. at 554.
Nationwide thus presented a factual scenario quite different
from this case. In Nationwide, the agent’s statements were made
“contemporaneously with the transaction to which [they] relate[d].”
Id. at 553. Thus, Nationwide’s specific comments at the time
“induced Regional to proceed with the repairs.” Id. Nationwide
was therefore estopped from denying coverage because it induced
Regional to incur those costs. Nationwide’s statements resulted in
a change -- a prejudicial change -- in Regional’s conduct.
Here, on the other hand, OneBeacon did nothing to induce Metro
to supply faulty concrete or to pay for the results of the defects.
Moreover, OneBeacon never once suggested that it was going to
provide coverage to Metro for this incident. OneBeacon did nothing
to prejudicially change Metro’s conduct. The facts are therefore
meaningfully different from the facts in Nationwide. Accordingly,
the exception articulated in Nationwide does not apply. We
13
therefore apply the general rule baring extension of coverage based
on estoppel and reject Metro’s opaque estoppel argument.
III.
For the foregoing reasons, we affirm the district court’s
grant of summary judgment to OneBeacon.
AFFIRMED
14