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Amerisure Mutual Insurance Company v. Houston Casualty Company

United States District Court, D. Arizona

March 4, 2019

Amerisure Mutual Insurance Company, a Michigan company, Plaintiff,
Houston Casualty Company, a Texas company, Defendant.



         Plaintiff Amerisure Mutual Insurance Company (“Amerisure”) filed a complaint against Defendant Houston Casualty Company (“HCC”), and HCC counterclaimed. Docs. 1-1; 35. Both parties now move for summary judgment. Docs. 63; 65. The motions are fully briefed, and oral argument will not aid in the Court's decision. See Fed. R. Civ. P. 78(b); LRCiv 7.2(f). For the following reasons, the Court will grant Amerisure's motion on HCC's duty to indemnify, HCC's duty to defend, and the lack of Amerisure's duty to indemnify, and deny both parties' motions on Amerisure's duty to defend.

         I. Background.

         The following facts are undisputed unless otherwise noted. On April 14, 2014, the tenant in Unit 803 at University House, located at 323 East Veteran's Way, Tempe, Arizona (“the Property”), reported to building management that his air conditioning was not working. Doc. 64-1 at 1.[1] Shawn Albright, who was with the Property's building management, arrived with Troy AuBuchon, an employee of Spectrum Mechanical and Service Contractors (“Spectrum”). Doc. 64-2 at 3-4. When AuBuchon removed the wall panel to access the air conditioning unit, he and Albright observed a pipe joint in the wall with black tape and a hose-clamp on it. Doc. 64-2 at 5. The parties dispute whether the pipe joint was leaking when AuBuchon first saw it or whether it began leaking once he removed the air conditioning unit from the wall opening. Docs. 67 at 5 ¶ 23; 71 at 4; 67-6 at 21, 39-40, 44. AuBuchon cut and bent back the unit side panel and placed sheet metal beneath the pipe joint to collect the leaking water. Doc. 64-2 at 6. He immediately called Spectrum management to report the leak. Doc. 64-2 at 7.

         Spectrum employees Brett Van Dreel, Christopher Thornhill, and Matt Kinard arrived and discussed with AuBuchon how to address the leaking pipe joint. Doc. 64-2 at 7. HCC asserts, and Amerisure disputes, that Thornhill removed the tape and clamp from the pipe joint and then later reapplied them. Docs. 64-2 at 7-8; 67-5 at 14. The Spectrum employees decided to wait until the next day to repair the pipe joint because no company was available that afternoon to freeze the pipe, a step necessary before repairs could be made because the pipe had no cut-off valve to stop the flow of water. Docs. 64-3 at 2; 64-4 at 2. As a result, AuBuchon repaired only the air conditioning unit. Doc. 64-2 at 8. As AuBuchon placed the unit back in the wall opening, the pipe joint failed and a high volume of water sprayed under high pressure into the room and building, causing substantial damage to the Property (“the loss”). Doc. 64-2 at 8.

         Both of the parties to this case provided insurance coverage to Spectrum. Defendant HCC issued an Owner Controlled Insurance Policy (“the HCC Policy”) to the Property's developer, Core Campus Tempe 1, LLC (“Core”). Doc. 64-5 at 10. The HCC Policy was effective from January 6, 2012 to January 6, 2014, and also provided coverage during an “extended products-completed operations period.” Doc. 63 at 10. Core later sold the Property to InvenTrust Properties Corp. (“InvenTrust”), which sustained the loss from the water damage in April 2014. Doc. 67-4 at 2.

         Core's general contractor hired Spectrum as the HVAC and plumbing subcontractor for the Property's original construction. Docs. 1-1 at 3; 35 at 2; 67-1 at 23-24. The HCC Policy covered Spectrum as an “enrolled contractor” under the Wrap-up Program Change Endorsement (“Wrap Endorsement”) for its installation work at the Property during construction. Doc. 35 at 3. Spectrum did all original HVAC-related work, including installation of pipes, ductwork, equipment, fans, and controls, and its work was warrantied through August 1, 2014. Docs. 67-1 at 22-24. Spectrum did no work on Unit 803's air conditioning between original installation and April 14, 2014. Id. at 25.

         Plaintiff Amerisure issued an insurance policy to Spectrum for the period from January 1, 2014 to January 1, 2015 (“the Amerisure Policy”). Doc. 64-6 at 1.

         After failing to resolve damage claims from the burst pipe, InvenTrust sued Spectrum in an underlying lawsuit and Amerisure defended under a reservation of rights.[2]Docs. 64-7 at 2; 67-4. Amerisure made payments of more than $212, 814.76 in the underlying lawsuit before learning of the HCC Policy. Docs. 67-12 at 3; 67-13. HCC denied coverage, but later agreed to defend Spectrum under a reservation of rights, although Amerisure asserts that HCC never actually paid any defense costs. Docs. 64-7 at 2; 65 at 11-12; 67-17. Both HCC and Amerisure paid a portion of Spectrum's eventual settlement with InvenTrust. Doc. 65 at 12.

         Amerisure now sues HCC to recover 50% of the expenses it incurred defending Spectrum and settling the underlying lawsuit. Docs. 1-1; 67 at 10.[3] HCC counterclaims, seeking to recover money paid under its policy. Doc. 35.

         II. Legal Standard.

         A party seeking summary judgment “bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Summary judgment is appropriate if the evidence, viewed in the light most favorable to the nonmoving party, shows “that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). Summary judgment is also appropriate against a party who “fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.” Celotex, 477 U.S. at 322. Only disputes over facts that might affect the outcome of the suit will preclude summary judgment, and the disputed evidence must be “such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

         III. Discussion.

         Amerisure's Count 1 seeks a declaration that it had no duty to defend or indemnify Spectrum in the underlying lawsuit. Doc. 1-1 at 13. Count 2 seeks a declaration that HCC had a duty to defend and indemnify Spectrum under the HCC Policy and Wrap Endorsement. Id. at 13-14. Counts 3 and 4 seek equitable indemnity and subrogation, and equitable contribution, respectively. Id. at 14-15. HCC's counterclaims seek equitable subrogation and contribution. Doc. 35 at 7-8. The parties cross-move for summary judgment on all claims. Docs. 63; 66.

         A. Duty to Defend.

         HCC concedes that it had a duty to defend Spectrum and agrees to pay 50% of defense expenses. Docs. 67 at 10 ¶ 64; 71 at 11 ¶ 64. The Court will enter judgment on Count 2 in favor of Amerisure with respect to HCC's duty to defend Spectrum, but the percentage of defense expenses owed by HCC depends on whether Amerisure also had a duty to defend Spectrum.

         Amerisure makes no distinct arguments regarding its own duty to defend, and HCC does not address Amerisure's duty to defend separately from its duty to indemnify. And yet the duties to defend and indemnify are not the same. See Stillwater Ins. v. Dunn, No. CV-14-01829-PHX-DGC, 2015 WL 1778349, at *3 (D. Ariz. Apr. 20, 2015). “The scope of the duty to defend under an insurance policy can be broader than the scope of the duty to indemnify.” Lennar Corp. v. Auto-Owners Ins. Co., 151 P.3d 538, 543 (Ariz.Ct.App. 2007). Because the parties fail to address Amerisure's duty to defend, the Court will deny their motions for summary judgment with respect to this duty.

         B. Duty to Indemnify.

         HCC argues that there was no “occurrence” under its Policy, Spectrum's faulty repair work on April 14, 2014 was the proximate cause of the loss, and only the Amerisure Policy covers the loss. Doc. 63. Amerisure responds that the HCC Policy covers the loss because there was an “occurrence” under the HCC Policy and the loss falls within the “products-completed operations hazard” and extended coverage period; Spectrum's defective original work and installation are the proximate causes of the loss; the HCC Policy applies even if repairs on April 14, 2014 caused the loss; and an exclusion in the Amerisure Policy precludes coverage. Doc. 66.

         1. Undisputed and Disputed Facts.

         HCC asserts that the pipe rupture on April 14, 2014 was caused by the negligence of Spectrum employees on that date. Doc. 63 at 4, 10. HCC identifies little or no facts to support this assertion. In contrast, Amerisure cites substantial evidence that the pipe rupture was caused by Spectrum's negligence at the time of original installation.

         For example, Christopher Thornhill testified to the following. On April 14, 2014, he was Spectrum's piping superintendent, overseeing piping installation, repair, soldering, and support. Doc. 67-5 at 5-7. Before the pipe burst, Thornhill had visited the Property three to four times to address issues with unsupported piping in other units. Inadequately supported piping was a building-wide problem at the Property, and Spectrum was in the process of adding additional supports. Id. at 8. In about twenty years of experience, Thornhill had seen tens of thousands of pipe joints. Id. After inspecting the burst pipe from Unit 803, Thornhill found that it was soldered incorrectly. With a 3/4-inch copper pipe - the size and type of the pipe that burst - proper soldering should continue the full length of the fitting. Thornhill found during his inspection that the solder in the joint did not continue all the way down the pipe, covering “maybe a 16th of the joint, ” and the joint had no solder at the top. Id. at 14-16. Thornhill repeatedly testified that based on his observations of the Property's piping and repairs leading up to the loss, the pipe joint in Unit 803 was inadequately supported and soldered. Doc. 67-5 at 16-19.

         Other Spectrum employees who saw the pipe joint testified similarly. AuBuchon stated that “there was not nearly enough solder pushed into the joint.” Doc. 67-6 at 60-61. Van Dreel testified that the joint “was not slid back into the coupling far enough . . . the pipe was not back far ...

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