Opinion
Civil No. JFM-99-2681.
November 29, 2000.
MEMORANDUM
Plaintiff Atlantic Crane Service, Inc. t/a Eastern Crane ("Eastern Crane") instituted this action for declaratory relief in connection with a crane accident that occurred on June 9, 1999 in Sparrows Point, Maryland. American Alliance Insurance Co. ("American Alliance"), Eastern Crane's general liability insurer, has moved for summary judgment. W.O. Grubb Steel Erection, Inc. ("Grubb"), Kvaerner Songer Inc. ("Kvaerner"), S.G. Marino Crane Service, Inc. ("Marino"), and Eastern Crane (collectively, "Opposition") have filed motions in opposition to American Alliance's motion. American Alliance's motion will be granted in part and denied in part.
In addition, Marino has moved for a declaratory judgment against American Alliance. American Alliance has filed a Motion to Strike Cross-Claim of Defendant S.G. Marino Crane Service as Untimely and a Cross-Motion For Severance of Insurance Coverage Issues. American Alliance's Motion to Strike and Motion for Severance are denied. Marino's Motion for Declaratory Judgment is granted in part.
I.
Kvaerner, a general contractor, performed work at Bethlehem Steel's Sparrows Point project. Kvaerner contracted with Eastern Crane to supply cranes for the work. Eastern Crane in turn contracted with Marino and Grubb, who leased cranes to Eastern Crane. Specifically, Marino rented Eastern a Manitowoc 2250 Series 2 crawler crane.
On June 9, 1999, the Manitowoc crane was being used to lift a valve from one of Bethlehem Steel's blast furnaces. The boom on the crane snapped causing the crane to collapse. Damage was caused to the crane, the load being lifted, a second, nearby crane leased by Grubb, and Bethlehem Steel's facilities. In addition, nearby workers suffered minor injuries.
Eastern Crane holds insurance policies with American Alliance and Royal Insurance Company of America ("Royal"). In an Order dated June 19, 2000, this Court granted summary judgment in favor of Royal. Royal's insurance contract provided Eastern Crane with coverage for claims above 1 million dollars. Only the damage to the two cranes has been estimated at above 1 million dollars. The June 19, 2000 Order held that the "rented property" and "care, custody, and control" exclusions in Royal's insurance contract controlled, and damage to the two cranes was not covered by Royal's policy.
II.
Similar to Royal, American Alliance argues that the "rented property" and "care, custody, and control" coverage exclusions in its insurance contract with Eastern Crane apply. None of the parties disagree with American Alliance's assertion that the "rented property" and "care, custody, and control" exclusions are substantially the same as the exclusions in Royal's insurance contract.
For the reasons stated by this Court in granting Royal's motion for summary judgment, the "rented property" and "care, custody, and control" exceptions apply to the two cranes at issue. See Memorandum Decision June 19, 2000. Because the exceptions in Royal's policy are the same as the exceptions in American Alliance's policy, the cranes are excluded from coverage under American Alliance's policy as well. See id. American Alliance's motion for summary judgment is granted with respect to the damage to the two cranes.
However, the June 19, 1999 Memorandum Decision does not apply with respect to other damages, including damages to the Bethlehem Steel Facility, construction delay costs, personal injuries, or Eastern's cost of defending itself. Royal's insurance policy with Eastern Crane was only triggered by damages greater than 1 million dollars. These other damages are estimated to total $423,619.00. Because these other damages claims did not trigger Royal's insurance policy, the Court's grant of summary judgment with respect to Royal is not applicable. American Alliance has not advanced any argument for why these damages would fit within the "rented property" or "care, custody, and control" exclusions. Therefore, these exclusions do not exclude the other damages from coverage under American Alliance's policy.
III.
American Alliance argues that coverage should be denied under the (j)(5) exclusion in its insurance contract. The (j)(5) exclusion is known as a "Real Property Exclusion." American Alliance's insurance contract is known as a commercial general liability ("CGL") contract. Real Property Exclusions, like (j)(5), are typical clauses in CGL insurance. CGL insurance is designed to protect against the unpredictable, potentially unlimited liability that can result from business accidents. See Columbia Mut. Ins. Co. v. Schauf, 967 S.W.2d 74, 77 (Mo. 1998). However, CGL insurance is not intended as a guarantee of the insured's work. See Century I Joint Venture v. United States Fid. Gaur. Co., 493 A.2d 370, 374-75 (Md.Ct.Spec.App. 1985); United States Fire Ins. Co. v. Milton Co., 35 F. Supp.2d 83, 86 (D.D.C. 1998) (applying Maryland law) ("Liability insurance is distinct from a performance bond."); Dorchester Mut. Fire Ins. Co. v. First Kostas Corp., 731 N.E.2d 569, 572 (Mass.App.Ct. 2000). As a result, CGL insurance contains business risk exclusions, like (j)(5). In general terms, business risks are the "normal frequent, or predictable consequences of doing business." Schauf, 967 S.W.2d at 77 (internal quotations omitted); Milton, 35 F. Supp.2d at 86 (CGL insurance does apply when "substandard workmanship results in economic losses that would normally be covered in a breach of contract action."); Dorchester Mut. Fire Ins., 731 N.E.2d at 655. Excluding business risks lowers insurance rates and provides incentive for businesses to perform effectively. See Schauf, 967 S.W.2d at 77; Dorchester Mut. Fire Ins., 731 N.E.2d at 654-55.
Courts have used various guidelines to effectuate the purposes of CGL insurance. Schauf stated that CGL insurance covers "the risk of the insured causing damage to other persons and their property, but not insuring the risk of the insured causing damage to the insured's own work." 967 S.W.2d at 77; see also Dorchester Mut. Fire Ins., 731 N.E.2d at 654-55; Century I, 493 A.2d at 374-75. Vogel v. Russo stated that CGL insurance covers, "risks relating to the repair or replacement of the insured's faulty work or products, or defects in the insured's work or product itself. . . . The coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained." 613 N.W.2d 177, 182 (Wis. 2000) (internal citations omitted).
The difference between the unforeseeable accident that should be covered by CGL insurance and the routine faulty workmanship that should be covered by the breaching party is not always clear. The difference is further muddled for crane operations where routine faulty workmanship can easily become a catastrophic accident.
I express no opinion as to whether faulty workmanship had anything to do with the accident.
In addition to the (j)(5) exclusion, the CGL insurance contract between American Alliance and Eastern Crane also includes an endorsement known as the "On Hook/Riggers Liability Endorsement" ("On Hook Endorsement"). (See American Alliance's Mot. Sum. J. Exhibit A at EC235A.) The On Hook Endorsement significantly modifies the (j)(5) exclusion. The plain language of the On Hook Endorsement states when the (j)(5) exclusion should apply. The On Hook Endorsement states, "[E]xclusions (4) and (5) do not apply while such property is being raised and/or lowered and/or moved. . . ."
American Alliance reads the On Hook Endorsement as only applying to property that is actually being hoisted or "on the hook." However, as Eastern Crane argues, the On Hook Endorsement does not apply to property that is being raised, it applies "while" property is being raised. The effect of the On Hook Endorsement is that, "exclusions (4) and (5) do not apply." As a result, the On Hook Endorsement operates to eliminate the (j)(5) exclusion whenever property is being raised or lowered by the crane. The parties do not dispute that the accident occurred while Eastern Crane was raising the valve from the furnace. Therefore, the (j)(5) business risk exclusion does not apply.
The On Hook Endorsement resolves the confusion of how the purposes behind CGL insurance should apply in the context of a crane accident. The On Hook Endorsement dictates that accidents that happen while property is being moved are not the "normal frequent, or predictable consequences" of operating a crane. Schauf, 967 S.W.2d at 77; see also Milton, 35 F. Supp.2d at 86; Dorchester Mut. Fire Ins., 731 N.E.2d at 654-55.
IV.
Marino has asserted a cross claim that seeks a declaratory judgment against American Alliance, "for all sums that may be adjudged against it for damages other than to personal property rented to or in the care, custody, care, or control of Eastern Crane." Cross-Motion of Marino Crane For Declaratory Judgment Against American Alliance at ¶ 4. Marino rented the Manitowoc lift crane to Eastern Crane. Under the rental agreement, Eastern Crane agreed to indemnify Marino from liability arising from the use of the crane. (See American Alliance's Mot. Sum. J. Exhibit B at EC0025.) As discussed above, Eastern Crane obtained CGL insurance from American Alliance that covers certain liabilities incurred by Eastern Crane. The CGL insurance does not apply to contractual liability incurred by Eastern Crane unless the contract is an "insured contract." (See American Alliance's Mot. Sum. J. Exhibit A at EC0206-207.) Marino argues that Eastern Crane has agreed to indemnify it pursuant to the rental agreement. Further, Marino argues that the rental agreement is an "insured contract," and that American Alliance has agreed to indemnify Eastern Crane for liabilities on that contract. As a result, Marino argues that American Alliance must indemnify Marino for covered liabilities that Marino incurs and that arise out of Eastern Crane's use of the Manitowoc crane.
A.
On November 17, 1999, this Court issued a Scheduling Order for this case. According to the Scheduling Order, all cross claims had to be filed by November 20, 1999. On August 4, 2000, American Alliance filed its Motion for Summary Judgment. On August 22, 2000, Marino filed a motion for declaratory judgment against American Alliance and an Opposition to American Alliance's Motion for Summary Judgment. On August 23, 2000, Marino filed a cross claim against American Alliance. American Alliance has moved to have the cross claim stricken as untimely.
Under Fed.R.Civ.P. 16(b), "A schedule shall not be modified except upon a showing of good cause and by leave of the district court." Marino has not filed a formal motion for leave to amend the Scheduling Order, but in its Opposition to American Alliance's Motion to Strike, it argued that the cross claim should not be considered untimely. The Court will consider Marino's Opposition as a motion for leave to amend the Scheduling Order.
"Properly construed, `good cause' means that scheduling deadlines cannot be met despite a party's diligent efforts." Potomac Electric Power Co. v. Electric Motor Supply, Inc., 190 F.R.D. 372, 375 (D.Md. 1999) (internal citations omitted). In Ngo v. Standard Tools Equip., Co., good cause to modify a scheduling order was found because new evidence surfaced after the close of discovery. 2000 WL 1661395, at *4 (D.Md.). According to Marino, if it is found liable, Eastern Crane must indemnify it pursuant to their rental agreement. Marino further argues that, pursuant to the CGL insurance, American Alliance must indemnify Eastern Crane for any amounts it owes to Marino. Based on this, Marino asserted a cross claim against American Alliance. Marino states, "The issue only arose when American Alliance filed its Motion for Summary Judgment seeking a declaration that it owes no coverage relating to this case." (Reply Mem. in Supp. of Marino's Cross-Motion for Dec. J. at 5-6.)
Marino should have known about the possibility of asserting a cross claim against American Alliance well before August 2000. Marino filed a cross claim against Eastern Crane in November 20, 1999. Also, American Alliance has been involved in this litigation as one of Eastern Crane's insurers from the beginning. Marino had enough information in November 1999 to determine whether to pursue a claim against American Alliance. The fact that American Alliance filed a motion for summary judgment is unrelated to the fact that Marino had enough knowledge in November of 1999 to determine whether to bring a claim.
However, American Alliance has not demonstrated that it suffered any prejudice as a result of Marino's delay. Ordinarily, Marino's inability to demonstrate diligent efforts would not satisfy the good cause requirement. But, the purpose of this declaratory judgment action is to bring together all of the interested parties and claims for a consolidated, efficient resolution. The desire to bring together all of the claims in one forum, coupled with the lack of prejudice to American Alliance, is sufficient good cause to allow Marino to amend the Scheduling Order. Marino is granted leave to file its cross claim against American Alliance.
B.
American Alliance argues that Marino cannot obtain a declaratory judgment on the CGL insurance contract because Marino does not have standing. Marino argues that it is a third-party beneficiary on the CGL insurance contract and has standing to sue. "In determining whether a party is a third-party beneficiary to a contract, the controlling issue is whether the contract's terms, in light of the surrounding circumstances, reveal an intent to make the promise to the third party in fact if not in form." College of Notre Dame of Maryland, Inc. v. Morabito Consultants, Inc., 752 A.2d 265, 276 (Md.Ct.Spec.App. 2000); see also Hamilton and Spiegel, Inc. v. Bd. of Educ. of Montgomery County, 195 A.2d 710, 711-12 (Md. 1963). American Alliance is correct in noting that Marino is not a named additional insured in the CGL policy. However, that is beside the point. Marino is not arguing that it is a party to the original contract, but rather that it is a third-party beneficiary.
Under Maryland law, a claimant against an insured can directly sue the insurer as a third-party beneficiary in certain circumstances. See Jones v. Hyatt Ins. Agency, Inc., 741 A.2d 1099, 1103 (Md. 1999) ("We have recognized a . . . third-party beneficiary cause of action in contract when a tort claimant sues the tortfeasor's liability insurer for a declaratory judgment concerning coverage."); Mesmer v. Maryland Automobile Ins. Fund, 725 A.2d 1053, 1065 (Md. 1999); Harford Mut. Ins. Co. v. Woodfin Equities Corp., 687 A.2d 652, 658-60 (Md. 1997). Woodfin allowed a general contractor to bring a declaratory judgment against a subcontractor's insurer as a third-party beneficiary on the subcontractor's CGL insurance. 687 A.2d at 658-60. According to Marino, Eastern Crane will owe Marino indemnification if Marino is found liable. Further, American Alliance will have to indemnify Eastern Crane. As in Woodfin, Marino can bring a declaratory judgment against American Alliance as a third-party beneficiary to Eastern Crane's CGL insurance with American Alliance.
C.
A controlling principle under Maryland insurance law is that liability insurance should not be injected into legal proceedings in which the underlying insured's liability is being determined. See Woodfin, 687 A.2d at 658. In accord with this principle, "[A] declaratory judgment action, prior to the trial of a pending tort action, would ordinarily be appropriate in certain instances to resolve questions of policy coverage where those questions are independent and separable from the claims asserted in a pending suit by an injured third party." Allstate Ins. Co. v. Atwood, 572 A.2d 154, 156 (Md. 1990) (internal citations omitted); Woodfin, 687 A.2d at 658. American Alliance argues that Marino's declaratory judgment should not be allowed because the coverage issue is intertwined with Marino's liability.
Marino's liability, if any, has not yet been determined. I cannot determine whether Marino's liability will be covered by American Alliance's policy until that liability is definitely determined. As a result, I will refrain from holding that American Alliance must indemnify Marino. However, I can make a determination on one issue that is independent from Marino's actual tort liability: whether Marino's rental agreement is an insured contract under American Alliance's policy. This determination turns on interpreting two contracts — the rental agreement and American Alliance's CGL insurance. The determination does not involve any evaluation of Marino's liability. As a result, a declaratory judgment on American Alliance's coverage is appropriate because it is independent of Marino's liability. See Atwood, 572 A.2d at 156.
Under the plain language of the CGL contract, the rental agreement is an insured contract. An insured contract is any contract "under which [Eastern Crane] assume[s] the tort liability of another party. . . . Tort liability means a liability that would be imposed by law in the absence of any contract or agreement." (See American Alliance's Mot. Sum. J. Exhibit A at EC0218.) The rental agreement states, "[Eastern Crane] will save [Marino] harmless from any and all loss, liability, damage and expense to other persons or any property, arising from or in connection with the use or operation of the leased equipment." (See American Alliance's Mot. Sum. J. Exhibit B at EC0025.) Eastern Crane agreed to indemnify Marino for any liability Marino incurred in connection with the crane rental. The rental agreement meets the CGL contract's definition of an insured contract.
A separate order effecting the rulings made in this memorandum is being entered herewith.
ORDER
For the reasons stated in the accompanying memorandum, it is, this 29th day of November 2000 ORDERED:1. That American Alliance's motion for summary judgment is granted with respect to damages to the two cranes;
2. That American Alliance's motion for summary judgment is denied with respect to other damages claims;
3. That American Alliance's Motion to Strike Cross-Claim of Defendant S.G. Marino Crane Service as Untimely is denied;
4. That American Alliance's Motion for Severance of Insurance Coverage Issues is denied;
5. That Marino's Motion for Declaratory Judgment Against American Alliance is granted in part; and
6. That the rental agreement between Marino and Eastern Crane is declared to be an insured contract as defined by American Alliance's CGL insurance.