Opinion
CIVIL ACTION NO. 01-1860 C/W 01-2312, SECTION "C" (2)
November 14, 2002
MINUTE ENTRY
This matter comes before the Court on motion for partial summary judgment filed by Zurich American Insurance Company, as successor in interest to Zurich Insurance Company U.S. Branch ("Zurich American"). Having considered the record, the memoranda of counsel and the law, the Court has determined that the motion should be denied for the following reasons.
Zurich American seeks a declaration of coverage under its comprehensive general liability policies issued to Croft Metals, Inc. ("Croft") for the damages claimed by the plaintiffs, LaCoste Developers, L.L.C. ("Lacoste") and/or Shannon and Louis Summersgill. The plaintiffs claim damages allegedly resulting from a manufacturing defect in windows manufactured by Croft which caused the windows to leak. The windows were purchased and installed into buildings constructed by Lacoste, one of which was purchased by the Summersgills.
The Summersgills adopt by reference any opposition filed by any other party.
In its motion, Zurich American argues that consequential or economic damages are not covered "property damages" under the policies and that its policies are not responsive to any award for the cost of repairing or replacing the windows themselves. Zurich American admits that its policy does cover damage to property other than the windows, such as damage to floors or walls caused by leaks. (Rec. Doc. 65, p. 6).
In its opposition, Croft agrees that the warranty work to the windows themselves is not covered under the policy, but that the consequential and economic damages sustained are covered because they are "because of" covered "property damage.
The parties' arguments focus on a few of the policy provisions. First, the policy language provides the following coverage:
I A. 1. Insuring Agreement
a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies.
(Emphasis added).
The policy contains the following definition of "property damage:"
V 15. "Property damage" means:
a. Physical injury to tangible property. including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or
b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the "occurrence" that caused it.
(Emphasis added).
Therefore, what remains in contention is the recoverability of consequential damages described by Zurich American as follows:
The only occurrence at issue in this case is the alleged defect in Croft's windows, which resulted in water leaks. The only property damage at issue in this case is the damage to the window themselves and the damage to nearby flooring and walls caused by the water infiltration. The plaintiffs' claims for redhibition, violation of the Louisiana Unfair Trade Practices and Consumer Protection Act, negligent or intentional misrepresentation are not based on an occurrence. The consequential damages sought by the Summersgills for mortgage payments made after they moved out of their townhouse and before they began renting it, for losses sustained because their rental income from the townhouse was less than their mortgage payments, for homeowners' dues, and for property taxes on the townhouse do not constitute property damage. Similarly, the consequential damages sought by LaCoste for destruction of business and loss of income do not constitute property damage.
(Rec. Doc. 65, p. 4).
Croft responds that Zurich American is misconstruing its claim of coverage, which is based on the undisputed fact that there is covered property damage from which the claimed consequential damages derive: "These alleged economic damages, however, were sustained by the plaintiffs `because of' the covered `property damage' as required by the policies' coverage grant provisions. Therefore, these economic damages are covered by the policies under the terms of the coverage grant." (Rec. Doc. 91, p. 6).
Zurich American's motion does not directly address the argument in favor of coverage made by Croft in its opposition. In its reply, however, Zurich American continues to argue that the legal basis of the claims made by the plaintiffs determine whether damages are covered. Zurich American seems to argue that if the damages claimed, for instance, attorney's fees, are not in themselves "property damage" covered by the policy, the attorney's fees are not covered. "As outlined in Zurich American's original brief, Zurich American's policy only responds to `property damage' caused by an `occurrence." (Rec. Doc. 96, p. 4). "[T]his theory of recovery has nothing to do with `property damage' caused by an `occurrence' as required by Zurich American's policies." (Rec. Doc. 96, p. 5).
The Court is not presented with a case with "pure redhibition claims." Galleried Chemical Corp. v. ProPump, Inc., 753 So.2d 349, 355 (La.App. 1st Cir. 2000). Instead, the damages, at least to the floors and walls, were caused by an "occurrence" as required under the policies.
This interpretation, however, is contrary to the language of the primary coverage clause upon which Croft's argument is based: "We will pay those sums that the insured becomes legally obligated to pay as damages because of `bodily injury' or `property damage' to which this insurance applies." (Emphasis added). Here, it is undisputed that there is covered property damage, specifically, water damage to property other than the windows themselves "because of" which the plaintiffs claim consequential damages. In light of this clear policy inclusion, and in the absence of any relevant policy provision which limits coverage based on the nature of the theories of recovery or claims made against an insured, Zurich American's argument fails.
This issue of whether there must be covered underlying property damage for consequential damages to be covered under this definition of "property damage" was addressed by the Louisiana Supreme Court in Borden, Inc. v. Howard Trucking Co., Inc., 454 So.2d 1081, 1089-1090 (La. 1984). The Borden court was presented with an "all sums" coverage provision and an insured seeking coverage for loss of use where the only tangible property damage was not covered by the policy under examination; instead that tangible property damage was covered by a separate policy which specifically excluded loss of use.
In its original opinion, the Louisiana Supreme Court assumed "property damage" was defined in the policy in the same manner in which that phrase is defined in the Zurich American policies. The Louisiana Supreme Court "determined that loss of use is not independent property damage, but merely a measure of damages resulting from the physical damage to the compressor, damage which is excluded under the policy." Id., 454 So.2d at 1090.
The loss of use of physically damaged tangible property is merely a measure of damage resulting from the property damage. Loss of use of physically damaged tangible property is not property damage in and of itself. It is dependent on the coverage afforded the damaged tangible property under the policy. Property damage is defined as the "physical injury to or destruction of tangible property . . . including the loss of use thereof . . . resulting therefrom.Id. 454 So.2d at 1086.
On rehearing, this aspect analysis of the Louisiana Supreme Court remained untouched. However, the original result was altered by the absence of proof that the "property damage" definition was contained in the policy.
On original hearing we resolved that issue in [insurer's] favor, relying on what we believed to be the definition of "property damage" contained in the policy. On rehearing we come to a different conclusion . . .
* * *
It was based on this definition, which we believed to be part of the policy in the record, that we found that loss of use of property was not covered by the policy even though only property damage . . . was expressly excluded therein.
Therefore, the focus of the Louisiana Supreme Court on rehearing returned to the broad "all sums" coverage which, given the absence of an exclusion for loss of use, was found to afford coverage even in the absence of tangible property damage.
In other words, the policy provided coverage for all liability of the insured resulting from property damage except for . . . damage to the property itself . . . and except for the damages for the loss of the use of tangible property which has not been physically injured. There is no exclusion for damages resulting from the loss of use of property which the insured has damaged. Absent an applicable exclusion, such damages are covered.Id., 454 So.2d at 1089-1090.
Without the definition of property damage upon which we relied in our original opinion, we cannot conclude that property damage as used in the exclusion in the policy under consideration means not only damage to the property . . . but, as well, consequential damages flowing from the loss of use of that damaged property.Id., 454 So.2d at 1090.
Borden still stands for the rule that consequential damages incurred "because of" covered tangible property damage is covered under an "all sums" policy such as those issued by Zurich American. Again, Zurich American admits to tangible property damage, at a minimum, with regard to walls and floors allegedly damaged by the leaking windows. Therefore, there is covered "property damage" from which the loss of use, included as part of the definition of covered "property damage," can be "because of" and for which there is no exclusion.
In its reply, Zurich American maintains that consequential or economic damages are not recoverable with a number of new arguments. First, it argues that "[a]ny economic or consequential damages suffered by the plaintiffs necessarily arose out of both covered claims (physical damage to flooring and walls caused by the defective windows) and non-covered claims (damage to the windows themselves.)" (Rec. Doc. 96, p. 5). It seems to be arguing that the claimed consequential damages must arise "solely as a result of damaged flooring and walls." Id. Zurich American offers no policy provision which sets forth the requirement of exclusive causation.
However, this argument does not serve Zurich American's interests:
When determining whether or not a policy affords coverage for an incident, it is the burden of the insured to prove the incident falls within the policy's terms. . . . On the other hand, the insurer bears the burden of proving the applicability of an exclusionary clause within a policy. . . Importantly, when making this determination, any ambiguities within the policy must be construed in favor of the insured to effect, not deny, coverage.Doerr v. Mobil Oil Corp., 774 So.2d 119, 124 (La. 2000) (citations omitted). "The purpose of liability insurance, on the other hand, is to afford the insured protection from damage claims. Policies should be construed to effect, not deny, coverage." Breland v. Schilling, 550 So.2d 609, 610 (La. 1989). Exclusion by implication is insufficient.Borden, 454 So.2d at 1090.
In addition, Zurich American argues in reply that one of the cases cited in its original motion, Massey v. Decca Drilling Co., Inc., 647 So.2d 1196 (La.App. 2d Cir. 1994), stands for the proposition that economic damages are not covered where there is "property damage." (Rec. Doc. 96, p. 6). However, as set forth in Croft's surreply memorandum, theMassey tangible property damage occurred after the alleged intangible damage. It is also arguable that the Massey courts s insurance analysis may be dicta since the court found that there was no right of action to make the policy language relevant.
It is unclear whether the court in Massey was presented with an "all/those sums" coverage provision. In fact, the Massey court begins the relevant analysis with the statement that "[t]he insurance policies covering Decca provided coverage for `property damage.'" Massey, 647 So.2d at 18. Here, the issue is focused on the broader basic insuring agreement.
Finally, in its reply memorandum, Zurich American seems to argue that the case of Todd Shipyards Corp. v. Turbine Service, Inc., 674 F.2d 401 (5th Cir. 1982), does not support a finding of coverage because "[t]he plaintiffs in the instant case did not suffer any loss of use." (Rec. Doc. 96, p. 7). The Court finds that the issue of whether the plaintiffs actually suffered a loss of use, or whether individual items of damages sought constitute "loss of use," or whether those damages are otherwise covered due to the lack of exclusion has not been made the subject of this motion, and remains for determination at trial.
Accordingly,
IT IS ORDERED that the motion for partial summary judgment filed by Zurich American Insurance Company, as successor in interest to Zurich Insurance Company U.S. Branch is DENIED.