Opinion
Civil Action No: 01-0043, Section: "R" (3)
August 23, 2001
ORDER AND REASONS
Before the Court is defendant Travelers Indemnity Co.'s motion for summary judgment to dismiss plaintiff Tonti Realty Corp.'s claims on the grounds that Tonti failed to file suit within the two year prescriptive period established in the policy issued by Travelers and that the nature of the loss is specifically excluded from coverage. The Court finds that the insurance policy does not cover Tonti's claims and therefore grants Travelers' motion for summary judgment.
I. Background
On May 1, 1997, plaintiff Tonti discovered that certain underground sewer pipes at The Seasons, an apartment complex it owns and operates in Kenner, Louisiana, were apparently damaged by earth subsidence. At that time, The Seasons and various other properties owned by Tonti were insured by Travelers Indemnity under a Manuscript Commercial Property Policy, No. KTJ-CMB-257T855-0-96. This policy provided in excess of $100 million in coverage for various properties owned by the insured. (Pl.'s Mem. Opp'n Am. Mot. Summ. J., at 2.)
In its original coverage declaration, the policy contained an exclusion which precluded coverage for losses arising out of earth movement. This exclusion, however, was negated by Tonti's purchase of an Earth Movement Extension, which provided coverage for losses caused by earthquake, landslide, soil subsidence, sinkhole collapse or volcanic eruption. (Pl.'s Mem. Opp'n Mot. Summ. J., Ex. A, Tonti Aff. ¶ 6; Pl.'s Mem. Opp'n Am. Mot. Summ. J., Ex. A-23.) This Extension provides in pertinent part:
1. COVERAGE EXTENSION-subject to sublimit(s) of liability and deductible amount(s) shown elsewhere in this policy and to all other terms and conditions not in conflict herewith, this policy is extended to insure against direct physical loss to covered property on or at covered location(s) caused by earthquake (including aftershocks), earthquake sprinkler leakage, landslide, subsidence (including Mine Subsidence), sinkhole collapse, volcanic eruption or earth sinking, rising or shifting.
(Pl.'s Mem. Opp'n Am. Mot. Summ. J., Ex. A-23.) This supplemental coverage provided the insured with $2.5 million in coverage for damage caused by earth movement. ( Id., Ex. A-17.) The effective dates of the policy were from September 30, 1996 through September 30, 1997. (Def.'s Mem. Supp. Mot. Summ. J., Ex. A.) Tonti subsequently renewed the policy through September 30, 2001. (Pl.'s Suppl. Mem. Opp'n Mot. Summ. J., Ex. A, Legnon Aff. ¶ 4.)
The policy was cancelled by Tonti in September 1999.
On May 7, 1997, Tonti reported the loss to Travelers, who dispatched Charles Gibbs, an adjuster for the insurer, to investigate the claim. After completing an investigation of the affected building, Travelers determined that the damaged pipes were not covered by the policy and denied Tonti's claim. (Def.'s Mem. Supp. Mot. Summ. J., at 3; Ex. B., Gibbs Aff. ¶ 6; Ex. D.) This denial was based on a provision in the policy which excluded from coverage "any tanks, flues, pipes, drains, wiring, tunnels, or passageways which are buried underground." (Def.'s Mem. Supp. Mot. Summ. J., Ex. A, Form PR-203, at 2.)
The pipes at issue at The Seasons apartment complex proved not to be limited to the single building investigated by Mr. Gibbs in May 1997. Eventually, Tonti determined that repairs were required at each of the complex's fourteen buildings. In order to investigate the extent of damage to the underground pipes and remedy that damage, it was necessary for Tonti to tunnel under each affected building. (Pl.'s Mem. Opp'n Mot. Summ. J., Ex. A, Tonti Aff. ¶ 3.) The investigation of the damaged pipes alone cost Tonti in excess of $250,000.00. The process of identifying and repairing the damaged piping continued intermittently through January 2000.
On February 17, 2000, Thomas Gillis, Tonti's insurance agent at Wm. Rigg Co., notified Travelers' wholesale broker, London American Risk specialists, that the insured was submitting a claim for the labor costs of repairing the damaged piping. (Pl.'s Mem. Opp'n Mot. Summ. J., Ex. B, Gillis Aff. ¶ 8.) On March 15, 2000, Travelers, through London American Risk Specialists, denied the Tonti's labor claims. (Pl.'s Mem. Opp'n Mot. Summ. J., Ex. D.) On November 16, 2000, Tonti filed this lawsuit against Travelers. The case is set for a bench trial on March 18, 2002.
Travelers now moves for summary judgment on two grounds. First, the insurer argues that Tonti failed to file suit on its claim for coverage within the two year limitation period established in the policy. In the alternative, Travelers, in an amended motion for summary judgment, argues that any loss associated with the damaged pipes is explicitly excluded from coverage.
II. Discussion
B. Summary Judgment Standard
Summary judgment is appropriate when there are no genuine issues as to any material facts, and the moving party is entitled to judgment as a matter of law. See FED. R. CIV. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2551 (1986). The court must be satisfied that no reasonable trier of fact could find for the nonmoving party or, in other words, "that the evidence favoring the nonmoving party is insufficient to enable a reasonable jury to return a verdict in her favor." Lavespere v. Niagra Mach. Tool Works, Inc., 910 F.2d 167, 178 (5th Cir. 1990); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510 (1986). The moving party bears the burden of establishing that there are no genuine issues of material fact. Krim v. BancTexas Group, Inc., 989 F.2d 1435, 1445 (5th Cir. 1993).
If the dispositive issue is one for which the nonmoving party will bear the burden of proof at trial, the moving party may satisfy its burden by merely pointing out that the evidence in the record contains insufficient proof concerning an essential element of the nonmoving party's claim. See Celotex, 477 U.S. at 325, 106 S.Ct. at 2552; Lavespere, 910 F.2d at 178. The burden then shifts to the nonmoving party, who must, by submitting or referring to evidence, set out specific facts demonstrating that a genuine issue exists. See Celotex, 477 U.S. at 324, 106 S.Ct. at 2553.
The Fifth Circuit has "arguably articulated an even more lenient standard for summary judgment in certain nonjury cases." Phillips Oil Co. v. OKC Corp., 812 F.2d 265, 273 n. 15 (5th Cir. 1987). In Nunez v. Superior Oil Co., 572 F.2d 1119, 1123 (5th Cir. 1978), the Fifth Circuit explained:
There is no litmus test that infallibly distinguishes those issues that are `factual' from those that are `legal' or `mixed.' . . . as we approach the point where facts and the application of legal rule to them blend, appraising evidentiary facts in terms of their legal consequences and `applying' law to fact become inseparable processes.
Therefore, in a nonjury case, such as this case, the Court is encouraged to draw inferences, even when they appear to be factual, if a "trial on the merits would reveal no additional data." Id. at 1124. See also Professional Geophysics, Inc. v. Placid Oil Co., 932 F.2d 394, 398 (5th Cir. 1991).
C. Law Applicable to Travelers' Policy
Under Louisiana law, courts construe insurance policies using the general rules of contract interpretation. See Trinity Industries, Inc. v. Insurance Co. of North America, 916 F.2d 267, 269 (5th Cir. 1990) ( citing Breland v. Schilling, 550 So.2d 609, 610 (La. 1989)); Ledbetter v. Concord General Corp., 665 So.2d 1166, 1168 (La. 1996). The parties' intent, as reflected by the words of the policy, should determine the extent of coverage. See Ledbetter at 1168. Such intent is to be determined in accordance with the general, ordinary, plain and popular meaning of the words used in the policy, unless the words have acquired a technical meaning. See id; LA. CIV. CODE ANN. art. 2047 (West 2001).
The court should consider the policy as a whole, and interpret the policy to fulfill the reasonable expectations of the parties in the light of the customs and usages of the industry. See Trinity Industries, Inc., 916 F.2d at 269. If the policy wording at issue is clear and expresses the intent of the parties, it must be enforced as written. See Ledbetter, 665 So.2d at 1169 ( citing Pareti v. Sentry Indemnity Co., 536 So.2d 417, 420 (La. 1988)). If the wording of the policy is ambiguous, it should be construed to effect, not deny, coverage. See Yount v. Maisano, 627 So.2d 148, 151 (La. 1994) ( citing Breland, 550 so. 2d at 610).
While ambiguous policy provisions are interpreted strictly against the insurer, the Louisiana Supreme Court has held that courts must not apply the rule of strict construction to find ambiguities where none exist:
The rule of strict construction does not authorize a perversion of language, or the exercise of inventive powers for the purpose of creating an ambiguity where none exists, nor does it authorize the court to make a new contract for the parties or disregard the evidence as expressed, or to define away terms of a contract expressed with sufficient clearness to convey the plain meaning of the parties.Commercial Union Insurance Company v. Advance Coating Co., 351 So.2d 1183, 1185 (La. 1977) (quotations omitted). See also FDIC v. Barham, 995 F.2d 600, 603 (5th Cir. 1993) (holding that while ambiguities in insurance policies must be construed against the insured, courts have no power to alter the terms of the policy in the guise of contractual interpretation when policy provisions are couched in unambiguous language). Moreover, insurance companies have the right to limit coverage in any manner they desire, as long as the limitations do not conflict with statutory provisions or public policy. See Ledbetter, 665 So.2d at 1169 ( citing Reynolds v. Select Properties, Ltd., 634 So.2d 1180, 1183 (La. 1994)).
C. Prescriptive Period
Because Traveler's prescription argument is intertwined with the characterization of the claims and the scope of the coverage, the Court will first address its argument that the nature of the loss is specifically excluded from the policy.
D. Exclusion Argument
Travelers argues that summary judgment is appropriate because any loss associated with damaged underground pipes is specifically excluded from coverage. Exclusion 2(K) on Form 203 states:
This policy does not cover loss, however, caused, to:
. . . Any tanks, flues, pipes, drains, wiring, tunnels or passageways which are buried underground.
(Def.'s Mem. Supp. Mot. Summ. J., Ex. A, Form PR-203, at 2.) Tonti, however, argues that Travelers' interpretation of the wording of the insurance policy ignores an accepted technical meaning of "buried underground" within the design and construction industry and it offers parol evidence to support its assertion. Applying the settled principles of statutory construction to the insurance policy in this case, the Court concludes that the exclusion in 2(K) unambiguously excludes coverage for damage to the underground pipes.
Under Louisiana law, words in an insurance contract are to be given their generally prevailing and ordinary meaning, unless they have acquired a technical meaning. See LA. CIV. CODE art 2047; Peterson v. Schimek, 729 So.2d 1024, 1028-1029 (La. 1999) When more than one interpretation is possible, the one favoring the insured will be adopted. See Creole Explorations, Inc. v. Underwriters at Lloyd's, London, 161 So.2d 768, 771 (La. 1964). However, courts lack authority to alter terms of insurance contracts under the guise of contractual interpretation when the policy's provisions are unambiguous. See Peterson, 729 So.2d at 1029 ( citing Louisiana Ins. Guar. Ass'n v. Interstate Fire and Casualty Co., 630 So.2d 759, 764 (La. 1994)). When the words of a contract are clear, ambiguous and lead to no absurd consequences, the contract is interpreted by the court as a matter of law. See LA. CIV. CODE. art 2046. Only if the Court determines that a contract is ambiguous may parol evidence be used to determine the intent of the parties. See McDuffie v. Riverwood Int'l Corp., 660 So.2d 158, 160 (La.App. 2nd Cir. 1995) ("[W]hen the terms of a written contract are susceptible to more than one interpretation, or where there is uncertainty or ambiguity as to its provisions, or the intent of the parties cannot be ascertained from the language employed, extrinsic evidence is admissible to clarify the ambiguity or to show the parties' intent.").
In an effort to suggest an ambiguity, Tonti offers three affidavits attesting that the term "buried underground" means more in the design and construction fields than simply being located underground. Each of these affidavits asserts that there are two basic components of the sewerage piping system for slab constructed buildings, like those found at The Seasons. The first component consists of those pipes considered to be integral parts of and appurtenances to the building slab and foundation. (Pl.'s Mem. Opp'n Am. Mot. Summ. 3., Ex. B, Niedzwiecki Aff., at 2; Ex. C, Tonti Aff., at 2; Ex. D, Raymond Aff., at 1.) These pipes are mechanically fastened to the foundation of the building when the concrete is first poured. Id. Affiants contend that these pipes are considered permanent fixtures which attach to the building structure. Id.
The second component part of the sewerage system is comprised of those pipes "buried underground" which connect the building sewer system with the municipal sewerage and waste water systems. Affiants claim these component systems require the issuance of different construction permits, are inspected by different inspection departments, and are subject to different standards. Id.
The affidavits submitted by Tonti do not demonstrate any ambiguity in the insurance contract language. Whatever architects and construction contractors may read into the words "buried underground" in their fields of endeavor, the contract here is an insurance contract between a building owner and an insurer. These affidavits do not provide any evidence demonstrating that the unambiguous exclusion of underground pipes was intended to apply to one type of pipe but not to another. If the technical distinctions Tonti now posits were applicable, it is far more likely the parties would have spelled them out in the insurance policy rather than leaving themselves at the mercy of the everyday usage of the words "buried underground."
The role of the judiciary in interpreting insurance contracts is to ascertain the common intent of the insured and the insurer as reflected by the words of the policy. See Ledbetter, 665 So.2d at 1169. When the words of an insurance contract are clear and explicit and lead to no absurd consequences, courts must enforce the contract as written and make no further interpretation in search of the parties' intent. See LA. CIV. CODE art. 2046. Were this Court to accept the narrow, technical definition desired by Tonti, it would be conducting an exercise of inventive powers for the purpose of creating an ambiguity where none exists.
Moreover, relevant Louisiana case law supports this Court's holding. For example, a Louisiana court of appeal held that a liability policy which contained a nearly identical exclusion clause did not cover repair costs to underground pipes. See Monju v. Continental Casualty Company, 487 So.2d 729, 731 (holding that a policy which excluded coverage for "underground flues, pipes, wiring and drains," was unambiguous and that repair costs to underground pipes were clearly not covered by the policy).
The exclusion in question makes no distinction between underground pipes, drains, flues, or wiring that are mechanically attached to the underside of the slab and those that are not. Indeed, the exclusion unambiguously applies to all underground pipes, drains, and flues.
D. Tonti's Alternative Arguments
In the alternative, Tonti makes several other arguments in favor of coverage. Each argument is an attempt to distinguish between the costs that Tonti incurred to replace the pipes themselves and the relevant tunneling, excavation, labor and repair costs incurred to identify and correct damage to the pipes.
First, Tonti argues that even if the damaged pipes themselves are excluded from coverage, the costs of replacing the metal hangers that fasten the pipes to the concrete slabs are covered under the policy. Tonti never made this claim to Travelers and urges this argument for the first time in response to Travelers' motion for summary judgment. Tonti argues that since the hangers were imbedded in the concrete slabs, they should be classified as "permanent fixtures." (Pl.'s Mem. Opp'n Am. Mot. Summ. 3., at 5.) "Permanent fixtures" are classified as "covered property" in the policy. ( Id., Ex. A-27.) Since the labor costs to get to the hangers were the same as to get to the pipes. Tonti argues it should recover its labor costs, except the actual pipe replacement costs.
Based on the record before the Court, the Court finds this argument to be an afterthought. None of the contemporary records reflects that Tonti embarked on the expensive tunneling and repair work in search of broken metal hangers. Its claim has always been for damaged pipes and the attendant repair costs. The metal hangers were merely incidental to the pipes.
Tonti next argues that the repair costs associated with repairing the underground pipes are covered because Travelers' policy provides coverage for "repairs to buildings and structures herein insured." (Pl.'s Mem. Opp'n Mot. Summ. 3., Ex. A-27.) Tonti again misconstrues the clear language of the insurance contract. Section 1(A)(2) provides that repairs to "buildings and structures herein insured" are covered. Under Tonti's reading, the insurer would be obligated to pay for all repair costs at an insured property, even if the damage that was being repaired was to a structure explicitly excluded from the policy. Tonti's argument ignores the limiting words "herein insured" in section 1(A)(2) of Form PR-203. Tonti's argument would effectively negate the exclusions contained in the policy. Such logic fails to consider the insurance policy as a whole, and would pervert the reasonable expectations of the parties. See Peterson, 729 So.2d at 1028. This argument is also without merit.
Tonti also posits that Exclusion 2K does not apply to the Earth Movement Extension because that supplemental provision does not specifically state that all exclusions are applicable. Tonti is correct in its assertion that the text of the Earth Movement Extension provides that it is subject to the "terms and conditions" found elsewhere in the policy. (Pl.'s Mem. Opp'n Am. Mot. Summ. J., Ex. A-23.) Nowhere in the text of this Earth Movement extension does the word "exclusion" appear. Nevertheless, the "Supplemental Coverage Declaration" provides that coverage extensions are subject to policy exclusions. It provides as follows:
READ THE ENTIRE POLICY CAREFULLY TO DETERMINE RIGHTS, DUTIES AND WHAT IS AND IS NOT COVERED.
* * *
(2) INSURANCE PROVIDED: This policy, subject to all of its terms, conditions and exclusions, covers:
Buildings, structures, and personal property, including coverage extensions for . . .
(Pl.'s Mem. Opp'n Mot. Summ. 3., Ex. A-17.) The Earth Movement Extension does not contain any language that exempts it from the terms of the "Supplemental Coverage Declaration." Because an insurance contract must be considered as a whole, and because no one provision of a policy should be construed separately at the expense of disregarding other provisions, the Court finds that exclusion 2(K) does apply to the Earth Movement Extension.
Tonti argues that General Condition 20 of the policy required it to take remedial action and repair the pipes to prevent the covered property from being further damaged. Tonti argues that it was entitled to be reimbursed for that remedial repair, even if what needed to be repaired was itself excluded from coverage. General Condition 20 states in pertinent part:
PROTECTION OF PROPERTY — In the event of an actual or imminent loss which would be insured by this policy, coverage is extended to include the necessary and reasonable expenses actually incurred by the insured in recovering and temporarily safeguarding and preserving covered property.
(Pl.'s Mem. Opp'n Am. Mot. Summ. J., Ex. A-49.)
The Court finds the record devoid of evidence that the pipe repair work was necessary to safeguard covered property from "actual or imminent loss." At most, Tonti submits evidence that without pipe repair, structures could have been subject to the "possibility of slab and foundation damage." (Pl.'s Mem. Opp'n Am. Mot. Summ. J., Ex. C, Tonti Aff., at 3.) This is insufficient to raise an issue under General Condition 20. The Court therefore finds this provision inapplicable.
Finally, Tonti argues that Exclusion 2(K) is in conflict with the Earth Movement Extension, and therefore its terms do not apply to the Earth Movement Extension. Tonti points to the language of the Extension which states:
1. COVERAGE EXTENSION-Subject to sublimit(s) of liability and deductible amount(s) shown elsewhere in this policy and to all other terms and conditions not in conflict herewith, this policy is extended to insure against direct physical loss to covered property on or at covered location(s) caused by earthquake (including aftershocks), earthquake sprinkler leakage, landslide, subsidence (including Mine Subsidence), sinkhole collapse, volcanic eruption or earth sinking, rising or shifting.
(Pl.'s Mem. Opp'n Am. Mot. Summ. 3., Ex. A-23) (emphasis added.) Tonti asserts that it makes no sense for the Earth Movement Extension to be subject to the policy exclusions because if it were, that would "take away coverage for one of the greatest risks of loss posed by subsidence" — damage to underground pipes. (Pl.'s Mem. Opp'n Am. Mot. Summ. 3., at 8.) The Court finds that argument to be without merit. The Earth Movement Extension specifically states that "this policy is extended to ensure against direct physical loss to covered property on or at covered location(s)." The Extension distinguishes between covered and uncovered property, limiting coverage only to that property which is covered by the policy. Since the Extension itself contains limiting language, Tonti's argument that the Extension is not subject to policy exclusions fails.
The Court finds that any claims by Tonti related to the damaged underground piping are explicitly excluded from coverage under the insurance contract. None of Tonti's alternative theories changes the fact that any expenses incurred in connection with repairing property excluded from coverage, i.e. pipes buried underground, are simply not recoverable under this insurance contract. Because all of the claims presented by Tonti are related to identifying, remedying, or replacing pipes which were not covered by the insurance policy, this Court finds that no reasonable trier of fact could find for Tonti. Because of the Court's ruling on the exclusion issue, it need not reach the prescription issue. Therefore, Travelers' motion for summary judgment is granted.
III. Conclusion
For the reasons stated above, the Court grants Travelers' motion for summary judgment and dismisses Tonti's claims with prejudice.