Opinion ID: 1209525
Heading Depth: 3
Heading Rank: 1

Heading: Nature of the Underlying Dispute

Text: The property owner characterized its arbitration counterclaim against Spirco as a breach of contract claim, but the substance of the property owner's claim was an allegation of property damage. The property-damage nature of the counter-claim was apparent to Spirco's attorney at the outset of the arbitration, apparent from the nature of the arguments presented in arbitration, and apparent from the arbitrators' findings. The arbitrators found that Spirco had completed the remediation contract and left the site in a clean condition. The arbitrators found further that the property owner's allegations related to asbestos not exposed by Spirco during Spirco's remediation of the site. Rather, the arbitrators found that other contractors accessed the site after Spirco left and that these other contractors were responsible for the asbestos contamination. The alleged damages of $4 million that the property owner sought from Spirco included the purported cost of clean-up, remediation, or destruction for a section of the property outside the scope of the original contract with Spirco. Ultimately, the property owner's claim was not simply a breach of contract claim limited to the task of finishing a job commensurate in scope with the original contract between Spirco and the property owner; it was a claim for property damages shown to be unrelated to the work under the contract. Further, we note that the property owner dismissed a separate bad-faith failure to pay claim against the surety before the surety incurred the bulk of its attorney and expert witness fees. Accordingly, the only claim against the surety that survived into the expensive and protracted arbitration was derivative of the property owner's claim against Spirco. It was not an independent bad-faith claim that might be viewed as more attenuated from the property damage claim. We believe that for coverage purposes in the instant case, then, the district court properly characterized the underlying arbitration claim as a claim for property damage. This conclusion is based on the property owner's factual assertions, the substance of the property owner's claims, and the arbitrators' findings rather than the label, breach of contract, that the property owner elected to attach to its claim. See Mo. Terrazzo Co. v. Iowa Nat'l Mut. Ins. Co., 740 F.2d 647, 650 (8th Cir. 1984) (applying Missouri law and looking to the facts behind a claim (property damage) rather than the label attached to a claim (diminution in value) to determine that insurance coverage existed for the claim); see also Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1, 15 (Tex.2007) (stating that the duty to defend is not determined by the labels attached to the underlying claims); Cont'l Ins. Co. v. Bones, 596 N.W.2d 552, 559 (Iowa 1999) (We start with the observation that coverage is controlled by the actual claim asserted against the insured, not the label the claimant chooses to put on his or her claim.); Auto-Owners Ins. Co. v. Toole, 947 F.Supp. 1557, 1564 (M.D.Ala.1996) (Nevertheless, this court declines to adopt any broad holding that claims sounding in contract are not occurrences. Rather, the court agrees with the Supreme Court of Vermont that, in determining whether there is coverage, the court should look to the specific `kind of ... claim' being asserted, regardless as to whether it is labeled a contract claim, a tort claim, or whatever, and the `purpose of the general liability policy' from which coverage is sought. (quoting City of Burlington v. Nat'l Union Fire Ins. Co., 163 Vt. 124, 655 A.2d 719, 722 (1994))); First Wyo. Bank, N.A., Jackson Hole v. Cont'l Ins. Co., 860 P.2d 1094, 1099-1101 (Wyo 1993) (rejecting a duty to defend based on the substance rather than the label of claims and stating, Although there is a claim in the complaints labeled `NEGLIGENCE,' the facts in the complaint do not demonstrate alleged loss resulting from negligence or alleged loss `caused by an occurrence,' but instead demonstrate alleged losses resulting from a breach of contract).