Court Opinion

ID: 1023000
Source: CourtListenerOpinion
Date Created: 2013-07-04 23:31:29.712687+00
Date Added: 2024-06-11T12:21:42.604598
License: Public Domain

UNPUBLISHED

                    UNITED STATES COURT OF APPEALS
                        FOR THE FOURTH CIRCUIT

                             No. 06-1563

ONEBEACON INSURANCE COMPANY;       PENNSYLVANIA
GENERAL INSURANCE COMPANY,

                                            Plaintiffs - Appellees,

           versus

METRO READY-MIX, INCORPORATED,

                                              Defendant - Appellant.

Appeal from the United States District Court for the District of
Maryland, at Baltimore. Andre M. Davis, District Judge. (1:05-cv-
01530-AMD)

Argued:   May 24, 2007                      Decided:   July 13, 2007

Before WILLIAMS, Chief Judge, and WIDENER and SHEDD, Circuit
Judges.

Affirmed by unpublished per curiam opinion.

ARGUED: Brian S. Jablon, SALTZMAN & JABLON, L.L.C., Ellicott City,
Maryland, for Appellant.   Stacey Ann Moffet, ECCLESTON & WOLF,
Baltimore, Maryland, for Appellees. ON BRIEF: Larry L. Puckett,
Jr., ECCLESTON & WOLF, Baltimore, Maryland, for Appellees.

Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:

     Appellant Metro Ready-Mix, Inc. (Metro) is the named insured

on a commercial general liability policy (the policy) issued by

Appellees OneBeacon Insurance Company and Pennsylvania General

Insurance Company (collectively “OneBeacon”).     OneBeacon sought a

declaratory judgment in district court that it was not required to

cover Metro for losses incurred as a result of a defective product

supplied by Metro to a contractor.       The district court granted

summary judgment to OneBeacon.        For the following reasons, we

affirm.

                                 I.

     On April 24, 2003, Metro entered into a supply contract with

Berkel & Company Contractors (Berkel) to supply concrete for

various of Berkel’s construction projects.     That same day, Berkel

issued an order to Metro for 1600 cubic yards of grout1 for use on

a parking garage construction job in Baltimore, Maryland.    Berkel

constructed piles by first drilling sixty to seventy feet into the

earth and placing steel rebar in the holes.   Berkel then filled the

holes with grout manufactured by Metro.    After the grout hardened,

     1
      Grout is a construction material used to connect sections of
pre-cast concrete, fill voids, and seal joints. Grout is generally
composed of a mixture of water, cement, sand and sometimes color
tint. It is applied as a thick liquid and hardens over time, much
like mortar.

                                 2
other contractors constructed concrete pile caps and columns upon

the piles.

     When Metro began manufacturing the grout, it inadvertently

mixed the wrong ratio of water to cement, thereby making the grout

defective and weaker than normal.   To compound matters, Metro was

not aware of the defect and delivered the grout to Berkel.   After

the caps and columns were installed on top of the grout, however,

Berkel learned that the grout’s strength was significantly lower

than was specified.

     As a result of the defective grout, Chesapeake Contracting

Group (one of Berkel’s contractors) was required to take remedial

steps.   These steps included demolishing certain portions of the

new construction and installing new pilings with new grout.

Berkel paid Chesapeake $195,644.00 for the costs of the repairs.

Berkel also incurred an additional $89,386.25 in costs, for a total

loss of $285,040.25 as a result of the defective grout.

     Berkel refused to pay Metro for unpaid invoices in the amount

of $241,254.00 because of the defective grout.    On May 6, 2004,

Metro sued Berkel in state court.     Berkel filed a counterclaim

against Metro in August 2004, seeking reimbursement for the costs

that it incurred as a result of the defective grout.

     Metro notified OneBeacon of the counterclaim, but OneBeacon

refused to provide coverage for the claim.    Metro claims that it

expected OneBeacon to provide coverage for the claim because

                                3
OneBeacon’s predecessor in interest had provided coverage for a

similar claim under the previous year’s policy.

     On March 14, 2005, Metro and Berkel settled their dispute.

Metro agreed to issue “a credit memorandum in the full amount of

all of Metro’s invoices to Berkel that are unpaid as of the date of

this settlement . . . , and such Credit shall constitute full and

final payment for the entirety of Berkel net claim.”             (J.A. at

161.)2   In effect, Metro agreed to forego payment for the supplied

grout so long as Berkel did not seek payment for its costs incurred

in repairing the defective grout. Thus, no actual payment was made

by Metro.     The parties also agreed to dismiss with prejudice all

claims against one another.

     On June 8, 2005, OneBeacon -- unaware of the settlement

between Metro and Berkel -- filed a complaint for declaratory

judgment against Metro, seeking a declaration that Metro was not

entitled to coverage under the policy.            After learning of the

settlement,    OneBeacon   filed   an   amended   complaint,   seeking   an

additional declaration that it was not obligated to indemnify Metro

for the claims asserted in Berkel’s counterclaim because Metro did

not have to pay any damages.

     On November 7, 2005, OneBeacon filed a motion for summary

judgment. The district court awarded summary judgment to OneBeacon

     2
      Citations to the J.A. refer to the joint appendix filed with
this appeal.

                                    4
on April 19, 2006.    The district court found that the dispute was

moot with respect to the indemnification question because of the

settlement.   With respect to the coverage question, the district

court found that there was no “occurrence” under the policy because

any damage caused by the defective grout did not constitute an

“accident.” The district court, however, failed to address Metro’s

argument that OneBeacon was estopped from denying coverage because

it had provided coverage on a similar claim the previous year.

     Metro timely appealed.    We have jurisdiction pursuant to 28

U.S.C.A. § 1291 (West 2006).

                                 II.

     We review de novo the district court’s grant of summary

judgment in favor of OneBeacon, applying the same standard as did

the district court.     See Laber v. Harvey, 438 F.3d 404, 415 (4th

Cir. 2006) (en banc).     Summary judgment is appropriate when “the

pleadings, depositions, answers to interrogatories, and admissions

on file, together with the affidavits, if any, show that there is

no genuine issue as to any material fact and that the moving party

is entitled to judgment as a matter of law.”   Fed R. Civ. P. 56(c);

see Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986).     Because

the facts are undisputed and we are presented with a purely legal

question of insurance coverage, the case is ripe for summary

judgment.

                                  5
       Metro contends that the district court erred in finding that

there was no “occurrence” under the policy and in failing to

address Metro’s estoppel claim.                To answer these questions, we

apply Maryland’s substantive law regarding the interpretation of an

insurance policy.        French v. Assurance Co. of Am., 448 F.3d 693,

700 (4th Cir. 2006).          We address each of Metro’s arguments in turn.

                                         A.

       “Provisions in insurance policies are to be interpreted like

those of any other contract.” Hartford Fire Ins. Co. v. Himelfarb,

736 A.2d 295, 300 (Md. 1999).           Maryland law does not require that

an insurance policy be strictly construed against the insurer;

rather,     courts     must   give   “effect    [to]   the   intentions   of   the

parties.” Nationwide Ins. Co. v. Rhodes, 732 A.2d 388, 390 (Md. Ct.

Spec. App. 1999).

       Under Maryland law, there is an occurrence under a commercial

general liability (CGL) policy only upon the happening of an

accident.     Lerner Corp. v. Assurance Co. of Am., 707 A.2d 906, 911

(Md. Ct. Spec. App. 1998).           “While [CGL policies generally] do not

define the term ‘accident,’ controlling Maryland case law provides

that   an   act   of    negligence    constitutes      an    ‘accident’   under   a

liability insurance policy when the resulting damage takes place

without the insured’s actual foresight or expectation.”                   French,

448 F.3d at 698.

                                         6
       In French, we addressed an insurance question under Maryland

law.    Jeffco Development Corporation constructed a single-family

home for the Frenches.         Jeffco finished the exterior of the home

with a synthetic stucco system known as EIFS, which was installed

by a contractor.        Id. at 696, 703.          Years later, the Frenches

discovered extensive moisture and water damage to the walls of

their home, which resulted from the defective EIFS.             The Frenches

filed suit against Jeffco and the question on appeal was whether

Jeffco’s insurer needed to cover the claim under their CGL policy.

Id. at 696.

       Interpreting Maryland law, we concluded that the insurer was

required to cover any unexpected property damage that occurred to

something other than the defective object as a result of the

defective object, but the insurer was not required to cover any

damage to the defective object itself:

       [I]f the defect causes unrelated and unexpected property
       damage to something other than the defective object
       itself, the resulting damages . . . may be covered. For
       example, if a collapse of [a] veneer had injured a user
       of the facility or damaged property other than the veneer
       itself, these may well be covered.

Id. at 702 (internal quotation marks and alterations omitted).

       Thus,    when   there   is    no   property   damage   “to   otherwise

nondefective parts of [a] building,” there is no “accident” or

“occurrence.”      Id. at 703.       In other words, coverage exists only

“to    remedy   unexpected     and   unintended    property   damage   to   the

                                          7
contractor’s otherwise nondefective work-product caused by the . .

. defective workmanship.”   Id. at 706.

       OneBeacon -- focusing on this distinction -- contends that

Metro’s defective grout did not damage any other property.3    Metro,

on the other hand, argues that the defective grout effectively

damaged other property because the caps and columns that were

placed on top of the grout were required to be removed.       Because

that property had to be destroyed to repair the defect, Metro

contends it represents unintended property damage.    The district

court rejected this argument, finding it inconsistent with Maryland

law.       We agree.

       In Woodfin Equities Corp. v. Harford Mutual Insurance Co., a

hotel hired the insured to install an HVAC system.    678 A.2d 116

(Md. Ct. Spec. App. 1996), overruled in part on procedural grounds,

687 A.2d 652 (Md. 1997).4     The HVAC system was defective, and

       3
      In light of the settlement between Metro and Berkel,
OneBeacon further contends that Metro suffered no damages under the
policy because “the amount that Metro now seeks coverage for has
nothing to do with damage to property, but is actually the amount
of the invoices for Metro’s own product, which Berkel refused to
pay.” (Appellee’s Br. at 28.) Although this argument has some
intuitive appeal, we assume, for the sake of argument, that Metro
suffered damages under the policy.
       4
      The Maryland Court of Special Appeals has since explained the
Court of Appeals’ partial reversal of Woodfin as “based on the
failure of the trial court to issue a declaratory judgment; it had
merely dismissed the suit. What was affirmed was the holding that
(1) Woodfin had standing to bring the declaratory judgment action
against Hartford Mutual and (2) that the insurance policy in
question did cover certain damages sustained by Woodfin.” Howard
v. Montgomery Mut. Ins. Co., 805 A.2d 1167, 1172 (Md. Ct. Spec.

                                 8
carpeting and drywall had to be destroyed to remedy the defect.

Id. at 121, 131.   The insured sought coverage for the costs of the

carpeting and drywall.   The Maryland court found that the insurer

was not required to cover the property damage because pulling up

carpeting and breaking through drywall to access the HVAC system

was not property damage, but rather the “cost incurred in replacing

and repairing the HVAC systems.”      Id. at 132 n.8.    The court

further explained:   “Voluntarily pulling up carpeting or breaking

through dry-wall to access the HVAC units is not property damage .

. . . Even if it could be considered ‘property damage,’ we would

hold that it was not caused by an ‘occurrence,’ because the so-

called damage was not accidental.”   Id.

     Under this analysis, we agree with the district court that

there was no occurrence under the policy.     The caps and columns

that had to be removed or destroyed to remedy the defect in Metro’s

product are on all fours with the carpeting and drywall that had to

be removed or destroyed in Woodfin to remedy the defect in the HVAC

units.

     In French, we explained that if a product does not meet the

contract requirements of a sale, it should not be unforseen that

“the purchaser will be entitled to correction of the defect.”

App. 2002).    Most important to our inquiry, Maryland courts
continue to find “Woodfin instructive on the interpretation of CGL
policies generally.” Lerner Corp. v. Assurance Co. of Am., 707
A.2d 906, 910 (Md. Ct. Spec. App. 1998).

                                 9
French, 448 F.3d at 701.         Here, Metro put forth no evidence showing

that the pile caps and columns that had to be removed were damaged

by Metro’s defective grout.            Instead, any harm to the caps and

columns occurred as a result of replacing the defective grout.

This    damage   was    not    unforseen     insofar   as   the    term    has   been

interpreted with respect to CGL policies under Maryland law.

Moreover,      that    understanding    is    consistent     with    longstanding

principles of insurance law:

       Replacement and repair costs are to some degree within
       the control of the insured. They can be minimized by
       careful purchasing, inspection of material, quality
       control and hiring policies. If replacement and repair
       costs were covered, the incentive to exercise care or to
       make repairs at the least possible cost would be lessened
       since the insurance company would be footing the bill for
       all scrap. Replacement and repair losses tend to be more
       frequent than losses through injury to other property,
       but replacement and repair losses are limited in amount
       since the greatest loss cannot exceed the cost of total
       replacement.   If the insured will stand these losses,
       insurance can be provided more cheaply since the company
       will be freed from administering many small claims for
       repairs, and it can set a rate for the more unusual risk
       of injury to property other than the contractor's work or
       product. This risk can be the hazardous one since there
       are no natural limitations on the damage the contractor
       might do to a homeowner's or a neighbor's property.

Stewart Macaulay, Justice Traynor and the Law of Contracts, 13

Stan. L. Rev. 812, 825-26 (1961).

       Any damage done to the pile caps and columns while remedying

Metro’s defective grout cannot be deemed caused by an occurrence

under    the   CGL    policy    “because     the   so-called      damage   was   not

accidental.”     Woodfin, 678 A.2d at 132 n.8.          Just as a company must

                                        10
be presumed to foresee that it will be forced to pay for any

defects in its own property, the company must also foresee that it

will be forced to pay for incidental costs that are incurred in

remedying those defects.     Accordingly, under Maryland law, there

was no occurrence, and therefore, Metro is not covered under the

policy for this event.

                                  B.

     Metro further contends that even if its damages were not

covered under the language of the policy, OneBeacon was estopped

from denying coverage.     The basis for Metro’s contention is that

OneBeacon’s predecessor in interest had previously provided Metro

coverage under a similar scenario.

     In 2002, Metro provided defective concrete for a project, and

that concrete was used in fabricating building columns.     Metro’s

client was forced to demolish the columns and rebuild them.

OneBeacon’s predecessor in interest provided coverage, stating that

“because the defective columns encased the ‘work and product’ of

others, there is in fact resulting property damage. . . .   The only

damages not covered would be the cost of supplying new cement.”

(J.A. at 277.)   Metro now argues that it renewed its policy with

OneBeacon in reliance upon the predecessor in interests’ actions

granting coverage on that claim, and OneBeacon should therefore be

estopped from denying coverage.

                                  11
     Although Metro clearly presented this argument below, the

district   court,     for     some    reason,      failed     to    address       it.

Nevertheless, we address the matter de novo, as this is an appeal

of a grant of summary judgment and a remand to the district court

for initial consideration of this issue “would be an unnecessary

waste of judicial and litigant resources.”                  O’Reilly v. Bd. of

Appeals, 942 F.2d 281, 284 (4th Cir. 1991).

     As a general matter, Maryland law does not recognize estoppel

as a means of creating a new contract.                  In Sallie v. Tax Sale

Investors, Inc., for example, the Maryland court explained that,

under Maryland law, “waiver or estoppel may occur only when it does

not create new coverage; an extension of coverage may only be

created by a new contract.”          814 A.2d 572, 575 (Md. Ct. Spec. App.

2002) (internal quotation marks omitted).               “[I]f the loss was not

within the coverage of the policy contract, it cannot be brought

within   that   coverage     by   invoking   the    principle       of   waiver   or

estoppel. Waiver or estoppel can only have a field of operation

when the subject-matter is within the terms of the contract."

Prudential Ins. Co. of Am. v. Brookman, 175 A. 838, 840 (Md. 1934).

     Metro, however, argues that there are exceptions to the

general rule.     Specifically, Metro relies on an exception outlined

in   Nationwide    Mutual     Insurance      Co.   v.    Regional        Electrical

Contractors,    680   A.2d    547     (Md.   Ct.   Spec.     App.    1996).       In

Nationwide, one of the insured’s switchboards exploded.                   A company

                                        12
representative immediately contacted Nationwide, and Nationwide

told the company that it would “take care of it” because “that’s

why you have insurance.”          Id. at 549.         In reliance on those

specific statements, the company made the repairs.                 Thereafter,

Nationwide denied coverage.            The court held that Nationwide was

estopped from denying coverage because Nationwide told the company

that    it   was    covered,     and     because     of   reliance    on    that

misrepresentation, the insured had repaired damage and incurred

additional costs.       Id. at 554.

       Nationwide thus presented a factual scenario quite different

from this case.      In Nationwide, the agent’s statements were made

“contemporaneously with the transaction to which [they] relate[d].”

Id. at 553.        Thus, Nationwide’s specific comments at the time

“induced Regional to proceed with the repairs.”              Id.     Nationwide

was therefore estopped from denying coverage because it induced

Regional to incur those costs. Nationwide’s statements resulted in

a change -- a prejudicial change -- in Regional’s conduct.

       Here, on the other hand, OneBeacon did nothing to induce Metro

to supply faulty concrete or to pay for the results of the defects.

Moreover, OneBeacon never once suggested that it was going to

provide coverage to Metro for this incident. OneBeacon did nothing

to prejudicially change Metro’s conduct.             The facts are therefore

meaningfully different from the facts in Nationwide.               Accordingly,

the    exception   articulated    in    Nationwide    does   not   apply.    We

                                        13
therefore apply the general rule baring extension of coverage based

on estoppel and reject Metro’s opaque estoppel argument.

                               III.

     For the foregoing reasons, we affirm the district court’s

grant of summary judgment to OneBeacon.

                                                           AFFIRMED

                                14