Court Opinion

ID: 1022000
Source: CourtListenerOpinion
Date Created: 2013-07-04 23:15:20.69513+00
Date Added: 2024-06-11T12:15:31.929368
License: Public Domain

UNPUBLISHED

                    UNITED STATES COURT OF APPEALS
                        FOR THE FOURTH CIRCUIT

                             No. 05-2235

THE TRAVELERS INDEMNITY COMPANY,

                                              Plaintiff - Appellee,

           versus

MILLER     BUILDING       CORPORATION;     PVC,
INCORPORATED,

                                           Defendants - Appellants.

Appeal from the United States District Court for the Eastern
District of North Carolina, at Wilmington. Terrence W. Boyle,
District Judge. (CA-02-41)

Argued:   February 2, 2007                  Decided:   March 7, 2007

Before WILKINSON, MOTZ, and TRAXLER, Circuit Judges.

Affirmed by unpublished per curiam opinion.

ARGUED: Daniel K. Bryson, LEWIS & ROBERTS, P.L.L.C., Raleigh, North
Carolina, for Appellants. Lee Hedgecock Ogburn, KRAMON & GRAHAM,
Baltimore, Maryland, for Appellee. ON BRIEF: Geoffrey S. Proud,
LEWIS & ROBERTS, P.L.L.C., Raleigh, North Carolina, for Appellants.
Steven M. Klepper, KRAMON & GRAHAM, Baltimore, Maryland, for
Appellee.

Unpublished opinions are not binding precedent in this circuit.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

       This   declaratory     judgment     action   centers   around    the

construction of a hotel and the insurance coverage that existed for

losses caused by defects in the building.             The district court

determined the extent of coverage under the insurance policy prior

to completion of arbitration proceedings between the builder and

the owner of the hotel.       We affirm.

                                    I.

       Miller Building Corporation (“Miller”) was hired by PVC, Inc.

to build a hotel at Wrightsville Beach, North Carolina.                Upon

completion of the work, PVC asserted that numerous deficiencies

existed and stopped payments to Miller.        In September 2000, Miller

initiated arbitration proceedings against PVC, and PVC responded

with    counterclaims   for    construction    defects   against   Miller.

Because Travelers Indemnity Company (“Travelers”) had issued a

commercial general liability policy to Miller for the time period

at issue, Travelers became involved in the controversy and filed

the present declaratory judgment action.

       Initially, Travelers denied it had any duty to defend Miller

because of the nature of the claims being made by PVC.                  We

ultimately resolved this issue in favor of Miller, recognizing the

breadth of an insurer’s responsibility to defend its insured and

the existence of at least one claim for which coverage could exist.

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See Travelers Indem. Co. v. Miller Bldg. Corp., 97 F.App’x 431 (4th

Cir. 2004).

     Upon return to the district court after our ruling, Travelers

filed for summary judgment, seeking a decision that any coverage

Travelers might have was limited “to physical injury to tangible

property separate from the hotel and that was delivered to Miller

in an undamaged state.”   J.A. 38.    Miller opposed summary judgment

and urged the district court to stay the court proceedings until

the pending arbitration could be completed.

     The district court found no reason for delay and issued its

order.   The district court determined that:

     Travelers’ coverage extends to damage to property
     separate from the hotel that was not subjectively
     foreseeable to Miller Building.     Travelers’ coverage
     includes consequential damages for the loss of use of
     property separate from the hotel, unless Miller building
     failed to perform its construction contract with PVC
     according to its terms.    Travelers’ coverage does not
     include consequential damages from the delay in opening
     the hotel.

J.A. 82.   From this decision the present appeal followed.

                                II.

     The Declaratory Judgment Act provides that in a case within

the district court’s jurisdiction, the court “may declare the

rights and other legal relations of any interested party seeking

such declaration, whether or not further relief is or could be

sought.”   28 U.S.C.A. § 2201(a) (West 2006).        The Declaratory

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Judgment Act is “an enabling Act, which confers a discretion on the

courts rather than an absolute right upon the litigant.” Wilton v.

Seven Falls Co., 515 U.S. 277, 287 (1995) (internal quotation marks

omitted). “[A] declaratory judgment action is appropriate when the

judgment will serve a useful purpose in clarifying and settling the

legal relations in issue, and . . . when it will terminate and

afford relief from the uncertainty, insecurity, and controversy

giving rise to the proceeding.”      Centennial Life Ins. Co. v.

Poston, 88 F.3d 255, 256 (4th Cir. 1996) (internal quotation marks

omitted).   We have long recognized the discretion afforded to

district courts in determining whether to grant declaratory relief.

Thus we review the district court’s decision for an abuse of

discretion. See Penn-America Ins. Co. v. Coffey, 368 F.3d 409, 412

(4th Cir. 2004).

     Miller argues first that the district court should not have

defined the scope of the insurance coverage until the cause and

extent of PVC’s damage had been fleshed out and determined in the

arbitration proceedings.   Under the circumstances of the case, we

find no error in the decision of the district court to resolve the

coverage issue presented in this declaratory judgment action.

     As a general practice, courts wait to decide coverage until

litigation or agreement has determined the particular damage for

which an insured will be responsible.    See e.g., Waste Mgmt. of

Carolinas, Inc. v. Peerless Ins. Co., 340 S.E.2d 374, 377 (N.C.

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1986) (“An insurer’s duty to defend is ordinarily measured by the

facts as alleged in the pleadings; its duty to pay is measured by

the facts ultimately determined at trial.”); Wayne Bros., Inc. v.

North River Ins. Co., 2003 WL 22213615 (M.D.N.C. 2003) (concluding

that the circumstances were not ripe for a declaration of the scope

of indemnification because issues involving causation were still

outstanding).      When   the   separate   proceeding   has   defined   the

damages, the parties resort to the insurance policy to see whether

all or part of that damage is covered by insurance.            Waiting to

decide the scope of indemnification is not, however, a hard and

fast rule, and there may indeed be circumstances where the issues

in the case and the development of the case, along with interests

in judicial economy, present a situation where the court can

materially advance the litigation by deciding the legal outlines of

coverage prior to the completion of litigation over particular

items of damage.

     Here, the parties had already been to this court once on the

question of whether Travelers’ policy covered any of the damages

alleged in PVC’s complaint.       Our opinion acknowledged that North

Carolina law would severely limit the types of damage for which the

insured would be indemnified, but we identified a narrow claim for

which coverage might exist and found it sufficient to trigger a

duty to defend.    See Travelers, 97 F.App’x at 434-35.       While we did

not technically decide anything beyond the duty to defend question,

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we implicitly recognized that a vast majority of the alleged

damages would not be covered by the policy.

       After our ruling, the North Carolina Court of Appeals further

clarified the coverage question through its decision in Production

Systems Inc. v. Amerisure Insurance Co., 605 S.E.2d 663 (N.C. Ct.

App.   2004).      This   ruling,   discussed      infra,    provided   further

guidance to the parties and the district court as to what the

coverage limitations were in similar circumstances for the type of

damages here alleged. Consequently, at the time the district court

made its ruling, the law controlling the insurance dispute between

Miller and Travelers was fairly well defined.

       Additionally, as it arose in this case, the indemnification

issue was a narrow, purely legal question, and in light of our

prior opinion and the North Carolina Court of Appeals decision in

Production Systems, the proper answer to the question raised by

Travelers was relatively clear.            Because no substantive progress

had been made in the arbitration proceedings between Miller and

PVC, a prompt ruling on the scope of Travelers’ indemnification

obligation might also provide some guidance and structure for the

arbitration proceedings.

       For   all   of   these   reasons,    we   believe    the   circumstances

permitted the district court in the exercise of its discretion to

define the limits of coverage through Travelers’ motion for summary

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judgment even though there had not been a final determination of

the exact damages for which Miller might be responsible.

                                III.

       Having decided that the district court properly reached the

coverage question, we now consider the issue on its merits.    The

district court held that Travelers’ policy covered damage to

property that was separate from the hotel if the occurrence of the

damage was not subjectively foreseeable to Miller.   Miller argues

that the district court misinterpreted our prior opinion and erred

in relying on it to reach a decision on the total coverage

question.    Miller points out that our previous ruling did not

define the limits of coverage but only determined whether there was

an allegation of potentially covered damage to invoke Travelers’

duty to defend.   We believe Miller unduly limits the import of our

prior decision.    Because a duty to defend arises only where the

allegations of a complaint establish a covered claim, it was

necessary for us to determine the scope of coverage provided by

Travelers’ policy.

       The policy issued by Travelers defined “property damage” as

“[p]hysical injury to tangible property, including all resulting

loss of use of that property . . . [and] [l]oss of use of tangible

property that is not physically injured.” Travelers, 97 F.App’x at

433.    The policy limited payment to “those sums that the insured

                                 7
becomes legally obligated to pay as damages because of . . .

‘property damage,’” so long as the “‘property damage’ is caused by

an ‘occurrence.’”     Id.   We concluded in our prior opinion that “to

the extent that [PVC] is seeking to recover from Miller the cost of

correcting Miller’s faulty workmanship, the claims do not fall

within the scope of the policy issued by Travelers, because faulty

workmanship does not constitute ‘property damage.’”              Id. at 434

(citing Hobson Constr. Co. v. Great Am. Ins. Co., 322 S.E.2d 632,

635 (N.C. Ct. App. 1984)).       Thus, the only claims that could fall

within the definition of “property damage,” as we construed North

Carolina law, were those that alleged damages to the owner’s own

property that was separate from the hotel.          Our prior opinion thus

provided guidance on the indemnification question, and the district

court properly applied the formulation we set out in our opinion.

     Moreover, the North Carolina Court of Appeals has since our

first opinion adopted the same analysis.                See Prod. Sys., 605

S.E.2d 663. The court there examined a situation where a contractor

failed to properly install components of a oven feed line system

causing    damages   arising   from   the   cost   of   repairing   the   line

systems.    The court noted that “[t]he term ‘property damage’ in an

insurance policy has been interpreted to mean damage to property

that was previously undamaged, and not the expense of repairing

property or completing a project that was not done correctly or

according to contract in the first instance.”              Id. at 666.     The

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court further stated that “under the precedent of Hobson, [322

S.E.2d   632,]    ‘property    damage’       does   not   refer    to   repairs   to

property necessitated by an insured’s failure to properly construct

the property to begin with.”          Id.     Thus, the court concluded that

“there was no ‘property damage’ to the oven feed line systems

because the only ‘damage’ was repair of defects in, or caused by,

the faulty workmanship in the initial construction.”                    Id. at 667.

     The state court’s approach in Production Systems mirrors the

approach    we    took   in   our   prior    opinion.     The     district   court,

therefore, committed no error when issuing the declaratory relief

sought by Travelers.

                                       IV.

     Accordingly, we affirm the district court’s grant of summary

judgment.        Because we find no error in the district court’s

decision to grant declaratory relief to Travelers, we conclude the

court did not err in denying Miller’s motion for a stay.

                                                                           AFFIRMED

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