Emp'rs Mut. Cas. Co. v. N. Am. Specialty Flooring, Inc.

424 F.Supp.3d 958

EMPLOYERS MUTUAL CASUALTY COMPANY and Illinois Emcasco Insurance Company, Plaintiffs,

v.NORTH AMERICAN SPECIALTY FLOORING, INC., Sports Surfacing, Inc., S.C. Anderson, Inc., and Koster American Corporation dba Koster USA, Defendants.

North American Specialty Flooring, Inc. and Sports Surfacing, Inc., Counter-Claimants,

v.Employers Mutual Casualty Company and Illinois Emcasco Insurance Company, Counter-Defendants.

No. 1:19-cv-00544-DAD-JLT

United States District Court, E.D. California.

Signed December 27, 2019

Lisa Darling-Alderton, Woolls Peer Dollinger & Scher, APC, Los Angeles, CA, for Plaintiffs/Counter-Defendants.

Arthur Jeffrey Grebow, Grebow & Rubin, LLP, Encino, CA, Ray Thomas Mullen, Law Office of Ray T. Mullen, Bakersfield, CA, Donna E. Moore, Diederich & Associates, San Diego, CA, for Defendants.

Arthur Jeffrey Grebow, Grebow & Rubin, LLP, Encino, CA, for Counter-Claimants.

ORDER GRANTING PLAINTIFFS AND COUNTER-DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

Dale A. Drozd, UNITED STATES DISTRICT JUDGE

This matter is before the court on the motion for summary judgment brought by plaintiffs and counter-defendants Employers Mutual Casualty Company and Illinois Emcasco Insurance Company (collectively, "EMC"¹ ). (Doc. No. 31.) A hearing on the motion was held on December 3, 2019. Attorney Lisa Darling-Alderton appeared telephonically on behalf of EMC, and attorney Arthur Grebow appeared telephonically on behalf of defendants and counter-claimants North American Specialty Flooring and Sports Surfacing, Inc. (collectively, "Sports Surfacing"² ). Having considered the parties' briefs and oral arguments, and for the reasons set forth below, the court will grant EMC's motion for summary judgment.

BACKGROUND

In this declaratory relief action EMC seeks a declaration from this court that, as a matter of law, the damages sought against Sports Surfacing by a third-party in an underlying state court action are not covered under the insurance policies EMC issued to Sports Surfacing, and that EMC therefore has no duty to defend or indemnify Sports Surfacing in that underlying state court action. (See Doc. No. 2.) Sports Surfacing counter-claims that EMC has a duty to defend and indemnify it in the underlying action pursuant to the insurance policies that EMC issued it and seeks a declaration stating as much. (See Doc. No. 16.)

The material facts of this case are undisputed and, as relevant to the pending motion, are set forth below.

A. The Relevant Parties.

Defendant Sports Surfacing is a contractor that "install[s] flooring and related products, including rubber sports flooring." (Doc. No. 31 at 7.) EMC provided insurance coverage to Sports Surfacing under various insurance policies (collectively, the "EMC insurance policies"). (Doc. No. 2 ("Compl.") at 2–3.) EMC is moving for summary judgment against each named defendant, but only Sports Surfacing has opposed the motion. Other named defendants—such as defendants S.C. Anderson, Inc. ("Anderson") and Koster American Corporation dba Koster USA ("Koster")—do not oppose the pending motion for summary judgment. Moreover, several entities who were initially named as defendants in this action have been dismissed after agreeing to be bound by the outcome of this litigation. (See Doc. Nos. 23, 27.) Included amongst that group are Roy's Flooring, Inc. and Jose Roy Garcia, formerly dba Roy's Flooring, (collectively "Roy's Flooring") who were subcontracted into the project that gave rise to the underlying lawsuit, as well as Navigators Insurance Company ("Navigators"), an insurance company that insured Roy's Flooring. (Compl. at 12–13; Doc. No. 31-2, Ex. A) (Stipulation of Facts and Evidence Admissible for Cross Motions for Summary Judgment³ ("UF") at ¶¶ 22, 23; Doc. Nos, 23, 27.)

B. The Facts Giving Rise to the Underlying State Court Action.

On May 15, 2017, defendant Anderson, a general contractor, entered into a written contract with California State University, Bakersfield ("CSU Bakersfield") for a construction project referred to by the parties as the "Student Recreation Center project." (UF at ¶ 22; see also Doc. No. 31-2 at 259.) On June 18, 2007, Anderson entered into a written subcontract with Roy's Flooring, whereby the latter agreed to "provide all labor, material, and equipment necessary to furnish and install wood flooring, rubber flooring, and sports flooring" for the Student Recreation Center project. (UF at ¶ 23.) At some point prior to the rubber flooring being installed in the Student Recreation Center's fitness room, it was discovered that excessive moisture was passing through the concrete slab upon which the rubber flooring was to be installed, requiring the application of a concrete sealant. (Id. at ¶ 25.) On January 8, 2009, Roy's Flooring entered into a written subcontract with defendant Sports Surfacing, whereby Sports Surfacing agreed to obtain and apply a specific sealant produced by defendant Koster. (Id. at ¶ 24.) Roy's Flooring subcontracted with Sports Surfacing because Roy's Flooring was not a "certified" installer of Koster products and Sport Surfacing asserted that it had the proper certification. (Id. ; see also Doc. No. 31-2 at 260.) On July 15, 2009, Anderson and Roy's Flooring executed a "change order," whereby Roy's Flooring agreed to "provide all labor, material, and equipment necessary to install moisture sealer in" the fitness room and running track at the Student Recreation Center. (UF at ¶ 23.) Sports Surfacing installed a concrete sealant product manufactured by Koster to the concrete slab and then installed the rubber flooring. (Id. at ¶ 25.) The Student Recreation Center project was completed on or about August 12, 2009. (Id. at ¶ 26.)

In or around February 2016, CSU Bakersfield notified defendant Anderson that the rubber flooring in the Student Recreation Center's fitness room had failed and needed to be removed and replaced. (Id. at ¶ 27.) Thereafter, representatives from CSU Bakersfield, Anderson, Roy's Flooring, and Sports Surfacing (and possibly Koster) scheduled and conducted a meeting "to discuss what needed to be done to effectuate repairs or replacement of the flooring." (Doc. No. 31-2 at 265–66.) "It was determined at the meeting that core samples and analysis testing was necessary in order to ascertain the cause of the failure, the extent of the damage[,] and the best method for correcting the problem." (Id. at 266.) After samples were taken and tests were conducted, it was revealed that an insufficient layer of Koster sealant was applied, causing moisture to permeate through to the floor and causing it to fail. (Id. at 261, 266.) "The only recommended means to remedy the condition [wa]s to remove the floor and sealant, re-level the floor and replace the flooring." (Id. at 261.)

On November 8, 2016, counsel for Anderson reached out to Roy's Flooring, Sports Surfacing, and Koster via letters to notify them that CSU Bakersfield "ha[d] made a final demand on Anderson to commence the requisite corrective action ... and to do so during the next semester break scheduled for December 15, 2016 through January 22, 2017." (Id. at 261–62, 266.) Anderson in turn demanded that Roy's Flooring and its subcontractors, including Sports Surfacing, "confirm [their] respective intent and ability to immediately proceed with the removal and replacement of the defective flooring during the suggested period noted above or to refund to Anderson all sums previously paid to [them] ... for the defective flooring." (Id. at 262.) Anderson's letter warned Roy's Flooring and Sport Surfacing that their failure to timely comply with its demand would result in Anderson "undertak[ing] its own corrective action through an alternate subcontractor and suppliers and ... seek[ing] to recover all expenses and damages caused by [their] refusal to perform that corrective work ...." (Id. )

Ultimately, however, CSU Bakersfield removed and replaced the entire flooring in the Student Recreation Center's fitness room, and thereafter back-charged Anderson in the amount of $229,345.71 for the costs that it incurred in doing so. (Id. at 395.) On July 19, 2017, Anderson sent another letter to Roy's Flooring, Sports Surfacing, and Koster, demanding that they reimburse Anderson for the amount that CSU Bakersfield had back-charged it. (Id. ) On October 24, 2017, Anderson informed Roy's Flooring, Sports Surfacing, and Koster by way of another letter that it had not received a response to its July 19, 2017 correspondence and that it planned on filing a lawsuit against the subcontractors within the next ten days unless payment was received by Anderson within that timeframe. (Id. at 398.)

C. The Underlying State Court Action and Subsequent Tenders to EMC.

On November 16, 2017, defendant Anderson filed suit against Roy's Flooring, Sports Surfacing, and Koster in Kern County Superior Court, asserting claims for breach of contract, breaches of express and limited liability, and negligence (the "underlying action" or "Anderson Action"). (See Doc. No. 31-2, Ex. 18.) The complaint in the Anderson Action alleges that "core samples, testing and analysis of the ... Flooring were conducted ... [and] [t]he results ... determined that an insufficient layer of the Koster sealer was applied to the concrete floor of the ... Fitness Room which allowed and caused moisture to permeate through to the floor causing the adhesive to fail to remain bonded to the rubber flooring." (Doc. No. 31-2 at 448.) The state court complaint further alleges that "the primary causes of the above-described failure were ... [t]he Koster sealer layer was not applied thick enough or continuous enough to perform as an effective moisture mitigation membrane [and] ... the acrylic adhesive likely never cured effectively and did not develop initial bond strength." (Id. at 452.) Anderson seeks compensatory damages in the sum of $229,345.71, an award of consequential, incidental, and/or other appropriate damages in amounts...