Exel Direct, Inc. v. Nautilus Ins. Co.

314 F.Supp.3d 885

EXEL DIRECT, INC., Plaintiff,

v.NAUTILUS INSURANCE COMPANY, Defendant.

Case No. 2:16-cv-446

United States District Court, S.D. Ohio, Eastern Division.

Signed March 30, 2018

Sherilyn Pastor, Pro Hac Vice, McCarter & English, LLP, Newark, NJ, Robert Christopher Whipple, DHL Supply Chain (USA), Westerville, OH, for Plaintiff.

John F. McLaughlin, William Harold Fry, Rendigs Fry Kiely & Dennis LLP, Cincinnati, OH, for Defendant.

OPINION AND ORDER ON MOTION FOR SUMMARY JUDGMENT

Algenon L. Marbley, UNITED STATES DISTRICT JUDGE

This matter is before the Court on the Motion for Summary Judgment (ECF No. 41) of Defendant Nautilus Insurance Company. For the reasons set forth below, the Court GRANTS the Motion.

I. BACKGROUND

A. Factual Background

Sears, Roebuck and Co. hired Plaintiff Exel Direct, Inc., to install home appliances such as dryers for its customers. Exel Direct, in turn, hired independent contractors to perform the installations. From 2004 to 2008, both Exel Direct and its independent contractors were insured by a policy issued by Nautilus Insurance Company. (ECF No. 1 at 3).

On July 5, 2006, Exel oversaw the delivery of a Sears dryer to Ingrid Gauer and arranged for an independent contractor to install the dryer. (ECF No. 1 at 4). Exel’s expert later concluded that the independent contract’s installation was flawed: the contractor made a modification to the exhaust duct during installation that resulted in "reduced functionality" and resulted in susceptibility to "exaggerated accumulations of lint in the cabinet, a first fuel for dryer fires." (ECF No. 41-6 at 3). On April 30, 2014, the dryer caught fire and burned down the Gauer home as well as neighboring properties, one owned by Chris and Mary Jean Lem and one owned by Juan Lago. (ECF No. 1 at 4).

State Farm General Insurance Company insured the Gauer home, the Lem home, and the Lago home. (ECF No. 41 at 2-3). In two separate subrogation suits in the Santa Barbara Superior Court, State Farm sued Exel Direct seeking recovery for the fire damage. (Id. ).

Exel Direct then sought liability coverage for these suits from Nautilus. Nautilus hired Vela Insurance Services to investigate and adjust the claim. Vela concluded that the "damages did not occur until after the Nautilus policy had expired" and that Nautilus therefore had no defense or indemnity obligation to Exel. (ECF No. 1 at 5; 44-8 at 6).

B. Language of the Policy

The commercial general liability insurance policy that Nautilus provided to Exel Direct provides in relevant part as follows.

The named insureds include: "Exel Direct, Inc." and "Independent Contractors of Exel Direct, Inc."

The Insuring Agreement provides:

1. Insuring Agreement

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply.

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b. This insurance applies to "bodily injury" and "property damage" only if:

(1) The "bodily injury" or "property damage" is caused by an "occurrence" that takes place in the "coverage territory";

(2) The "bodily injury" or "property damage" occurs during the policy period; and

(3) Prior to the policy period, no insured listed under Paragraph 1 of Section II—Who Is An Insured and no "employee" authorized by you to give or receive notice of an "occurrence" or claim, knew that the "bodily injury" or "property damage" had occurred, in whole or in part. If such a listed insured or authorized "employee" knew, prior to the policy period, that the "bodily injury" or "property damage" occurred, then any continuation, change or resumption of such "bodily injury" or "property damage" during or after the policy period will be deemd to have been known prior to the policy period.

c. "Bodily injury" or "property damage" which occurs during the policy period and was not, prior to the policy period, known to have occurred by any insured listed under paragraph 1. of Section II—Who is An Insured or any "employee" authorized by you give or receive notice of an "occurrence" or claim, includes any continuation, change or resumption of that "bodily injury" or "property damage" after the end of the policy period.

The policy exclusions provide that the policy does not apply to:

m. Damage to Property Or Property Not Physically Injured "Property damage" to "impaired property" or property that has not been physically injured, arising out of:

(1) A defect, deficiency, inadequacy or dangerous condition in "your product" or "your work"; or

(2) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms.

This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to "your product" or "your work" after it has been put to its intended use.

Finally, the policy contains the following definitions:

8. "Impaired property" means tangible property, other than "your product" or "your work," that cannot be used or is less useful because:

a. It incorporates "your product" or "your work" that is known or thought to be defective, deficient, inadequate or dangerous; or

b. You have failed to fulfill the terms of a contract or agreement;

If such property can be restored to use by:

a. The repair, replacement, adjustment or removal of "your product" or "your work"; or

b. Your fulfilling the terms of the contract or agreement.

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13. "Occurrence" means an accident, including continuous or repeated exposure to substantially the same general harmful conditions.

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17. "Property damage" means:

a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or

b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the "occurrence" that caused it.

C. Procedural Background

On May 19, 2016, Exel filed a Complaint in this Court seeking a declaratory judgment adjudicating the parties' rights, duties, and obligations under the insurance policies Nautilus sold to Exel, as well as associated damages. (ECF No. 1). Nautilus filed its Motion for Summary Judgment on August 28, 2017. (ECF No. 41). The Motion is ripe, fully briefed, and ready for review.

II. STANDARD OF REVIEW

Federal Rule of Civil Procedure 56(a) provides, in relevant part, that summary judgment is appropriate "if the movant shows that there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law." In evaluating such a motion, the evidence must be viewed in the light most favorable to the nonmoving party, and all reasonable inferences must be drawn in the non-moving party’s favor. United States Sec. & Exch. Comm'n v. Sierra Brokerage Servs., Inc. , 712 F.3d 321, 327 (6th Cir. 2013) (citing Tysinger v. Police Dep't of City of Zanesville , 463 F.3d 569, 572 (6th Cir. 2006) ). This Court then asks "whether ‘the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.’ " Patton v. Bearden, 8 F.3d 343, 346 (6th Cir. 1993) (quoting Anderson v. Liberty Lobby, 477 U.S. 242, 251-52, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ). "[S]ummary judgment will not lie if the dispute is about a material fact that is ‘genuine,’ that is, if the evidence is such that a reasonable jury could return a verdict for the non-moving party." Anderson , 477 U.S. at 248, 106 S.Ct. 2505.

III. ANALYSIS

A. Applicable Law

In a diversity case, this Court "appl[ies] the choice of law principles of the forum State, here Ohio." Sims Buick-GMC Truck, Inc. v. Gen. Motors LLC , 876 F.3d 182, 185 (6th Cir. 2017), reh'g denied (Nov. 30, 2017) (citing State Farm Mut. Auto. Ins. Co. v. Norcold, Inc. , 849 F.3d 328, 331 (6th Cir. 2017) ). Under Ohio law, "[t]he law of the state chosen by the parties to govern their contractual rights and duties will be applied unless either the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice, or application of the law of the chosen state would be contrary to the fundamental policy of a state having a greater material interest in the issue than the chosen state and such state would be the state of the applicable law in the absence of a choice by the parties." Sekeres v. Arbaugh , 31 Ohio St. 3d 24, 25, 508 N.E.2d 941, 942 (1987).

Here, the parties do not dispute that Ohio law governs interpretation of the insurance contract. And under Ohio law, "interpretations of insurance contracts are questions of law for a court to answer." Constr. Contractors Employer Grp., LLC v. Fed. Ins. Co. , 829 F.3d 449, 453 (6th Cir. 2016). Courts in Ohio ascertain the scope of insurance coverage in a policy by "construing the contract ‘in conformity with the intention of the parties as gathered from the ordinary and commonly understood meaning of the language employed.’ " Id. (quoting Allstate Ins. v. Eyster , 189 Ohio App.3d 640, 939 N.E.2d 1274, 1280 (2010) ). However, "a coverage-defeating argument advanced by an insurer [must] be the only reasonable interpretation of the policy language." Burlington Ins. Co. v. PMI Am., Inc. , 862 F.Supp.2d 719, 726–27 (S.D. Ohio 2012) (citing Andersen v. Highland House Co., 93 Ohio St.3d 547, 549, 757 N.E.2d 329 (Ohio 2001) ("[I]n order to defeat coverage, the insurer must establish not merely that the policy is capable of the construction it favors, but rather that such an interpretation is the only one that can fairly be placed on the language in question.") ). If the language in the insurance policy is ...