Nationwide Mut. Ins. Co. v. the Overlook Llc

785 F.Supp.2d 502

NATIONWIDE MUTUAL INSURANCE COMPANY, and Nationwide Mutual Fire Insurance Company, and Nationwide Property & Casualty Insurance Company, Plaintiffs,

v.The OVERLOOK, LLC, and Steven A. Middleton, and Vista Middleton, LLC, and Ricky L. Edmonds, Defendants.

Civil Action No. 4:10cv69.

United States District Court, E.D. Virginia,Newport News Division.

May 13, 2011.

Lawrence A. Dunn, Esq., Catherine Colinvaux, Esq., Grant E. Kronenberg, Esq., Karl S. Vasiloff, Esq., Scott J. Ryskoski, Esq., Seth Jackson, Esq., for Plaintiffs.The Overlook, LLC, John J. Rasmussen, Esq., Steven A. Middleton, Vista Middleton, LLC, Ricky L. Edmonds, Richard J. Serpe, Esq., Frederick S. Longer, Esq., Jeffrey A. Breit, Esq., John W. Drescher, Esq., Michael F. Imprevento, Esq., for Defendants.

OPINION AND ORDER

MARK S. DAVIS, District Judge.

On January 19, 2010, Plaintiffs Nationwide Mutual Insurance Company, Nationwide Mutual Fire Insurance Company, and Nationwide Property and Casualty Insurance Company (collectively “Nationwide”) filed a Complaint in the Richmond Division of this Court, seeking a declaratory judgment that Nationwide has no duty to defend or indemnify the Defendants—The Overlook LLC, Steven A. Middleton, Vista Middleton, LLC (collectively “Overlook”) and Ricky L. Edmonds (“Edmonds”)—under several relevant insurance policies. After a transfer of the case to this Division, and significant motions practice, there are four principal motions before this Court—Nationwide's motion for summary judgment, Edmonds' motion to stay Nationwide's motion for summary judgment, Overlook's motion for summary judgment, and Edmonds' motion for summary judgment. Nationwide has also filed a motion for leave to file an amended complaint. For the reasons set forth below, the Court GRANTS IN PART Nationwide's motion for summary judgment. Specifically, the Court concludes that Nationwide does not have a duty to defend Overlook in Edmonds' underlying state lawsuit, based on the Pollution Exclusion in the applicable insurance policies. As a result, Nationwide also has no duty to indemnify Overlook with respect to Edmonds' state suit. Consequently, the Court DENIES the motions for summary judgment filed by Overlook and Edmonds, which requested a declaratory judgment that Nationwide has a duty to defend Overlook in the underlying Edmonds lawsuit. However, given the previous discovery stay in this matter and the absence of “litigated facts” on the subject of how the damages actually occurred in the “Non–Edmonds” homes, the Court HOLDS ITS DECISION IN ABEYANCE, on the subject of Nationwide's duty to indemnify Overlook with respect to the homes for which there are no underlying lawsuits, until the parties are able to develop sufficient facts on the issue or until Nationwide advances alternative legal grounds for summary judgment that do not require significant factual discovery.¹

With respect to the pending motion to amend the Complaint, which asks that Nationwide be granted leave to add allegations to the Complaint regarding two other actions that Edmonds has filed—the Wiltz and Amato actions—the Court will address that motion in a separate Order.

I. Facts and Procedural History

A. Facts

This is an action regarding Nationwide's duty to defend and indemnify its insured, real estate developer Overlook, with respect to damage caused by defective drywall imported from China and installed in homes built by Overlook. Overlook is a real estate developer that owned real property in Richmond, Virginia, where it developed a complex known as the “Overlook Townhouses.” (Compl. ¶ 15; Answer and Counterclaim ¶ 15). Between July 2, 2006 and May 30, 2008, Overlook sold at least ten of the affected units to individuals and families. However, to the Court's knowledge, Overlook still owns several unsold units. (Compl. ¶ 16, Answer and Counterclaim ¶ 16; Colinvaux Aff. Ex. 8, at 1–3). Of the units sold, one was purchased by Edmonds, a Defendant in this action.

By 2009, Overlook became aware that defective drywall imported from China may have been installed in some of the homes it constructed—with the suspicion subsequently confirmed through further investigation. While the parties dispute the exact method by which such drywall causes damage, it is undisputed that it is problematic in a home and should be removed. Therefore, in a May 22, 2009 letter that Overlook sent the owners of its townhomes, it encouraged them to have their homes inspected at Overlook's expense. (Colinvaux Aff. Ex. 9). Where the homes were found to contain the imported drywall, Overlook told the owners that it would “work with [them], the Unit Owners Association, the general contractor, the suppliers and the appropriate insurance companies to formulate a plan to determine how to best address the situation.” Id.

In light of this offer and subsequent fact-finding by Overlook, Overlook removed and replaced the defective drywall and other property in the affected homes. In return, the owners of the repaired homes signed agreements releasing Overlook from claims and liabilities arising out of the defective drywall. ( See, e.g., Colinvaux Aff. Ex. 14). Overlook also removed and replaced the affected drywall from the unsold units which it still owned. However, there is one unit that Overlook has not repaired—the unit owned by Edmonds.

Edmonds refused the offer from Overlook as unacceptable and has since filed or is participating in several lawsuits against Overlook. As to the Virginia suit, on September 3, 2009, Edmonds filed suit against Overlook and other defendants in the Circuit Court for the City of Norfolk, styled Edmonds v. Parallel Design & Dev. L.L.C., Case No. CL09005697–00. It is this suit brought by Edmonds that will be the principle focus of this Opinion and Order. However, since the filing of this declaratory judgment action, two additional suits have been brought against Overlook. On February 10, 2010, Edmonds brought a second suit, filing as part of a putative class action in the United States District Court for the Eastern District of Louisiana, styled Wiltz v. Beijing New Building Materials Public Limited Co., 2:10cv361. On March 19, 2010, Edmonds brought another suit against Overlook in the Eastern District of Louisiana, also filing as part of a putative class action, styled Amato v. Liberty Mutual Insurance Co., 2:10cv932. Since these lawsuits were filed after Nationwide filed its Complaint, and are thus not part of the current Complaint, the Court will not address these two lawsuits in this Opinion and Order. However, Nationwide has filed a motion to amend its complaint to include these lawsuits in its current declaratory judgment action. The Court will address that motion to amend in a separate Order. This Opinion and Order will address, however, the lawsuit Edmonds filed in Norfolk Circuit Court.

1. Edmonds v. Parallel Design and Development ²

Edmonds filed suit in the Circuit Court for the City of Norfolk against Parallel Design and Development, LLC, The Overlook, LLC, Venture Supply Inc. and The Porter–Blaine Corp. In this suit, Edmonds claims that his “family home located [on] Holly St ....[in] Richmond, VA, 23220 ... was built with defective drywall by Overlook and Parallel [Design and Development, L.L.C.].” (Colinvaux Aff. Ex. 16, at ¶ 1). Allegedly, this drywall used in his home “is inherently defective because it emits various sulfide gases and/or other toxic chemicals through ‘off-gassing’ that create noxious odors, and cause damage and corrosion ... to the structural, mechanical and plumbing systems of the Plaintiff's home....” Id. at ¶ 11. Further, the “compounds emitted by the drywall at issue are also capable of, among other things, harming the health of individuals subjected to prolonged exposure.” Id. at ¶ 12. The “chemical compounds cause and have caused dangerous health consequences including, among other things, allergic reactions, respiratory afflictions, sinus and bronchial problems requiring medical attention, including headaches suffered by the Plaintiff.” Id. Additionally, as to health consequences, the state court complaint alleges that “some of the compounds being emitted from Defendants' defective drywall are very hazardous, some latently affecting the central nervous system and basic oxygenation on a cellular level.” Id. at ¶ 58.

As a result of these underlying factual allegations, Edmonds asserted twelve counts against the defendants in the state action, although not all counts were asserted against each defendant. These counts included: Breach of Contract, Breach of Express Warranty, Breach of Implied Warranties, Negligence, Negligence Per Se, Unjust Enrichment, Private Nuisance, Equitable Relief, Injunctive Relief, and Medical Monitoring, Breach of Implied Warranty of Merchantability, Breach of Implied Warranty of Fitness for a Particular Purpose, Violation of Consumer Protection Act, and Fraud. These claims are relevant to this action because Nationwide has issued several insurance policies to Overlook in recent years that contain language which obligates Nationwide to defend and indemnify Overlook from lawsuits if certain conditions are met.

2. The Subject Insurance Claims

Because of the existence of these policies, on May 20, 2009, counsel for Overlook informed Nationwide by letter that it had “recently learned that the town home project, The Overlook Townhouses, ... may contain imported Chinese Drywall.” (Sjullie Aff. Ex. 1, at 1). This letter was to put Nationwide “on notice of all potential claims for property damage; personal injury; breach of contract; breach of warranty; indemnification; contribution; and any and all other related claims arising from the use of [defective drywall]....” Id. at 2. The Edmonds suit pending in Norfolk Circuit Court was filed shortly thereafter, in September 2009. To date, Nationwide is participating in Overlook's defense of the Edmonds Norfolk Circuit Court suit, subject to a...