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Garner v. Nautilus Insurance Co.

United States District Court, S.D. Texas, Galveston Division

March 27, 2017

ROBERT GARNER; dba KUSTOM KOLORS BOATWORKS, EX REL, et al, Plaintiff,
v.
NAUTILUS INSURANCE COMPANY, Defendants.

          MEMORANDUM OPINION AND ORDER

          George C. Hanks Jr. United States District Judge

         This is a lawsuit regarding insurance coverage. The insured, Robert Garner d/b/a Kustom Kolors Boatworks (“Garner”), is suing his insurance company, Nautilus Insurance Company, alleging that Nautilus failed to defend and indemnify him after he was sued by an unsatisfied customer. Both Garner and Nautilus have filed cross-motions for summary judgment. For the reasons stated below, the Court GRANTS Garner's motion for summary judgment as to Nautilus' duty to defend, and DENIES Nautilus' motion for summary judgment.

         FACTUAL BACKGROUND

         A. The Insurance Policy

         Nautilus issued an insurance policy with Commercial General Liability and Commercial Property coverages to Garner, acknowledging that the insured, “Robert Garner dba Kustom Kolors” was in the business of “Boat Repair and Servicing” at “8302 Brookside Road, Pearland, TX 77581.” The policy period was from March 17, 2012 through March 17, 2013. The Commercial General Liability (“CGL”) coverage was issued on standard ISO Form CG 00 0112 04.

         1. Promise of Coverage

         Under the CGL part of Policy, Nautilus promised to pay “those sums that [Garner] becomes legally obligated to pay as damages because of . . . ‘property damage' to which this insurance applies.” Further, Nautilus stated, “We will have the right and the duty to defend 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.” The amount of coverage was limited to $2, 000, 000 for a general aggregate limit, with a $1, 000, 000 products completed operations hazard limit and a $1, 000, 000 each occurrence limit.

         2. Exclusions from Coverage

         As is common in CGL policies, the initial promise of coverage was then followed by broad exclusions, setting out types of claims or damages that would not be covered. Several of these are relied upon by the parties to this case.

         The first exclusion is one relating to “Aircraft, Auto or Watercraft, ” stating that “[t]his insurance does not apply to: . . . ‘property damage' arising out of the ownership, maintenance, use or entrustment to others of any aircraft, ‘auto' or watercraft. Use includes operation and ‘loading or unloading.' This exclusion applies even if the claims allege negligence or other wrongdoing in the supervision, hiring, employment, training or monitoring of others, if the ‘occurrence' which caused the . . . ‘property damage' involved the ownership, maintenance, use or entrustment to others of any aircraft, ‘auto' or watercraft. This exclusion does not apply to: (1) A watercraft while ashore on premises you own or rent; or (2) . . . ‘property damage' arising out of: (a) The operation of machinery or equipment that is attached to, or part of, a land vehicle that would qualify under the definition of ‘mobile equipment' if it were not subject to a compulsory or financial responsibility law or other motor vehicle insurance law in the state where it is licensed or principally garaged; or (b) the operation of any of the machinery listed in Paragraph f. (2) or f. (3) of the definition of ‘mobile equipment' as follows: (i) cherry pickers and similar devises mounted on automobile or truck chassis and used to raise or lower workers; and (ii) Air compressors, pumps and generators, including spraying, welding, building cleaning, geophysical exploration, lighting and well servicing equipment.”[1]

         Similarly, Paragraph j, “Damage to Property” states that Nautilus will not cover “property damage to . . . (4) personal property in the care, custody or control of the insured . . . or (6) [t]hat particular part of any property that must be restored, repaired or replaced because “your work” was incorrectly performed on it.” But, this exclusion also then states that paragraph j(6) “does not apply to ‘property damage' included in the products-completed operations hazard.”

         Another exclusion is Paragraph l, “Damage to Your Work.” This paragraph states that the insurance will not apply to “‘[p]roperty damage to ‘your work' arising out of it or any part of it and included in the ‘products-completed operations hazard. [But this] exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.”

         Finally, an endorsement to the Policy added an additional exclusion, stating, “This insurance does not apply to ‘property damage' to any watercraft which is stored or moored at your premises or is in your care, custody or control.” Endorsement S 094 (06/06).

         3. Definitions

         In Section V, the policy then provides Definitions to be used when interpreting the promise of coverage and the exclusions. The relevant exclusions in this case are:

         a. “Products-completed Operations Hazard”

         “Products-completed operations hazard” is defined as: “a. Includes all ‘bodily injury' and ‘property damage' occurring away from premises you own or rent and arising out of ‘your product' or ‘your work' except: (1) Products that are still in your physical possession, or (2) Work that has not yet been completed or abandoned. . . .”

         b. “Property Damage”

         “Property damage” is defined as “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. “Your Work”

         The phrase “your work” is defined as “(1) Work or operations performed by you or on your behalf; and (2) Materials, parts or equipment furnished in connection with such work or operations.” This definition “includes” both “(1) Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of “your work”, and (2) The providing of or failure to provide warnings or instructions.”

         B. The Underlying Lawsuit and Nautilus' Denials of Coverage

         Garner was sued on September 16, 2014 in Brazoria County, Texas, by Andrew Dykes. Dykes alleged that he brought his boat, a 22' Pathfinder, to Garner in April 2012 “for repairs to cracks in the fiberglass gel coat as well as repairs to other interior structural problems.” According to Dykes, Garner “inspected the boat and made numerous representations that [he] could repair the boat to a ‘like new' or ‘repaired' condition.” However, Dykes alleged that “the hull of the vessel was not returned to ‘like new' or even a ‘repaired' or seaworthy condition. The repairs were not completed as promised, and the hull of the vessel experienced significant cracks to the fiberglass gel-coat and water intrusion after routine use.” Dykes alleged that he inquired whether Garner would “repair the hull, ” but Garner ...


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