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Colony Insurance Co. v. Rentech Boiler Systems, Inc.

United States District Court, N.D. Texas, Abilene Division

March 1, 2018

COLONY INSURANCE COMPANY, Plaintiff,
v.
RENTECH BOILER SYSTEMS, INC., Defendant.

          REPORT AND RECOMMENDATION

          E. SCOTT FROST UNITED STATES MAGISTRATE JUDGE.

         This case is an action for declaratory judgment brought by Plaintiff Colony Insurance Company alleging that it has no duty to defend or indemnify Rentech Boiler Systems, Inc. against claims asserted by the Water and Sewer Authority of Cabarrus County which are pending in the Cabarrus County Superior District Court of North Carolina. For the reasons below, the District Judge should grant Colony's motion for summary judgment and declare a judgment that it has no duties to defend or indemnify Rentech in the pleaded action.

         BACKGROUND

         The Water and Sewer Authority of Cabarrus County ("WSACC") operates as a function of the General Statutes of North Carolina, providing services related to the water and sewer systems of Cabarrus County. One of the facilities owned and operated by WSACC is the Rocky River Regional Waste Water Treatment Plant, which among other things incinerates waste water as a method of disposal. CH2M Hill, Inc. is a Florida corporation which proposed and ultimately contracted with WSACC to construct a system which would reclaim energy in the process of incinerating the waste water, allowing WSACC to store and sell this reclaimed energy.

         CH2M solicited bids for constructing a "heat recovery steam generator, " and presented such a bid from Rentech to WSACC, advising WSACC to purchase the generator from Rentech. WSACC did so, and Rentech constructed the generator at its facility in Abilene, Texas. CH2M was obligated under its contract with WSACC to inspect and approve the design and manufacture of the generator. WSACC alleges that the generator produced and delivered by Rentech contains a number of design and manufacturing flaws, resulting in a product that would build up with ash, contained broken components, incorrect sizes, and deficient welds upon delivery, and would therefore fail to operate as agreed.

         WSACC brought an action in North Carolina state court alleging breach of contract, fraud in the inducement, negligent misrepresentation, violation of the North Carolina DTP A, and breach of fiduciary duty claims against CH2M, breach of contract and express warranty claims against Rentech, and a breach of contract claim against a separate vendor unrelated to this declaratory action. Rentech had contracted with Colony for two consecutive general liability policies and two consecutive errors and omissions policies, and the parties agree which policies apply to the claims in the state court complaint. Colony believes the terms of the policies and applicable laws render Rentech exempt from coverage under the policies, and seeks a declaratory judgment to that effect here. Rentech and Colony-as the parties to this action-agreed to a modified briefing schedule in support of the instant cross-motions for summary judgment, and all the relevant issues have been adequately briefed and are ripe for determination.

         LEGAL STANDARDS

         Federal Rule of Civil Procedure 56(a) provides for a party to seek summary judgment by showing "that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." A dispute is genuine only if the evidence would reasonably support a jury verdict for the non-moving party, and a fact issue is material if it might affect the outcome of the action. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 254 (1986); Poole v. City of Shreveport, 691 F.3d 624, 627 (5th Cir. 2012). So, in these cross-motions for summary judgment, the parties must show that they are entitled to judgment as a matter of law because the other party cannot show a genuine dispute of any material fact.

         In Texas, an insurer's obligations to defend are determined under the "eight corners" rule, which considers whether the factual allegations in a complaint state a cause of action which might be covered by the policy; the four corners of the complaint and the four corners of the relevant policy are exclusively considered. City of Coll. Station v. Star Ins. Co., 735 F.3d 332, 336 (5th Cir. 2013). In general, courts construe ambiguities in favor of the insured for policy reasons, but will not imagine factual scenarios or imply facts toward finding a duty to defend. Nat'l Union Fire Ins. Co of Pittsburgh v. Merchants Fast Motor Lines, Inc., 939 S.W.2d 139 (Tex. 1997). The insured has the initial burden of establishing that the claim is covered by the policy terms, the insurer has a secondary burden to show an exclusion applies, and the insured then would have the burden of showing an exception to the exclusion should apply. Gilbert Tex. Constr., L.P. v. Underwriters at Lloyd's London, 327 S.W.3d 118, 124 (Tex. 2010).

         DISCUSSION

         Coverage under policy terms

         So, Rentech must first show that there is at least some genuine question as to whether the terms of the relevant policies cover any of the activities enumerated in the North Carolina state court complaint. Toward that end, it emphasizes the general rule that favors finding coverage, even if such a factual scenario might be specious and unlikely. (Doc. 16, 16). Rentech also stresses that the duties to defend and indemnify are separate and must be considered individually, except if the same reasons exist for finding no duty to defend and no duty to indemnify. (Doc. 16, 17). The parties agree that the two policies relevant to facts pleaded in the underlying lawsuit are the commercial general liability policy in effect from August 26, 2014 to August 26, 2015 and the errors and omissions policy in effect from August 26, 2015 to August 26, 2016. This analysis will deal with these policies in turn.

         Commercial General Liability Policy

         The parties agree that the relevant general liability policy was in effect from August 26, 2014 to August 26, 2015. The insuring agreement of that policy reads, in part:

Coverage A Bodily Injury and Property Damage ...

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