United States District Court, E.D. Virginia, Norfolk Division
MEMORANDUM OPINION AND ORDER
G. Doumar, Judge
matter comes before the Court on Travelers Indemnity Company
of America's ("Travelers") Motion to Dismiss
Plaintiffs First Amended Complaint ("Motion to
Dismiss"). ECF No. 13. For the reasons stated herein,
Travelers' Motion to Dismiss the Amended Complaint is
6, 2016, Electric Motor and Contracting Company, Inc.
("Electric Motor") filed the instant action in the
Circuit Court for the City of Chesapeake, Virginia, seeking a
declaration that Travelers is obligated to honor Electric
Motor's insurance claim, Claim No. EYY6707, under the
Commercial General Liability coverage terms contained in
Electric Motor's Commercial Insurance Policy with
Travelers (hereinafter "CGL Policy"). Compl., ECF
No. 1-1 ¶¶ 9, 55-60; CGL Policy, Id. at
Ex. A. Electric Motor's Claim No. EYY6707 sought
reimbursement from Travelers for the costs of repairing a
Navy generator that was allegedly damaged by the poor
workmanship of Electric Motor's subcontractor.
Id. ¶¶ 34, 38-39. On June 20, 2016,
Travelers successfully removed the action to this Court based
on diversity of citizenship pursuant to 28 U.S.C.
§§ 1332, 1441. See Notice of Removal, ECF No.
27, 2016, Travelers filed a motion to dismiss Electric
Motor's complaint pursuant to Rule 12(b)(6) of the
Federal Rules of Civil Procedure ("Rule 12(b)(6)")
for failure to state a claim. ECF No. 4. Travelers'
principal argument in support of that motion was that the CGL
Policy expressly restricts coverage to sums that the insured
becomes "legally obligated to pay as damages, " and
that Electric Motor's complaint only alleged repair costs
that it voluntarily assumed, not costs that it became
"legally obligated to pay as damages." ECF No. 5 at
1-2 (citing CGL Policy, ECF No. 12-1 § I(1)(a)).
Electric Motor opposed Travelers' motion, arguing
inter alia that the plain meaning of "legally
obligated to pay as damages" encompasses Electric
Motor's contractual obligation to repair the generator as
alleged in the complaint. Opposition Brief, ECF No. 6 at 7-8.
Traveler's motion to dismiss was fully briefed and argued
by both parties, the Court granted Travelers' motion,
without prejudice, and provided Electric Motor fourteen days
to amend its complaint "to allege facts sufficient to
state a claim upon which relief can be granted." August
5, 2016 Order, ECF No. 11 at 11. In that Order, the Court
withheld determining the meaning of the phrase "legally
obligated to pay as damages" because it found that
Electric Motor's complaint failed to allege, beyond mere
conclusory statements, any obligation by which it incurred
the repair costs in question. Id. at 9-10.
August 19, 2016, Electric Motor filed its First Amended
Complaint for Declaratory Judgment and Payment ("Amended
Complaint" or "Am. Compl.") seeking a
declaratory judgment pursuant to 28 U.S.C. § 2201
regarding Traveler's obligation to pay Claim No. EYY6707
and seeking an award of attorneys' fees and costs. ECF
No. 12. On September 2, 2016, Travelers filed the instant
Motion to Dismiss the First Amended Complaint and a
supporting memorandum ("Def. Mem."). See ECF No.
13; ECF No. 14. On September 23, 2016, Electric Motor filed a
Memorandum in Opposition to Travelers' Motion to Dismiss
("Opp. Mem."). ECF No. 16. On October 10, 2016,
Travelers filed a reply brief ("Reply"), ECF No.
17, and on November 21, 2016, the parties appeared before the
Court and presented oral argument, ECF No. 20. Travelers'
Motion to Dismiss the Amended Complaint is now ripe for
decision by this Court.
motion to dismiss for failure to state a claim, the Court
accepts the plaintiffs well-pled factual allegations as true.
Bell Atlantic Corp. v. Twomblv. 550 U.S. 544, 555
(2007). A summary of the facts alleged in Electric
Motor's Amended Complaint follows.
Motor contracts with the United States Navy to repair
generators used on the Avenger-class mine
countermeasure ships ("MCMs"), which are operated
by the Navy and the Naval Sea Systems Command
("NAVSEA"). Am. Compl., ECF No. 12 ¶ 13. On or
about October 20, 2011, Travelers issued Commercial Insurance
Policy Number Y-630-5694C877-TIA-11 to Electric Motor.
Id. ¶ 10. The policy ran for two consecutive
one-year periods: October 6, 2011, to October 6, 2012, and
October 6, 2012, to October 6, 2013. Id. This policy
included CGL coverage, which is at issue here. Id.
2011, Electric Motor began repairs on three MCM generators
known as Generator 2, Generator 5, and Generator 7.
Id. ¶ 14. Specifically, by purchase order dated
November 22, 2011, Electric Motor contracted with Navy
contractor, Amee Bay, to repair Generator 7. Id.
¶ 16. A copy of this purchase order is attached to the
Amended Complaint as Exhibit B (hereinafter "Purchase
Order"). Electric Motor subsequently issued Invoice
No. 0127889 to Amee Bay for payment. Id. ¶ 17.
This invoice, dated December 11, 2016, is attached to the
Amended Complaint as Exhibit C (hereinafter
"Invoice"). Page 2 of the Invoice contains a
warranty, which states, in relevant part:
[Electric Motor] warrants, to the extent to which any of the
same may be applicable, that (a) any replacement or other
parts furnished by it or any work done by it on the
Purchaser's equipment or both shall be free of defects in
workmanship and material, (b) any specialized tools,
equipment and instruments for the use of which a charge is
made to the Purchaser shall be adequate for the work to be
performed and (c) the engineering services performed by it
will be competent and any recommendations of its
representative shall reflect his best judgment.
[Electric Motor] shall upon prompt written notice from the
purchaser, correct any failure to conform to any of the
applicable foregoing warranties which may appear with in a
period of one (1) year after completion of the work.....
The Remedy(ies) provided above shall be Purchaser's sole
remedy(ies) for any failure of [Electric Motor] to comply
with the foregoing warranties, whether claims by the
purchaser are based on contract or in tor[t] (including
Id. at Ex. C at 2.
of its repair services on Generators 2, 5, and 7, Electric
Motor shipped the generators to Akard Commutator of Tennessee
("ACT"), one of its subcontractors, to complete
independent repair work on the generators' rotors.
Id. ¶ 21. ACT performed the rotor repairs and
then returned the rotors to Electric Motor for
reinstallation. Id. ¶ 22. Electric Motor
"was not able to disassemble or view the internal
workings of the rotors prior to their reinstallation in the
Generators." Id. ¶23. On January 31, 2012,
the three Generators were returned for reinstallation on the
MCMs. Id. ¶ 24. However, in June 2012, the
Generators failed aboard their respective vessels.
Id. ¶ 25.
Claim, No. ESV8183, Honored
Generators 2 and 7 were returned to Electric Motor for
repairs on July 23, 2012, and on August 30, 2012,
respectively. Id. ¶26. After disassembling the
generators, Electric Motor determined that ACT performed
defective workmanship on the rotors, which had caused the
malfunction. Id. ¶ 28. Specifically, Electric
Motor determined that ACT failed to remove weld residue and
properly torque compression ring bolts on the rotors.
Id. Generator 2 and 7 were repaired and returned to
NAVSEA in September 2012. Id. ¶ 29. Generator 5
was repaired in place on board the vessel. Id.
Electric Motor then filed a claim with Travelers, Claim No.
ESV8183, under the CGL Policy, seeking reimbursement for the
costs that Electric Motor had incurred to diagnose and repair
the generators. Id. ¶ 31. By checks dated June
7, 2013, and July 16, 2013, Travelers honored this claim and
paid Electric Motor a total of $99, 356.67. Id.
Claim. No. EYY6707, Denied
Following reinstallation, Generators 2 and 7 failed testing
in December 2012, and were not returned to service.
Id. ¶¶ 36-37. NAVSEA conducted diagnostics
from January 2013 to August 2013. Id. ¶38. On
or about December 5, 2013, NAVSEA returned Generator 7 to
Electric Motor for inspection and repair. Id. ¶
39. Electric Motor hired a new subcontractor, Industrial
Commutator Corporation ("ICC"), to evaluate and
repair the rotors. Id. ¶ 40. ICC disassembled
the rotor. Id. ¶ 41. Electric Motor alleges
that this was the "first time" it could fully
inspect ACT's work product from the first round of
repairs in 2011 and 2012. Id. It determined that
ACT's poor workmanship had caused "additional damage
to the Generator's rotors." Id. Electric
Motor felt "immense pressure from NAVSEA to quickly
diagnose and repair Generator 7, because it was needed on
board the U.S.S. Patriot." Id. ¶ 43. ICC
completed repairs on Generator 7 on March 6, 2014.
Id. ¶ 44.
February 24, 2014, Electric Motor submitted a second claim to
Travelers, Claim No. EYY6707, under the CGL Policy, seeking
$125, 000 to cover the costs of the second round of repairs
to Generator 7 (hereinafter, "Repair Costs") as a
result of the damage caused by ACT. Id. ¶¶
45-48. According to Electric Motor, it was "legally
obligated to incur these costs" pursuant to the Purchase
Order and Invoice with Amee Bay. Id. ¶ 46. On
May 12, 2014, Travelers denied Claim No. EYY6707, citing
Section IV.2.d of the CGL Policy, which states: "No
insured will, except at that insured's own cost,
voluntarily make a payment, assume any obligation, or incur
any expense, other than for first aid, without our
consent." Id. ¶50. On October 13, 2015,
Electric Motor sent a letter to Travelers contesting the
denial of the claim. Id. ¶ 51. On December 15,
2015, Travelers reaffirmed its denial of the claim.
Id. ¶ 52.
Policy is attached to the Amended Complaint as Exhibit A.
Id. at Ex. A. Electric Motor alleges that Travelers
is obligated to honor Claim No. EYY6707 pursuant to the
policy's insuring agreement, which states: "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.
..." Id. ¶ 53 (quoting CGL Policy,
Id. at Ex. A § I.l.a). Electric Motor further
alleges that ACT's "negligent repairs" to
Generator 7's rotors caused "property damage"
to Generator 7 as that term is defined in the CGL Policy,
which includes "[p]hysical injury to tangible property,
including all resulting loss of use of that property."
Id. ¶¶ 54-55 (quoting Ex. A at 39,
Amendment of Coverage - Property Damage). Finally, Electric
Motor claims that "Claim No. EYY6707 is not subject to
any exclusion under the [CGL] Policy." Id.