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Electric Motor and Contracting Co., Inc. v. Travelers Indemnity Co. of America

United States District Court, E.D. Virginia, Norfolk Division

January 27, 2017



          Robert G. Doumar, Judge

         This 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 GRANTED.


         On May 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. I.[1]

         On June 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.

         After 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.

         On 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.


         In a 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.

         Electric 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. ¶ 12.

         In 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").[2] 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 negligence)...

Id. at Ex. C at 2.

         As part 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.

         First 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. ¶ 35.

         Second 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.

         On 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.

         The CGL Policy[3]

         The CGL 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. ¶ 63.

         III. ...

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