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Western World Insurance Co. v. Air Tech, Inc.

United States District Court, W.D. Virginia, Roanoke Division

March 29, 2019

WESTERN WORLD INSURANCE COMPANY, Plaintiff,
v.
AIR TECH, INC., Defendant.

          MEMORANDUM OPINION [1]

          ROBERT S. BALLOU UNITED STATES MAGISTRATE JUDGE.

         This insurance dispute between plaintiff, Western World Insurance Company (“Western World”) and its insured, defendant Air Tech, Inc. (“Air Tech”) relates to a claim against Air Tech for damage to a piece of equipment Air Tech provided for a construction project. Because I find that the Western World insurance policy does not provide coverage for the claim asserted against Air Tech, I GRANT Western World's motion for summary judgment and DENY Air Tech's cross-motion for summary judgment.

         I. Background

         In February 2015, Air Tech entered into a subcontract agreement with Hall's Construction Corp. (“Hall's Construction”) to supply a Solvent Recovery Chiller (the “Chiller”) as part of a construction project Hall's Construction had undertaken for BAE Ordinance Systems, Inc. Compl. ¶ 6, Dkt. No. 1. The Chiller was delivered and installed, though the parties disagree about whether Air Tech had a role in installation. Thereafter, the Chiller failed to work properly, which required Hall's Construction to replace the Chiller. In February 2017, Hall's Construction filed suit against Air Tech in state court to recover the cost of replacing the Chiller (the “state court action”). In an amended complaint in August 2017, Hall's Construction added Johnson Controls, Inc. (“Johnson Controls”) as a defendant, and added allegations of negligence against both Air Tech and Johnson Controls. Compl. ¶ 15. Specifically, Hall's Construction alleges that the Chiller did not operate properly because Air Tech breached its duty “to provide the material and equipment and provide for the installation of a Chiller.” State Court Am. Compl. ¶ 4, Dkt. No. 1-5. The state court amended complaint further alleges that:

[T]he equipment procured from Johnson [Controls] by Air Tech and the manuals provided by Air Tech and Johnson [Controls] negligently failed to accurately describe the equipment, the components and the required electrical connections, which negligent failure and breach of warranty were the proximate cause in the malfunction of the equipment resulting in the . . . destruction of the said equipment.

Id. at ¶ 9. Hall's Construction further alleges that the “failure of the manuals to accurately describe the work to be performed” and the “negligent failure” of Air Tech and Johnson Controls to correctly install the Chiller resulted in the failure of the Chiller, requiring replacement, which cost Hall's Construction $121, 629.76.[2] Id. at ¶ 10, Dkt. No. 1-5.

         Western World issued a policy of commercial insurance to Air Tech with effective dates from June 18, 2016 through June 18, 2017 (the “Western World policy”). Compl. ¶ 5, Dkt. No. 1; Western World policy attached as Ex. 1 to Compl. Air Tech made a claim under the Western World policy for a defense in the state court action and indemnity for any damages awarded in favor of Hall's Construction. Compl. ¶ 13, Dkt. No. 1. Western World initially declined to provide a defense to Air Tech, but is currently providing a defense in the state court action under a reservation of rights. D's Mem. in Supp. of Summ. J. at 1, Dkt. No. 22.

         Western World filed this action seeking a declaration that it has no duty under the Western World policy to defend or indemnify Air Tech in the state court action. Compl. at 17, Dkt. No. 1. The parties have filed cross-motions for summary judgment which are fully ripe. Dkt. Nos. 19, 21.

         II. Law

         Federal law determines the procedural aspects of summary judgment in this case, while Virginia law governs the substantive aspects. See Erie R.R. v. Tompkins, 304 U.S. 64, 58 (1938). Summary judgment is proper when “there is no genuine issue as to any material fact and the movant is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(a). Resolving this matter through summary judgment is “especially appropriate” because the construction of insurance contracts is a legal question. W. Am. Ins. Co. v. Johns Bros., Inc., 435 F.Supp.2d 511, 513-14 (E.D. Va. 2006) (quoting Clark v. Metro. Life Ins. Co., 369 F.Supp.2d 770, 774 (E.D. Va. 2005)).

         In a case arising under diversity jurisdiction, the forum state's choice-of-law rules apply, and for insurance disputes, Virginia applies “the law of the place where an insurance contract is written and delivered.” Buchanan v. Doe, 431 S.E.2d 289, 291 (Va. 1993); See CACI Int'l, Inc. v. St. Paul Fire & Marine Ins. Co., 566 F.3d 150, 154-55 (4th Cir. 2009). Here, Virginia law applies as the Western World policy was issued and delivered to Air Tech in Virginia See Compl. ¶ 4, Dkt. No. 1.

         III. Western World Policy

         The Western World policy contains the following pertinent provisions concerning coverage:

         SECTION I - COVERAGES

         COVERAGE A BODILY INJURY AND PROPERTY DAMAGE LIABILITY

         1. Insuring Agreement

a. 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. We will have the right and duty to defend the insured against 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.
b. This insurance applies to “bodily injury” and “property damage” only if:
(1) The “bodily injury” or “property damage” is caused by an “occurrence” that takes place in the “coverage territory”;

See Western World policy at 32, Ex. 1 to the Compl., Dkt. No. 1-2.

         2. Exclusions.

         This insurance does not apply to:

a. Expected or Intended Injury “Bodily injury” or “property damage” expected or intended from the standpoint of the insured.
b. Contractual Liability “Bodily injury” or “property damage” for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement. This exclusion does not apply to liability
(1) That the insured would have in the absence of the contract or agreement; or
(2) Assumed in the contract or agreement that is an “insured contract, ” provided that the “bodily injury” or “property damage” occurs subsequent to ...

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