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Westchester Surplus Lines Insurance Co. v. Clancy & Theys Construction Co.

United States District Court, E.D. North Carolina, Western Division

May 23, 2014



TERRENCE W. BOYLE, District Judge.

This cause comes before the Court on plaintiffs motion for summary judgment and defendant's motion for partial summary judgment. A hearing was held on these matters before the undersigned on March 21, 2014, at Raleigh, North Carolina. Following the hearing, the Court ordered that the parties brief an additional issue. Having considered the motions, responses, replies, and additional briefing in this matter, the Court grants in part and denies in part plaintiffs motion and denies defendant's motion for partial summary judgment. Having further considered each party's motion to strike expert reports, the Court denies both motions to strike.


This is a professional liability insurance coverage dispute arising out of a foundation design error on the Stanhope Raleigh Student House Project in Raleigh, North Carolina. Defendant (Clancy) served pursuant to a joint venture agreement with another participant as the general contractor on the Stanhope Project. Plaintiff (Westchester), an insurance company, filed this declaratory judgment action seeking a declaration that it is not obligated to defend or indemnify Clancy or the joint venture from a purported claim arising out of the project. Westchester further alleges that no "claim" has been lodged against Clancy arising out of the foundation design error, and that even if a proper claim had been brought it would be barred by exclusions within the policy. Westchester asserts an alternative claim for breach of contract against Clancy, alleging that if a claim against the joint venture is construed as a claim against Clancy, then the joint venture's settlement of the claim constitutes a breach of the policy and a compromise of plaintiffs subrogation rights.

Clancy has filed breach of contract and tortious breach of contract counterclaims against Westchester. Clancy alleges that Westchester breached the policy by failing to timely investigate a claim, failing to timely issue a coverage opinion, failing to properly defend defendant for the allegation made, failing to assist defendant in mitigating damages, and failing to indemnify Clancy for covered losses. Clancy further alleges that Westchester tortiously breached its contract as it was aware of a valid claim and acted in willful, wanton disregard of its duty to defend and indemnify defendant, entitling defendant to extra-contractual damages.

Westchester has moved for summary judgment on all of its claims as well as Clancy's counterclaims. Clancy has moved for partial summary judgment on its breach of contract counterclaim only.



A motion for summary judgment may not be granted unless there are no genuine issues of material fact for trial and the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If that burden has been met, the non-moving party must then come forward and establish the specific material facts in dispute to survive summary judgment. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 588 (1986). In determining whether a genuine issue of material fact exists for trial, a trial court views the evidence and the inferences in the light most favorable to the nonmoving party. Scott v. Harris, 550 U.S. 372, 378 (2007). However, "[t]he mere existence of a scintilla of evidence" in support of the nonmoving party's position is not sufficient to defeat a motion for summary judgment; "there must be evidence on which the [fact finder] could reasonably find for the [nonmoving party]." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). "Conclusory or speculative allegations do not suffice." Thompson v. Potomac Elec. Power Co., 312 F.3d 645, 649 (4th Cir. 2002) (citation omitted).

The relevant undisputed facts as submitted by the parties are as follows. Clancy and Brasfield & Gorie, LLC served as general contractors on the Stanhope Project pursuant to a joint venture agreement dated November 15, 2010. The joint venture was formed "for the purpose of providing Construction Management Services for the preconstruction and construction of Stanhope Student Housing project." Cmp. Ex. B. The Brasfield/Clancy joint venture contracted with Capstone Development Corporation to build the Stanhope project as of January 28, 2011. Cmp. Ex. A1-5. Clancy obtained from Westchester an environmental insurance policy with joint venture and professional liability endorsements. Cmp. Ex. G. The policy period began May 1, 2011, and ended May 1, 2012, and provided Clancy with $5, 000, 000 in professional liability coverage as well as pollution coverage. Id. The joint venture endorsement was purchased by Clancy for a $1, 000 premium and it served to modify provisions defining "who is an insured" on the policy and struck blanket language excluding joint ventures from coverage. Id. The joint venture endorsement specifically provides that "You are also an insured with regard to your participation in a joint venture that is not designated in the Declarations, but solely with respect to your liability arising from the performance of "your work" under the respective joint venture." Id. at 2.

In September 2011, it became apparent that the east wing of the Stanhope building was leaning due to differential settlement. The design and construction of the foundation work on the project had been subcontracted to GeoConstructors, who subcontracted to GeoStructures, and GeoStructures later admitted that there were errors made in its geopier foundation system design. Cmp. Ex. F. Clancy contends that Capstone informed it that it would require what would amount to a $20, 000, 000 fix of the error. Petty Dep. at 151. Eventually, the foundation issue was resolved pursuant to a corrective work plan and recovery schedule outlined by Clancy, Brasfield, and Capstone and the underpinning of the east wing with micro-piles. Cmp. Ex. D. As of January 2012, Clancy and Brasfield had paid approximately $4, 000, 000 in expenditures under the corrective work plan to resolve the foundation issue. [DE 103-2 at 216].

There is much evidence in the record in the form of deposition testimony and emails regarding the efforts of the joint venture to resolve the foundation error, Clancy's efforts or lack thereof to notify Westchester of Capstone's claim against it, Westchester's contention that Clancy planned to "fake" a claim against itself in order to be reimbursed for expenditures for which was responsible under the terms of its contract with Capstone, and Clancy's contention that Westchester failed to timely respond to its inquiries, failed to visit the construction site at Clancy's request, and failure to issue a coverage opinion upon request so that Clancy could proceed accordingly regarding Capstone's claims.

On May 14, 2012, Westchester issued a letter notifying Clancy that the pollution liability policy does not provide coverage for the claim. [DE 103 Ex. 38]. Specifically, Westchester stated that the "claim" for which Clancy sought coverage is not a "claim" for "damages" as required by the insuring agreement, that there are no sums that Clancy is obligated to pay as damages because of a claim that results from rendering of or failure to render professional services, and ...

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