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Peerless Indemnity Insurance Co. v. City of Greensboro

United States District Court, M.D. North Carolina

May 7, 2015

PEERLESS INDEMNITY INSURANCE COMPANY, et al., Plaintiffs,
v.
CITY OF GREENSBORO, Defendant.

MEMORANDUM OPINION AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE

L. PATRICK AULD, Magistrate Judge.

This case comes before the undersigned Magistrate Judge for a recommended ruling on Defendant's Motion for Summary Judgment (Docket Entry 33). For the reasons that follow, the Court should grant Defendant's instant Motion.

FACTUAL BACKGROUND

On February 7, 2014, Plaintiffs (the insurers and subrogees of the underlying property owners) filed their Amended Complaint against Defendant. (Docket Entry 13.) Plaintiffs allege that Defendant negligently failed to repair a water main, thereby allowing a subsequent fire to damage their insured's personal and real property. (Id., ¶¶ 10, 12, 13.) Defendant argues that governmental immunity shields it from liability. (Docket Entry 27 at 3.) After engaging in limited discovery on the issue of governmental immunity, Defendant filed the instant Motion. (Docket Entry 33.)

The facts in the light most favorable to Plaintiffs reveal[1] that, on November 28, 2012, employees of Southeast Church Furniture, Inc. reported a water main leak located outside of their building (the "Building"). (See Docket Entry 34-2 at 14-15; Docket Entry 34-4 at 2; Docket Entry 35-3 at 2; Docket Entry 35-5 at 2; Docket Entry 35-6 at 2.) Both the local fire department and the water department responded to the scene. (See Docket Entry 34-2 at 14-15; Docket Entry 34-4 at 2; Docket Entry 35-3 at 2; Docket Entry 35-5 at 2; Docket Entry 35-6 at 2.) In surveying the scene, the firefighters noticed a water valve near the leak - which they later realized, after the fire, controlled the fire suppression line leading to the Building's fire suppression sprinklers - and unsuccessfully attempted to close it. (Docket Entry 34-4 at 2, 3; Docket Entry 35-3 at 2; Docket Entry 35-5 at 2; Docket Entry 35-6 at 2.) A water department employee subsequently closed the valve. (Docket Entry 34-4 at 3; Docket Entry 35-3 at 2; Docket Entry 35-5 at 2; Docket Entry 35-6 at 2; Docket Entry 35-9 at 4.) Unfortunately, that action did not stop the leak. (Docket Entry 34-4 at 3; Docket Entry 35-3 at 2; Docket Entry 35-5 at 2; Docket Entry 35-6 at 2; Docket Entry 35-10 at 5.) Shortly thereafter, additional water department employees arrived to combat the water main leak and the fire department left. (Docket Entry 34-4 at 3; Docket Entry 35-3 at 2; Docket Entry 35-5 at 2; Docket Entry 35-6 at 2.) Eventually, the water department employees stopped the water main leak. (Docket Entry 34-2 at 13-15.) However, no one re-opened the water valve on the fire suppression line. (Docket Entry 35-13 at 7-8.)

On January 11, 2013, a fire occurred in a spray paint booth of the Building. (Docket Entry 13, ¶ 12; Docket Entry 27, ¶ 12.) The Building's fire suppression sprinklers failed to activate because the water valve on the fire suppression line remained closed. (Docket Entry 35-13 at 7-8.) The fire spread, causing several hundred thousand dollars worth of damage before the fire department could contain the fire. (Docket Entry 13, ¶¶ 17, 19; Docket Entry 27, ¶¶ 17, 19.) Ultimately, Plaintiff Peerless paid Right Touch Interiors (the lessor of the Building) over three hundred thousand dollars for the loss of its real property. (Docket Entry 13, ¶ 17; Docket Entry 27, ¶ 17.) Plaintiff Excelsior paid Southeast Church Furniture, Inc. (the lessee of the Building) over five hundred thousand dollars for the loss of its personal property. (Docket Entry 13, ¶ 19; Docket Entry 27, ¶ 19.)

Water service to the Building arrives from two service lines branched off from the main water line, the domestic line and the fire suppression line. (Docket Entry 16-2, ¶¶ 3-6; Docket Entry 34-2 at 13-14.) The service line at issue here, the fire suppression line, runs from the main line to the Building's fire suppression sprinklers. (Docket Entry 16-2, ¶¶ 4, 6; Docket Entry 34-2 at 13-14.) Defendant does not meter or charge for the use of water from the fire suppression line; nor did Defendant charge a fee for installing the fire suppression line. (Docket Entry 16-2, ¶ 6; Docket Entry 34-2 at 13-14.)

LEGAL BACKGROUND

The Court should grant a motion for summary judgment when "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). A genuine dispute exists "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In considering a motion for summary judgment, the Court must view the facts and draw reasonable inferences in the light most favorable to the nonmoving party. Miller v. Leathers, 913 F.2d 1085, 1087 (4th Cir. 1990) (en banc). The party seeking summary judgment has the initial burden to show an absence of evidence to support the nonmoving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). The opposing party then must demonstrate that a triable issue of fact exists; he may not rest upon mere allegations or denials. Anderson, 477 U.S. at 248.

ANALYSIS

Plaintiffs have filed a single claim of negligence against Defendant. (Docket Entry 13, ¶¶ 23-27.) As a federal court sitting in diversity, this Court must apply the state law where it sits. See Burris Chemical, Inc. v. USX Corp., 10 F.3d 243, 247 (4th Cir. 1993). Negligence, under North Carolina law, requires "(i) a legal duty, (ii) a breach thereof, and (iii) injury proximately caused by such breach." Hunt v. North Carolina Dep't of Labor, 348 N.C. 192, 195, 499 S.E.2d 747, 749 (1998). Defendant has asserted the affirmative defense of governmental immunity. (Docket Entry 27 at 3.) Governmental immunity provides that a "municipal corporation is immune from suit for the negligence of its employees in the exercise of governmental functions absent waiver of immunity.'" Estate of Williams v. Pasquotank Cnty. Parks & Rec. Dep't, 366 N.C. 195, 198, 732 S.E.2d 137, 140 (2012) (quoting Evans ex rel. Horton v. Housing Auth., 359 N.C. 50, 53, 602 S.E.2d 668, 670 (2004)).

"Nevertheless, governmental immunity is not without limit. [G]overnmental immunity covers only the acts of a municipality or a municipal corporation committed pursuant to its governmental functions.'" Id. at 199, 732 S.E.2d at 141 (quoting Evans 359 N.C. at 53, 602 S.E.2d at 670) (emphasis omitted). Thus, governmental immunity does not cover municipalities when they engage in proprietary functions. See Town of Grimesland v. City of Washington, 234 N.C. 117, 123, 66 S.E.2d 794, 798 (1951) ("[W]hen a municipal corporation undertakes functions beyond its governmental and police powers and engages in business in order to render a public service for the benefit of the community for a profit, it becomes subject to liability for contract and in tort as in case of private corporations.").

North Carolina courts consistently have held that municipalities engaged in the selling of water act in a proprietary fashion, see e.g., Bowling v. City of Oxford, 267 N.C. 552, 557, 148 S.E.2d 624, 628 (1966) ("When a municipal corporation operates a system of waterworks for the sale by it of water for private consumption and use, it is acting in its proprietary or corporate capacity and is liable for injury or damage to the property of others to the same extent and upon the same basis as a privately owned water company would be."), and that, when "a municipality undertakes to supply water to extinguish fires, or for some other public purpose, it acts in a governmental capacity, and cannot be held liable for negligence, " Faw v. Town of North Wilkesboro, 253 N.C. 406, 409-10, 117 S.E.2d 14, 17 (1960). However, because the North Carolina Supreme Court recently "restate[d] [its] jurisprudence of governmental immunity, " Estate of Williams, 366 N.C. at 196, 732 S.E.2d at 139, a question arises regarding the continued force of Bowling and Faw.

Under Estate of Williams, the availability of governmental immunity depends on "whether the alleged tortious conduct of the county or municipality arose from an activity that was governmental or proprietary in nature." Id., at 199, 732 S.E.2d at 141. To determine whether an activity qualifies as governmental or proprietary, North Carolina law employs a three-step test. Bynum v. Wilson Cnty., 367 N.C. 355, 358-59, 758 S.E.2d 643, 646 (2014). First, the court must evaluate whether the North Carolina legislature has designated the particular activity as governmental or proprietary. Id. at 358, 758 S.E.2d at 646. Second, if the legislature has not addressed the issue, then an activity qualifies as necessarily governmental if only the government or its agency can complete the activity. Id. at 358-59, 758 S.E.2d at 646. Finally, if both private companies and governmental entities can perform the relevant activity, then the court must consider ...


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