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Mitsui Sumitomo Insurance Company of America v. Travelers Property Casualty Company of America

United States District Court, W.D. North Carolina, Charlotte Division

March 29, 2017

MITSUI SUMITOMO INSURANCE COMPANY OF AMERICA, and SCHAEFER SYSTEMS INTERNATIONAL, INC. Plaintiffs,
v.
TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA, Defendant.

          ORDER

          Robert J. Conrad, Jr., United States District Judge

         THIS MATTER comes before the Court on the motion of Defendant Travelers Property Casualty of America (“Travelers”) for summary judgment, (Doc. No. 36), the cross-motion of Plaintiffs Mitsui Sumitomo Insurance Company of America (“Mitsui”) and Schaefer Systems International, Inc. (“Schaefer”) (collectively with Mitsui, “Plaintiffs”) for summary judgment, (Doc. No. 46), and related pleadings. The issues have been fully briefed and are ripe for adjudication following oral argument.

         I. BACKGROUND

         This civil case arises out of Travelers' duty to defend Schaefer against a property damage claim raised by Nephron Pharmaceuticals (“Nephron”) against Schaefer and its subcontractor Wiginton Corporation (“Wiginton”) for alleged faulty sprinkler installation in a warehouse.

         Nephron hired Schaefer, a construction company based in Charlotte, North Carolina, to build warehouse in Orlando, Florida. (Doc. No. 1: Compl. at 2). On July 20, 2011, Schaefer subcontracted the design and installation of the fire sprinkler system to Wiginton. (Id. at 3). The contract between Schaefer and Wiginton required the subcontractor to maintain insurance protecting Schaefer as an “additional insured” from claims based on faulty work by Wiginton. (Id.; Doc. No. 13-1: Compl. Ex. A). Wiginton obtained such insurance from Travelers and provided proof to Schaefer of the coverage. (Doc. No. 13-2, -5: Compl. Ex. B, E). Schaefer maintained its own insurance with Mitsui. (Doc. No. 13-4: Compl. Ex. D).

         On May 30, 2012, a pallet struck a sprinkler head causing water damage to Nephron's property in the warehouse. (Doc. No. 1: Compl. at 4). On July 18, 2012, Nephron CEO Lou Kennedy emailed Schaefer Executive Fritz Schaefer stating the claim based on Wiginton's sprinkler installation, advising that Nephron's and Wiginton's insurance adjustors were involved, and requesting contact with Schaefer's insurance adjuster. (Doc. No. 61-2: Second Doerr Decl. Ex. A). Kennedy also refused to make further payments on the building's construction until the damage claim was resolved. (Id.). Later that same day, Schaefer's insurance agent Dee Bumgardner with Wells Fargo Insurance Services followed up a phone conversation with an email to Travelers Senior Technical Specialist Danny Williams stating Travelers was working with Wiginton on the water damage claim at Nephron and concluding with reference to Wiginton's contractually required indemnification of Schaefer and Schaefer's “additional insured status” with Travelers.[1] (Doc. No. 13-6: Compl. Ex. F). Bumgardner included Mitsui Claim Counsel David Bass in the communication, and Bass began working with Williams to set up an on-site investigation of the damage. (Id.).

         On September 7, 2012, Bass sent an email message to Williams reading, in pertinent part:

At your convenience, can you confirm that Travelers is extending defense/indemnity to Schaefer under the additional insurance coverage required under the contract.

         (Doc. No. 13-7: Compl. Ex. G). On September 11, 2012, Williams responded to Bass:

Right now there are no formal allegations outlining this claim. Until we have has them or suit is filed, [Travelers] will not have enough information to make a decision as to our contractual obligations to [Schaefer].”

(Id.).

         On September 24, 2012, Kennedy sent a letter to Schaefer executives Arnold Heuzen and Christoph Schenck and to Alan Wiginton requesting a meeting to resolve the damage claim prior to filing a lawsuit as required by construction contract between Nephron and Schaefer. (Doc. No. 51-1: Doerr Decl. Ex. G). That mediation took place on February 23, 2013, attended by counsel retained by Travelers on behalf of Wiginton, along with attorneys representing Schaefer. When mediation did not resolve the claim, Nephron filed suit against Schaefer and Wiginton in Florida state court on March 13, 2013. (Doc. No. 13-3: Compl. Ex. C). In addition to alleging the sprinkler had been installed too low, Nephron claimed Schaefer illegally entered into the warehouse construction contract as an unlicensed contractor, seeking recovery on the property loss (in excess of $1, 800, 000), plus treble damages, as well as disgorgement for all payments under the construction contract ($9, 091, 514.88). (Id. at 13). Nephron also alleged the lien Schaefer placed on the property when Nephron suspended construction payments was fraudulent, seeking compensatory and punitive damages. (Id. at 28).

         During a mediation in the state court litigation on June 19, 2014, Schaefer attorney Sean McDonough and Heuzen hand-delivered a letter to Travelers Major Claim Specialist Gregory Kasbarian. (Doc. No. 13-8: Compl. Exh. H). Schaefer wrote “to renew a tender” and “formally re-tender[] its defense and indemnity of [Nephron's lawsuit] to Travelers” pursuant to the additional insured provision in Wiginton's construction contract. (Id. at 1). The letter recited:

Travelers previously received notice, originated by Schaefer, of the incident that forms the basis of the [Nephron] lawsuit. In addition, an email was sent to Travelers on September 7, 2012, seeking to confirm additional insured coverage for Schaefer. Travelers' response was that it had no obligation to provide additional insured coverage until suit was filed. As you know, that condition was satisfied.

(Id.). The letter noted the possibility of a settlement that would be funded by a combination of funds from Travelers and Mitsui, as well as adjustments to the construction contract. (Id. at 2).

         On July 16, 2014, Kasbarian responded by email and letter to McDonough stating Wiginton did not owe indemnity for Schaefer's alleged negligent acts and tendered the defense to Mitsui based on the contract between Schaefer and Wiginton. (Doc. No. 13-9, -10: Compl. Ex. I, J). On July 19, 2014, McDonough and Bass replied to Kasbarian by letter refuting the basis for denial of coverage and correcting the scrivener's error in the contract between Schaefer and Wiginton about which entity was providing indemnification to the other. (Doc. No. 13-11: Compl. Ex. K). The letter ...


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