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Seneca Specialty Insurance Co. v. Mixon

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

May 3, 2017

SENECA SPECIALTY INSURANCE COMPANY, Plaintiff,
v.
LEONARD ALAN MIXON doing business as Spartan 1; WENDY ALLEN; ANGELA HARVEY; CLARENCE LUPTON; TIONNA MELENDEZ; JUDY RADFORD; EVELYN LOFTON; LAKIA DISMEL; and GAIL KANON, Defendants.

          ORDER

          LOUISE W. FLANAGAN United States District Judge

         This matter is before the court on plaintiff's motion for default judgment (DE 29). The time for responses has passed and, in this posture, the issues raised are ripe for ruling. For the following reasons, plaintiff's motion is granted in part and denied in part.

         STATEMENT OF THE CASE

         Plaintiff commenced this action on December 22, 2015, for rescission and declaratory judgment on two commercial general liability policies of insurance for which defendant Leonard Alan Mixon, doing business as Spartan 1 (“Spartan”), an alleged provider of commercial cleaning solutions, is the insured. In amended complaint, filed March 18, 2016, plaintiff seeks declaratory relief rescinding the policies and declaring that it has no obligation to defend or indemnify Spartan under the policies, due to Spartan's material misrepresentations in applications thereof, from underlying claims against Spartan from personal injuries reported by the individually named defendants (hereinafter the “individual defendants”).[1]

         Upon proof of service, filed through September 30, 2016, the clerk entered default against all defendants on December 22, 2016, for failure to respond or otherwise appear. Plaintiff filed the instant motion for default judgment as to all defendants on January 6, 2017, accompanied by memorandum of law and proposed order.

         STATEMENT OF FACTS

         The facts alleged in the complaint and documents attached thereto, taken as admitted for purposes of the instant motion, may be summarized as follows. On December 31, 2013, defendant Spartan executed a commercial insurance application for commercial general liability insurance policy proposed effective December 20, 2013, to December 20, 2014; and on December 19, 2014, defendant Spartan executed a commercial insurance application for commercial general liability insurance policy proposed effective from December 20, 2014 (collectively, the “applications”).

         In the applications, Spartan represented that it was a contractor in the business of “Building Operations . . . (Commercial Cleaning).” (DE 8-3 at 2; DE 8-4 at 2). In the applications, plaintiff expressly asked and Spartan expressly answered “No” to the question: “Do your subcontractors carry coverages or limits less than yours?” (DE 8-3 at 6; DE 8-4 at 6). In fact, Spartan allowed its subcontractors to carry coverages or limits less than its coverage. Spartan's subcontractors carried no liability insurance coverage at all. In the applications, plaintiff also expressly asked and Spartan expressly answered “No” to the question: “Are subcontractors allowed to work without providing you with a certificate of insurance?” (DE 8-3 at 7; DE 8-4 at 7). In fact, Spartan allowed its subcontractors to work without providing a certificate of insurance.

         Pursuant to its underwriting guidelines, plaintiff will not consider issuing commercial general liability policies to contractors having 100% uninsured subcontractors. Pursuant to its underwriting guidelines, plaintiff requires its insured contractors to obtain certificates of insurance from their subcontractors. Plaintiff relied on the truth of Spartan's representations in the applications for the policies. Plaintiff had no actual or constructive knowledge of the true facts regarding Spartan's hiring of subcontractors without insurance or its hiring of subcontractors without obtaining certificates of insurance. Spartan's misrepresentations in the applications for the policies were material to plaintiff. The misrepresentations greatly increased the risk of loss to plaintiff in issuing the policies. The matters misrepresented would naturally influence and did influence plaintiff's judgment in making the insurance contracts and in estimating the degree and character of the risk.

         On the basis of the applications, plaintiff issued to Spartan a commercial general liability insurance policy, number BAG-1026845, with effective dates of December 20, 2013, to December 20, 2014 (the “2013 policy”). Plaintiff renewed the 2013 Policy as policy number BAG-1026845-1, with effective dates of December 20, 2014, to December 20, 2015 (the “2014 policy”) (the 2013 policy and 2014 policy, are collectively referred to as the “policies”). Plaintiff would not have issued the policies if Spartan had truthfully answered the application questions described herein above.

         Under the terms of the policies, as summarized here only for purposes of the instant motion, plaintiff generally agrees to investigate, settle, defend, indemnify, and pay, with respect to any civil suit against Spartan, for personal injuries or property damage. (DE 8-1 at 15, 22; DE 8-2 at 15, 22). In turn, by accepting the policies, Spartan agrees in Section IV.6. of the policies that the statements in the Declarations to the policies are accurate and complete; those statements are based upon representations made to plaintiff; and plaintiff has issued the policy in reliance on Spartan's representations. (DE 8-1 at 19; DE 8-2 at 19).

         Effective in or about 2014 and 2015, Spartan entered a written agreement with Preferred Services, LLC to provide floor cleaning and day porter services for approximately forty-three Harris Teeter grocery stores in eastern North Carolina (the “Spartan 1-Preferred Agreement”). In 2014 and 2015, personal injury claimants, and defendants herein, Wendy Allen, Angela Harvey, Clarence Lupton, Tionna Melendez, Judy Radford, Evelyn Lofton, and Lakia Dismel, [2] reported injuries at Harris Teeter locations where Spartan provided cleaning services pursuant to the Spartan-Preferred Agreement (hereinafter the “Underlying Claims”).

         The Underlying Claims were reported to plaintiff as caused by the alleged negligence of Spartan and its employees or subcontractors in the course of performance under the Spartan 1-Preferred Agreement. Pursuant to the terms of the policies, plaintiff has investigated the Underlying Claims. Upon information and belief, in the event that any claimant in the Underlying Claims obtains a judgment in connection with litigation of the Underlying Claims, the claimants may attempt to enforce such judgment against Spartan and/or plaintiff under the policies.

         On December 9, 2015, plaintiff noticed Spartan of plaintiff's intent to rescind the policies and to reserve its rights thereunder on the basis of Spartan's misrepresentations in the applications. (DE 8-5). Plaintiff also returned a premium ...


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