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American Reliable Insurance Co. v. Five Brothers Mortgage Company and Securing, Inc.

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

January 23, 2018



          Graham C. Mullen, United States District Judge

         This matter is before the Court upon the parties' cross motions for summary judgment. Both motions have been fully briefed and are ripe for disposition.


         This declaratory judgment action as filed by American Reliable Insurance Company (“Reliable”) seeking a declaration that it owes no duty to defend or indemnify Defendant Five Brothers Mortgage Company and Securing, Inc. (“Five Brothers”) in litigation pending in this federal district styled RoundPoint Mortgage Servicing Corp. v. Five Brothers Mortgage Company Services and Securing, Inc., Civil Action No. 3:15-cv-00559-RJC-DCK (the “RoundPoint Suit”).

         The facts in the case are undisputed but complex. Reliable issued two commercial general liability (“CGL”) policies to D.A. Stuart (“Stuart”). Stuart worked as an independent contractor for Five Brothers. The CGL policies name Five Brothers as an additional insured in certain limited circumstances. Five Brothers entered into a contract with RoundPoint Mortgage Servicing Corporation (“RoundPoint”) to provide property preservation and related services for properties that secured loans serviced by RoundPoint. The Contract contained an indemnity clause in which Five Brothers agreed to indemnify RoundPoint for all losses, including attorneys' fees and costs, arising from any alleged act, error, or omission of Five Brothers or its employees, subcontractors, or independent contractors while performing services for RoundPoint. In February of 2013, RoundPoint requested that Five Brothers perform property preservation services for a property owned by Ms. Hayes (the “Hayes property”) in Wilson, North Carolina. Five Brothers contracted with Stuart to provide these services at the Hayes property. As a result of Stuart's efforts to secure the property, Ms. Hayes ended up suing Stuart, Five Brothers, and RoundPoint, alleging nineteen causes of action against these defendants in various combinations (the “Hayes Suit”). The court in the Hayes suit entered summary judgment as to all claims except a trespass claim. Ms. Hayes ultimately entered into a settlement agreement with RoundPoint, Five Brothers, and Stuart.

         In November of 2015, RoundPoint filed the RoundPoint Suit asserting a claim against Five Brothers for breach of contract, alleging that it seeks indemnity for losses it incurred to defend itself in the Hayes Suit against allegations by Ms. Hayes that Five Brothers trespassed on her property, as well as the losses it incurred to settle the claim in the Hayes Suit. Five Brothers then demanded defense and indemnification from Reliable based upon its alleged additional insured status. Subject to a reservation of rights, Reliable has provided a defense to Five Brothers in the RoundPoint Suit pursuant to Five Brothers' alleged status as an additional insured under Stuart's policies.[1]

         On June 23, 2017, the court in the RoundPoint Suit entered an Order on RoundPoint's motion for summary judgment. See RoundPoint Mortgage Servicing Corp. v. Five Brothers Mortgage Co. Services and Securing, Inc., 3:15-cv-00559-RJC-DCK, 2017 WL 2722304 (W.D. N.C. June 23, 2017) (slip copy). In its Order, the court notes that RoundPoint sent two demand letters to Five Brothers for indemnity in the Hayes Suit, but “Five Brothers refused to indemnify RoundPoint . . ..” Id. at *3. The court further commented that RoundPoint and Five Brothers “dispute which party should pay for which legal fees pursuant to a contract between the two of them and the indemnification clause therein.” Id. With that in mind, the court stated that the “heart of this dispute is not whether Five Brothers breached the Contract-even Five Brothers seems to admit that it owes some indemnification to RoundPoint-rather, the Parties disagree regarding which claims in the Hayes Litigation require indemnification . . ..” Id. at *4.

         While Five Brothers did not necessarily dispute that it owed some indemnification to RoundPoint, the court nevertheless provided an analysis and discussion regarding whether Five Brothers breached its contract with RoundPoint. The court stated that there “is no dispute as to whether there was an agreement and whether RoundPoint performed its duties under the Contract. Furthermore, it is clear that RoundPoint suffered damages if it was entitled to indemnification . . ..” Id. The RoundPoint court concluded that “Five Brothers has breached the indemnification clause and RoundPoint is entitled to damages as a matter of law.” Id. (emphasis added).[2]

         Reliable seeks a declaratory judgment from this Court that it has no obligation to defend or indemnify Five Brothers with respect to the RoundPoint Suit. Both Reliable and Five Brothers have moved for summary judgment.


         Summary judgment is appropriate in those cases in which there is no genuine dispute as to a material fact, and in which it appears that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). Summary judgment should be granted in those cases “in which it is perfectly clear that no genuine issue of material fact remains unresolved and inquiry into the facts is unnecessary to clarify the application of the law.” Haavistola v. Comty. Fire Co. of Rising Sun, Inc., 6 F.3d 211, 214 (4th Cir. 1993). “[W]here the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, disposition by summary judgment is appropriate.” Teamsters Joint Council No. 83 v. Centra, Inc., 947 F.2d 115, 119 (4th Cir. 1991).

         Insurance policies are construed in accordance with traditional rules of contract interpretation, so where the meaning of the policy is clear and only one reasonable interpretation exists the courts must enforce the contract as written. Patrick v. Wake County Dep't of Human Servs., 655 S.E.2d 920, 924 ( N.C. 2008). “As with all contracts, the object of construing an insurance policy is to arrive at the insurance coverage intended by the parties when the policy was issued.” Harleysville Mut. Ins. Co. v. Buzz Off Insect Shield, L.L.C., 692 S.E.2d 605, 612 ( N.C. 2010) (citation and internal quotation marks omitted). The language of the policy “is the clearest indicator of the parties' intentions.” Metropolitan Prop. and Casualty Ins. Co. v. Lindquist, 463 S.E.2d 574, 576 ( N.C. 1995). Where the policy is unambiguous, “[i]t must be presumed the parties intended what the language used clearly expresses, and the [policy] must be construed to mean what on its face it purports to mean.” Hartford Acc. & Indemnity Co. v. Hood, 40 S.E.2d 198, 201 ( N.C. 1946) (internal citations omitted).

         An insured bears the burden of “bringing itself within the insuring language of the policy.” Hobson Constr. Co.v. Great Am. Ins. Co., 322 S.E.2d 632, 635 ( N.C. Ct. App. 1984). Once an insured demonstrates that the insuring language embraces the particular claim or injury, the burden shifts to the insurer to prove that the policy excludes the particular injury from coverage. Id. “Exclusionary clauses are interpreted narrowly while coverage clauses are interpreted broadly to provide the greatest possible protection to the insured.” State Capital Ins. Co. v. Nationwide Mut. Ins. Co., 350 S.E.2d 66, 71 ( N.C. 1986).

         In North Carolina, the pleadings control the duty to defend. Waste Management of Carolinas, Inc. v. Peerless Insurance Company, 340 S.E.2d 374, 377 ( N.C. 1986). To that end, the North Carolina Supreme Court stated: “When the pleadings state facts demonstrating that the alleged injury is covered by the policy, then the insurer has a duty to defend, whether or not the insured is ultimately liable.” Id. (citations omitted). Accordingly, North Carolina courts employ a “comparison test, ” reading the pleadings in the context of the policy language to determine whether the insurer had a coverage obligation, noting the well-established principle under North Carolina coverage law: “Any doubt as to coverage is to be resolved in favor of the ...

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