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Houston Specialty Ins. Co. v. Meadows West Condo Ass'n

United States District Court, W.D. Louisiana, Lafayette Division

December 9, 2014

Houston Specialty Insurance Company
Meadows West Condo Association, et al

For Houston Specialty Insurance Co, Plaintiff, Counter Defendant: Paul Michael Lavelle, LEAD ATTORNEY, Winstead (NO), New Orleans, LA; Hilary C Borow, Sean P Milligan, PRO HAC VICE, Houston, TX.

For Meadows West Condo Association, Meadows Apartment Owners Association Inc, Defendant, Counter Claimant: John S Irion, Jr, LEAD ATTORNEY, Lafayette, LA.

Richard T. Haik, Sr., Judge., Magistrate Judge C. Michael Hill.


Richard T. Haik, Sr., Judge.

Before the Court are Cross Motions for Summary Judgment filed by plaintiff, Houston Specialty Insurance Company (" HSIC") [Rec. Doc. 26] and Meadows West Condo Association and the Meadows Apartment Owners Association, Inc. (" Meadows West") [Rec. Doc. 29], Meadows' Opposition to HSIC's Motion [Rec. Doc. 30] and HSIC's Opposition to Meadows West's Motion and Reply to Meadows West's Opposition [Rec. Doc. 38], For the following reasons, HSIC's motion will be denied and Meadows West's cross motion will be granted.

I. Background

This insurance disputes arises from Meadows West's claim under its HSIC insurance policy for property damage at the Meadows West Condominiums in Lafayette, Louisiana (the " Property"), resulting from a fire on December 26, 2012 that originated in the HVAC duct work of one of the units. HSIC insured the Property at the time of the fire through Policy No. MEAWES2012, effective July 6, 2012 through July 6, 2013 (the " Policy"). R. 29, Exhs. A; A-1.

The Property consists of 124 condominium units situated in 18 buildings. The fire damaged two units, 166 and 167, both located in one building. The remaining 17 buildings were undamaged. There is no dispute that HSIC paid the claim submitted by Meadows West related to damages to Units 166 and 167-$48, 876.80 as replacement cost to repair the building damage and for lost business income. What is in dispute is Meadows West's claim for the costs associated with reconfiguring the duct work in units that were not damaged by the December 26, 2012 fire. Meadows West contends there is coverage for those costs under the Policy's Ordinance or Law provision. HSIC filed this declaratory judgment action seeking a declaration that there is no such coverage under the Policy.

Following the December 26, 2013 fire, on January 7, 2013, an investigation of the fire was conducted by the Lafayette Fire Department.[1] The Fire Department's investigator, Alton Trahan, determined that the heat source for the fire was the HVAC system where the duct work would make a 90 degree bend in which combustible particles accumulated. In particular, Trahan found that the December 26, 2012 fire " originated in the sub floor at the top of the stairs" in Unit 167 and " traveled up a chase designed for the duct work of the HVAC system." R. 26, Exh. 7, ¶ 15. Trahan concluded that the heat source for the fire was the HVAC system, which was located in a closet beneath the landing deck area at the top of the stairs, and that the area of origin was identical to the five previous fires within the complex. Id. Trahan opined that " the layout of the duct work and/or the construction of the flex duct within that subfloor and the chase" contributed to the fires and that " [maintenance and housekeeping issues may also be a contributing factor." Id. at ¶ 16.

On January 17, 2013, Trahan advised Fire prevention Chief Forrest Chaisson of his findings and conclusions from the January 7 investigation at Meadows West unit # 167. Trahan indicated that while the investigations section was not initially involved in the subject fire incident, because they had " been involved in five other incidents involving this particular complex... January 17, 1997, May 14, 2002, January 28, 2005, January 7, 2006 and December 6, 2010 ... we decided to look into it." Chief Chaisson then advised Larry Manuel, the Chief Building Official, that " [g]iven the age of the buildings, I'm not sure whether it can be determined if this original design may have met code or not; if it did, it appears that it is faulty. I believe that it is incumbent upon both of us, as the building code and fire code official, to act upon these condition as we see fit despite the default that protects existing buildings. Therefore, I'm referring this unsafe condition to your office for a speedy resolution." Id. at ¶ 18; Exh. 8.

By certified mail dated January 18, 2013, Manuel informed Meadows West property manager, Marion Nevils, that the repair to remedy the unsafe condition must be drawn and designed by a mechanical engineer and submitted to his department for review and permitting. Manuel " suggested" that the flex duct be removed from the plenum and replaced with rigid metal duct work or that the HVAC units be relocated to the attics. He advised that if he did not hear from Nevils in two weeks, he would resort to legal action and get the State Fire Marshal involved. R. 30, Exh. A-4. Nevils responded by letter dated January 29, 2013 and advised that she was working with the Meadows West Board of Directors to obtain bids and address the problem as soon as possible. Id. Exh. 1-5.

On April 12, 2013, Manuel stated in a second letter that, " [a]s the Local Building Official I am obligated to see that the hazards that have caused these fires are repaired and the problem resolved. I am authorized by law to do what I feel is necessary to resolve this problem under the International Building Code 2009 Edition, Section 116 which has been adopted by Lafayette Consolidated Government[2] .... Therefore, I am setting a deadline of September 22, 2013. After this date, I intend to have LUS turn off the power to all units that have not yet been repaired...." R. 26-2, ¶ 24; Exh. 11.

Meadows West contracted with a Louisiana registered architect to design a rigid metal duct work layout and then contracted with a Louisiana licensed commercial contractor to perform the removal and installation in order to replace the flex duct work, per Manuel's " suggestion." R. 30, Exh. A-6. The proposed repair was reviewed and permitted by Manuel and the Lafayette Consolidated Government. The work was completed by the end of July, 2013 throughout all 18 buildings of the property for a cost of $316, 489.10. An insurance claim for these costs was submitted to HSIC. By letter dated April 16, 2013, HSIC denied coverage for the costs to reconfigure the duct work not damaged in the fire. R. 26-2, ¶ 25; Exh. 13. The letter stated that " the Policy covers direct physical damage or loss to the Property." Id. It also stated that the Ordinance or Law provision of the Policy did not apply because " (1) there was no applicable ordinance or law at the time of loss regulating the repair or reconstruction of the duct work; and (2) to the extent Meadows asserts there is such an ordinance or law, Meadows failed to comply with the ordinance or law before the fire loss at issue." Id. Citing the Policy Exclusions, HSIC stated, " [e]ven if the reconfiguration of the duct work were to fall within the Ordinance or Law coverage, the coverage must be read in conjunction with the Policy's exclusions" --(1) Faulty or Defective or Inadequate Construction/Workmanship/Maintenance and (2) Governmental Action. Id.

II. Summary Judgment Standard

Summary judgment is appropriate " [i]f the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P.56(c). A genuine issue of fact exists only " [i]f 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, 106 S.Ct. 2505, 91 L.Ed.2d 202(1986).

In determining whether the movant is entitled to summary judgment, the Court views facts in the light most favorable to the nomnovant and draws all reasonable inferences in his favor. Coleman v. Houston Indep. Sch. Dist., 113 F.3d 528 (5th Cir.1997). " If the moving party meets the initial burden of showing that there is no genuine issue of material fact, the burden shifts to the non-moving party to produce evidence or designate specific facts showing the existence of a genuine issue for trial." Engstrom v. First Nat'l Bank of Eagle Lake, 47 F.3d 1459, 1462 (5th Cir.1995). Once the burden shifts to the respondent, he must direct the attention of the court to evidence in the record and set forth specific facts sufficient to establish that there is a genuine issue of material fact requiring a trial. Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). There must be sufficient evidence favoring the non-moving party to support a verdict for that party. Wood v. Houston Belt & Terminal Ry., 958 F.2d 95, 97 (5th Cir. 1992). " We do not ... in the absence of any proof, assume that the nonmoving party could or would prove the necessary facts." Badon v. R J R Nabisco, Inc., 224 F.3d 382, 394 (5th Cir.2000).

Louisiana substantive law governs this insurance policy dispute, as the case is before the Court under diversity jurisdiction. See 28 U.S.C. § 1332; Jesco Const. Corp. v. Nationsbank Corp., 278 F.3d 444, 447 (5th Cir.2001) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938)). Under Louisiana law, in an action under an insurance contract, the insured bears the burden to prove the existence of the policy and coverage. The insurer bears the burden to establish policy limits or exclusions. Tunstall v. Stierwald, 809 So.2d 916, 921 (La.2002). An insurance policy's exclusionary provisions are strictly construed, and the burden to prove that a loss comes within an exclusion is on the insurer. Williams v. SIF Consultants of Louisiana, Inc., 133 So.3d 707, 712 (La.App. 3 Cir., 2014)

III. Analysis

1. Motion To Strike

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