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M&R Drywall, Inc. v. Mapp Construction, LLC

Court of Appeals of Louisiana, First Circuit

April 29, 2019

M&R DRYWALL, INC.
v.
MAPP CONSTRUCTION, LLC, SOUTHGATE TOWERS, LLC, AND R. W. DAY AND ASSOCIATES, INC. MAPP CONSTRUCTION, LLC
v.
SOUTHGATE PENTHOUSE, LLC, R. W. DAY DEVELOPMENT, LLC, ROBERT W. DAY, JANICE E. DAY, AND LIONSAY, LLC SOUTHGATE RESIDENTIAL TOWERS, LLC, SOUTHGATE PENTHOUSE, LLC
v.
MAPP CONSTRUCTION, INC., ET AL

          Appealed from the 19th Judicial District Court In and for the Parish of East Baton Rouge State of Louisiana Case No. C52935l c/w C55O534, c/w C544997 The Honorable Wilson Fields, Judge Presiding

          Phillip W. Preis Charles M. Gordon, Jr. Crystal D. Burkhalter Caroline P. Graham Jennifer R. Dietz Baton Rouge, Louisiana Counsel for Plaintiffs/Appellants Southgate Residential Towers, LLC and Southgate Penthouse, LLC

          Wayne J. Lee Mary L. Dumestre New Orleans, Louisiana Counsel for Defendants/Appellees Great American Alliance Insurance Company and Great American Insurance Company, as the Excess Insurer of MAPP Construction, LLC

          Sidney J. Hardy Donna Bramlett Wood Lynda A. Tafaro Kyle P. Kirsch New Orleans, Louisiana Patrick J. Briney Lafayette, Louisiana Counsel for Defendant/Appellee Ohio Casualty Insurance Company

          Glen E. Mercer Kourtney Twenhafel French New Orleans, Louisiana Counsel for Defendant/Appellee American Guarantee & Liability Insurance Company

          Norman C. Sullivan, Jr. W. Jacob Gardner, Jr. New Orleans, Louisiana Counsel for Defendant/Appellee Great American Insurance Company, in its capacity as Excess Insurer for Comfort Systems, USA, Inc., d/ b/ a Atlas Air Conditioning Company A. B.

          Robert I. Siegel Christopher R. Teske Alistair M. Ward Elizabeth A. Chickering New Orleans, Louisiana Counsel for Defendant/Appellee AIG Specialty Insurance Company f/k/a American International Specialty Lines Insurance Company Counsel for Defendant/Appellee National Union Fire Insurance Company of Pittsburg, PA

          BEFORE: McCLENDON, WELCH, AND THERIOT, JJ.

          THERIOT, J.

         Southgate Residential Towers, LLC and Southgate Penthouses, LLC (collectively, "Southgate") challenge decrees favoring five insurers/appellees that afford excess coverage to their respective defendants/insureds in the underlying defective construction dispute. This appeal addresses the insurers/appellees' liability to Southgate. Additionally, these insurers/appellees each answered the appeal, seeking various relief. Further, while Southgate does not appeal the judgment as it relates to a sixth defendant/insurer, that insurer has filed an answer to the appeal.

         For the following reasons, we amend in part, and affirm as amended.

         PERTINENT FACTS AND PROCEDURAL HISTORY

         This litigation involves construction defects and deficiencies in Southgate Towers, a residential apartment complex located in Baton Rouge, Louisiana. Construction took place from 2003-2005. Southgate contracted with MAPP Construction, LLC, to serve as the general contractor on the project. MAPP then hired multiple subcontractors to perform various work on the project. Pertinent among them are: M&R Drywall, Inc., Atlas Air Conditioning Company, Power Design, Inc. ("PDI"), and Thrasher Waterproofing, Inc.

         Southgate, MAPP, and the subcontractors have been engaged in litigation over various construction defects since 2006. The trial court proceedings were stayed by order of this court on June 26, 2007, pending arbitration. See Southgate Residential Towers, LLC Southgate Penthouses, LLC v. MAPP Construction, Inc., 07-0489 (La. App 1 Cir. 6/26/07). Prior to the commencement of the arbitration proceedings, Southgate entered settlements with MAPP and Thrasher pursuant to Gasquet v. Commercial Union Ins. Co., 391 So.2d 466 (La. App 4 Cir. 1980), writ denied, 396 So.2d 921 (La. 1981), writ denied, 396 So.2d 922 (La. 1981). In accordance with the terms of the agreements, MAPP and Thrasher were released from further personal liability, but Southgate reserved all claims against Great American Alliance Insurance Company and Great American Insurance Company (collectively, "GA-MAPP") and National Union Fire Insurance Company of Pittsburgh, PA, as MAPP's excess insurers, and American International Specialty Lines Insurance Company ("ASIC"), as Thrasher's excess insurer. Consequently, MAPP and Thrasher were not parties to the arbitration proceeding. Southgate also entered a Gasquet release with M&R, reserving its rights to proceed against M&R's excess insurer, American Guarantee & Liability Insurance Company ("AGLIC"). M&R likewise did not participate in the arbitration.

         Southgate, Atlas, and PDI, along with other subcontractors, proceeded to arbitration over the course of 34 days from June to October 2010. None of the insurers participated. The arbitration panel rendered its decision in December 2010. See MAPP Construction, LLC v. Southgate Penthouses, LLC and Southgate Residential Towers, LLC, case no: 69 110 J 09920 06 before the American Arbitration Association. The Arbitration Award was subsequently confirmed as a final judgment in February 2012. See Southgate Penthouses, LLC and Southgate Residential Towers, LLC v. MAPP Construction, Inc., 548, 119 19th Judicial District Court, Parish of East Baton Rouge.

         In 2012, after the stay was lifted, Southgate filed an Amended and Restated Master Petition for Damages and Declaratory Judgment. Southgate sought to enforce the Arbitration Award and corresponding final judgment against the insurers of those subcontractors who participated in the arbitration. Relevant here are Southgate's claims against Great American Insurance Company, Atlas' excess insurer ("GA-Atlas"), and Ohio Casualty Insurance Company, PDFs excess insurer.

          Southgate further sought a judgment against the insurers for MAPP and those subcontractors who did not participate in arbitration but with whom Southgate had entered a Gasquet settlement. Relevant here are Southgate's claims against GA-MAPP and National Union, both as MAPP's excess insurers; AGLIC, as M&R's excess insurer; and ASIC, as Thrasher's excess insurer.

         Southgate's claims against these defendant insurers proceeded to trial before a jury in September 2015. The jury's pertinent findings are summarized as follows: M&R breached its contract but no damages are owed to Southgate. MAPP breached its contract during National Union's policy period from 4/1/2003-4/1/2004 (misplaced corings), entitling Southgate to $370, 000 in damages. MAPP also breached its contract during GA-MAPP's policy period from 4/1/2004 and 4/1/2005 (failure to supervise subcontractors), entitling Southgate to $2, 500, 000 in damages. However, Southgate failed to mitigate its damages in this regard, resulting in damages of $59, 000. The reasonable cost to repair the property damage to the building envelope caused by Atlas's failure to caulk the HVAC vents is $59, 000. Concerning PDI's work, the reasonable cost to complete/repair defective fire caulking of all penetrations in the corridor firewalls, as ordered in the Arbitration Award, is $564, 000 and the reasonable cost to complete/repair defective grounding is $114, 000. Finally, Thrasher did not breach its contract and, therefore, owes no damages to Southgate.

         The trial court accepted the jury verdict then "determined the legal issues presented regarding insurance coverage." Relying on prior rulings and recommendations made by the special master and adopted by the trial court, as well as insurance policies introduced at trial, the trial court applied credits against the jury verdict in the amounts of the underlying policy limits and other available insurance coverage, thereby reducing the damages the insurers owed to Southgate. This judgment, from which Southgate appeals, was entered on December 16, 2015.

         Southgate timely filed a motion for devolutive appeal. Each defendant insurer answered the appeal, asserting that the trial court erred by failing to award court costs in its favor against Southgate. Each insurer also raised additional, alternative assignments of error to be addressed only if this court reversed the trial court's judgment.

         Admissibility of Arbitration Award and Settlement Details

         Southgate first challenges the admissibility of the Arbitration Award. It argues that the trial court legally erred by admitting the Arbitration Award into evidence, over its objection, because the Arbitration Award is inadmissible hearsay and does not fall within one of the exceptions. See La. C.E. arts. 801, 802, and 803. Southgate further argues the trial court violated La. C.E. art. 413 by allowing the defendants to introduce the Arbitration Award into evidence because it contains details regarding Southgate's settlement with other defendants. Southgate argues the admission of the Arbitration Award caused a "cascade of unprecedented legal errors" which tainted the jury verdict and asks this court to conduct a de novo review of all evidence.

         The insurers disagree. For example, GA-MAPP argues that the "trial was not a 'do over' in which Southgate could try to get a second chance to prove conditions, causation, or damages that were considered and determined in the arbitration. Nor was it a vehicle to obtain double recoveries." Further, it asserts that the Arbitration Award became the "baseline of facts to which Southgate itself was bound." At trial, Southgate was limited to seeking factual determinations not already tried to conclusion in the arbitration proceeding. The admission of the Arbitration Award was important so that the jury would not be misled into retrying or confusing facts already decided and to which Southgate was bound. Thus, GA-MAPP argues, not only was the Arbitration Award highly relevant, it was necessary evidence.

         The insurers point particularly to the catch-all exception to the hearsay rule, La. C.E. art 804(B)(6), which provides:[1]

Other exceptions. In a civil case, a statement not specifically covered by any of the foregoing exceptions if the court determines that considering all pertinent circumstances in the particular case the statement is trustworthy, and the proponent of the evidence has adduced or made a reasonable effort to adduce all other admissible evidence to establish the fact to which the proffered statement relates and the proponent of the statement makes known in writing to the adverse party and to the court his intention to offer the statement and the particulars of it, including the name and address of the declarant, sufficiently in advance of the trial or hearing to provide the adverse party with a fair opportunity to prepare to meet it. If, under the circumstances of a particular case, giving of this notice was not practicable or failure to give notice is found by the court to have been excusable, the court may authorize a delayed notice to be given, and in that event the opposing party is entitled to a recess, continuance, or other appropriate relief sufficient to enable him to prepare to meet the evidence.

         "When invoking this exception, the court must first determine that the hearsay evidence is material, is 'more probative on the point for which it is offered than any other evidence which the proponent can procure through reasonable efforts,' and that the admission of the evidence will serve general purposes of the evidence rules and the 'interests of justice."' Buckbee v. United Gas Pipe Line Co. Inc., 561 So.2d 76, 82 n.10 (La. 1990) (internal citation omitted).

         As the Supreme Court more fully explained in Trascher v. Territo, 11 -2093 (La. 5/8/12), 89 So.3d 357, 366, "[t]his exception exists to provide a trial court with discretion to admit a statement by an unavailable declarant which is not specifically covered by any other hearsay exception, if the statement was made under sufficient assurances of trustworthiness, the evidence in the statement generally is otherwise unavailable, and the opponent is given a fair opportunity to meet the evidence in the statement." The exception is intended to apply only in extraordinary circumstances.

         We conclude that, under the circumstances of this case, the trial court did not err in admitting the Arbitration Award into evidence. While the Arbitration Award would arguably qualify as inadmissible hearsay evidence, [2] Southgate incorporated the Arbitration Award into the present litigation. Its Amended and Restated Master Petition for Damages and Declaratory Judgment states that "Southgate is filing claims in this proceeding to enforce the insurance and indemnity obligations owed by the Insurers of the Subcontractors based upon the Arbitration Award, the final judgment [and two other documents]."

         Further, the Arbitration Award is trustworthy, reliable, and material. All parties involved in the present litigation were either directly or indirectly involved or affected by the arbitration. A judgment was rendered that not only confirmed the arbitral awards, but also specifically made the awards decrees of the court.[3] Thus, Southgate and the insurers were bound by the facts and liability determinations established in the arbitration proceeding, and those conclusions necessarily formed the foundation of the present litigation. The written, well-reasoned Arbitration Award is the best evidence of the findings of the panel; no other available, more reliable source exists. Finally, regarding notice, Southgate had direct knowledge that the insurers intended to introduce and rely on the Arbitration Award. In August 2015, the special master recommended granting the defendant insurers' motions in limine to allow the Arbitration Award to be admitted into evidence. The special master likewise recommended that Southgate's motion in limine on the issue be denied.

         Furthermore, we find that Southgate failed to satisfy its burden of proving that it was prejudiced by the trial court's evidentiary ruling. "On appeal, the reviewing court is required to consider whether the particular ruling complained of was erroneous, and if so, whether the error prejudiced the complaining party's cause. If a substantial right was not prejudiced or affected by the evidentiary ruling, a reversal is not warranted." Schexnayder v. Bridges, 15-0786, 15-0787 (La.App. 1 Cir. 2/26/16), 190 So.3d 764, 770-71. A reviewing court must determine whether the allegedly erroneous evidentiary ruling, when compared to the record in its totality, had a substantial effect on the outcome of the case to the detriment of the challenging party. Id. at 771. See also La. C.E. art. 103.

         After considering the challenged evidentiary ruling, compared to the record in its totality, we conclude that the admission of the Arbitration Award did not have a substantial effect on the outcome of the case to Southgate's detriment. For reasons already discussed, there was simply no way to avoid discussing and relying on the Arbitration Award to determine whether damages were owed to Southgate, in some instances, and the amount of damages owed to Southgate, in others.

         We also find that any error in admitting the terms of the prior settlements into evidence was harmless. Southgate relies on La. C.E. art 413, which states: "Any amount paid in settlement or by tender shall not be admitted into evidence unless the failure to make a settlement or tender is an issue in the case." Since the failure to make a settlement is not an issue in this case, Southgate argues that the trial court erred in admitting or failing to redact this information from the Arbitration Award before admitting it into evidence over Southgate's objection. However, Southgate offers no explanation for how it was damaged or what substantial effect this error had on the outcome of this case. Under these circumstances, where Southgate has shown no prejudice or substantial effect on the jury, we find no reversible error. See Schexnayder, 190 So.3d at 770-71.

         Apportionment of Costs

         The insurers answered Southgate's appeal to challenge the trial court's judgment insofar as it orders each party to bear its own costs. "While the general rule is that the party cast in judgment should be assessed with court costs, the trial court may assess costs in any equitable manner and against any party in any proportion it deems equitable, even against the party prevailing on the merits." Bourg v. Cajun Cutters, Inc., 14-0210 (La.App. 1 Cir. 5/7/15), 174 So.3d 56, 73, writ denied, 15-1306 (La. 4/4/16), 190 So.3d 1201, writ denied, 15-1253 (La. 4/4/16), 190 So.3d 1205. See also La. C.C.P. art. 1920.

         The insurers argue that, because there is no evidence that they incurred costs needlessly, the trial court abused its discretion in failing to award costs in their favor and against Southgate. Several First Circuit cases address this issue. In Townes v. Liberty Mut. Ins. Co., 09-2110 (La.App. 1 Cir. 5/7/10), 41 So.3d 520, 531-32, the trial court ordered each party to bear its own costs although there was a zero verdict and no indication that either party incurred costs needlessly; this court found no abuse of discretion. In Anglin v. Anglin, 09-0844 (La.App. 1 Cir. 12/16/09), 30 So.3d 746, 753-54, this court recognized that a trial court may assess costs against a party who prevails to some extent on the merits. See also Adams v. Rhodia, Inc., 07-0897 (La.App. 1 Cir. 2/13/09), 5 So.3d 288, 289. In Brown v. Mathew, 13-2974 (La.App. 1 Cir. 12/30/14), 2014 WL 7455038 at *14 (unpublished), the plaintiff was the losing party, but the defendant was taxed with costs.

         In light of this court's recent pronouncements, we cannot conclude that the trial court abused its broad discretion in ordering each party to bear its own costs.

         GREAT AMERICAN ("GA-MAPP") - Excess Insurer for MAPP Construction, LLC

         Application of Credit for Other Insurance

         The jury found that MAPP breached its duty to supervise subcontractors during GA-MAPP's policy period (4/1/04 - 4/1/05) and awarded Southgate $2, 500, 000 in damages. The trial court accepted the jury verdict but applied a credit against the award in the total amount of $39, 176, 459, representing a $1, 000, 000 credit for the limits of the underlying Bituminous policy, a $2, 000, 000 credit for the limits of the Indian Harbor professional liability policy, and a $36, 176, 459 credit for the "overlapping coverage" provided by the RLI Builder's Risk policy. These policies were issued to MAPP for all or a portion of the 4/1/04 - 4/1/05 policy period.

         Southgate asks this court to reverse the credits applied in favor of GA-MAPP and reinstate the jury verdict awarding it $2, 500, 000 for MAPP's failure to supervise the subcontractors. In this regard, Southgate argues that GA-MAPP had the burden of proving the existence of other insurance that covered the same risk and loss awarded by the jury. However, according to Southgate, GA-MAPP waived the issue by failing to introduce evidence on the issue and failing to submit this factual issue to the jury.

         The credit applied to the jury verdict against GA-MAPP stems from the special master's report and recommendation granting GA-MAPP's motion for partial summary judgment on "other insurance" coverage.[4] In its motion, GA-MAPP argued that it was entitled to a credit in the amount of all underlying insurance policies issued to MAPP for the same policy periods as the relevant GA-MAPP policies. GA-MAPP relied on the "other insurance" provision of its policies which states,

The insurance afforded by this policy is excess over any other valid and collectible insurance available to the "insured," whether or not described in the schedule of underlying policies (except insurance purchased specifically to apply excess of the limits of Insurance of this policy).

         The special master concluded that the limits of three insurance policies, issued by Bituminous, Indian Harbor, and RLI to MAPP, must be exhausted before GA-MAPP's coverage was triggered. The special master specifically recognized the availability of a credit in the amount of $1, 000, 000 - the limits of the underlying Bituminous policy. The special master further found that GA-MAPP was "entitled to a credit from any overlapping coverage provided by the Indian Harbor Insurance Company policy and the RLI policy." However, the special master did not identify the policy limits or policy numbers for these two underlying policies. No amount of available coverage was identified. The special master made no findings on the terms of these policies, their triggering events, or any other information necessary to determine whether or how much coverage was available to apply against the $2, 500, 000 judgment against MAPP before GA-MAPP's excess insurance would be triggered. Therefore, this court finds the recommendation is ambiguous and incomplete.

         The uncertainty of this ruling left the issue concerning the amount of other available insurance unresolved. Yet, as Southgate correctly points out, GA-MAPP presented no evidence at trial regarding the available amounts of coverage afforded by the Indian Harbor and RLI policies, their terms, or conditions. Consequently, Southgate contends, GA-MAPP failed to satisfy its burden of proving the existence of other insurance, an affirmative defense, at trial. See Nippert v. Baton Rouge Railcar Servs., Inc., 526 So.2d 824, 828 (La.App. 1 Cir. 1988), writ denied, 530 So.2d 84, 87, 91 (La. 1988) ("[r]eliance upon an exclusion contained in an insurance contract is deemed to be an affirmative defense"). See also Willie v. Am. Cas. Co., 547 So.2d 1075, 1087 (La.App. 1 Cir. 1989), determination sustained, 553 So.2d 467 (La. 1989). See also LAD Services of Louisiana, L.L.C. v. Superior Derrick Servs., L.L.C, 13-0163 (La.App. 1 Cir. 11/7/14), 167 So.3d 746, 756, "[t]he party asserting the affirmative defense has the burden of proving it by a preponderance of the evidence."

         Significantly, neither the Indian Harbor policy nor the RLI policy was introduced into evidence at trial; therefore, the trial court was prohibited from considering these policies, introduced for purposes of the pre-trial motion, in its post-verdict review of this insurance issue. It is well settled that "[a] court may not consider exhibits filed in the record which were not filed into evidence unless it is introduced and is admissible at the trial or hearing." Landis Const. Co. v. State, 15-1167 (La.App. 1 Cir. 2/29/16), 199 So.3d 1, 2 n.l. For the same reason, this court is likewise unable to consider these policies. "Documents attached to memoranda do not constitute evidence and cannot be considered as such on appeal. Appellate courts are courts of record and may not review evidence that is not in the appellate record, or receive new evidence." Id. at 3.

         Accordingly, we conclude that the trial court erred in finding that the Indian Harbor and RLI insurance policies, identified in the December 2015 judgment, afford coverage such that GA-MAPP's excess insurance was not triggered. Consequently, we vacate that portion of the December 16, 2015 judgment which applies a credit in favor of GA-MAPP in the amount of $2, 000, 000 for the Indian Harbor policy and a credit in the amount of $36, 176, 459 for the RLI Builder's Risk policy.

         As to the Bituminous policy, however, the special master's report and recommendation provides the amount of credit due to GA-MAPP, i.e. $1, 000, 000. Southgate appeals this determination and offered alternative explanations regarding the risks insured and exhaustion of the Bituminous policy; however, we conclude that Southgate failed to show that the trial court erred in granting this portion of GA-MAPP's motion for partial summary judgment and finding that GA-MAPP was entitled to a credit in the amount of $1, 000, 000 for the underlying coverage provided by Bituminous. Therefore, that portion of the December 16, 2015 judgment applying the $1, 000, 000 credit for limits of the Bituminous policy is affirmed.

         We further find the judgment fails to account for the jury's finding that Southgate failed to mitigate its damages in connection with MAPP's failure to supervise subcontractors. The jury attributed $59, 000 of damages due to Southgate's failure to mitigate; therefore, the amount owed by GA-MAPP must be reduced accordingly.

         Considering this, the December 16, 2015 judgment is hereby amended to reflect a single credit in favor of GA-MAPP in the amount of $1, 000, 000, representing the limits of the underlying Bituminous policy issued to MAPP, effective 4/1/04 - 4/1/05. The judgment is further amended to reflect damages attributable to Southgate's failure to mitigate, $59, 000. It is ordered, adjudged, and decreed that GA-MAPP is liable to Southgate for damages in the amount of $1, 441, 000, with interest from the date of demand.

         Unpaid Balance of Flooring Judgment

         Southgate argues that GA-MAPP is liable to it for the unpaid balance of a judgment entered by the arbitration panel, and confirmed by the trial court in the arbitration proceeding, against three of MAPP's flooring subcontractors (referred to by the parties as the "flooring judgment"). According to Southgate, the unpaid balance is $1, 112, 821.25, after a credit from an alleged settlement is given and interest is included. Southgate contends that the trial court erred in dismissing its claim for the unpaid balance.

         The final judgment at issue does not specifically address the flooring judgment and makes no ruling for or against Southgate on damages for defective installation of flooring in the building project. The final judgment contains only a general reference to all the claims not specifically addressed: "IT IS FURTHER ORDERED, ADJUDGED, and DECREED that any and all claims of Southgate Residential Towers, LLC and Southgate Penthouses, LLC against defendants are hereby dismissed with full prejudice ...."

         In pursuing the alleged balance of the flooring judgment from GA-MAPP, Southgate argued on appeal that it pleaded the claim in its Amended and Restated Master Petition. During trial, however, Southgate offered no evidence to prove its entitlement to have GA-MAPP cast in judgment for the unpaid balance. Southgate did not introduce the flooring judgment into evidence, offered no evidence as to the calculation of the sum allegedly owed, and failed to establish how the claimed offsets and costs were calculated to reach the amount it claims to be due.

         Following trial, Southgate filed a motion seeking, among other things, to have GA-MAPP cast in judgment for the remaining balance of the flooring judgment. In support, Southgate offered the affidavit of its counsel which states, without explanation or corroboration, the total amount allegedly owed. However, Southgate may not rely on post-trial hearsay evidence to satisfy its burden of proof at trial. On our review of the record, we conclude that Southgate failed to offer evidence at trial to establish that GA-MAPP is liable to it for the unpaid balance of the flooring judgment. Accordingly, we find the trial court did not err in failing to include a special jury interrogatory in this regard, in failing to reference the flooring judgment in the December 16, 2015 judgment, or in failing to award damages to Southgate.

         Due to this disposition, we pretermit discussion of the parties' arguments regarding the availability of underlying insurance to be exhausted before GA-MAPP's policy provides coverage for the flooring judgment and regarding the interaction between the professional services exclusion and the subcontractor exceptions contained in GA-MAPP's excess insurance policy.

         Denial of GA-MAPP's Summary Judgment on Professional ...


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