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McDonnel Group, LLC v. Starr Surplus Lines Insurance Co.

United States District Court, E.D. Louisiana

June 14, 2019

MCDONNEL GROUP, LLC
v.
STARR SURPLUS LINES INSURANCE COMPANY, ET AL.

         SECTION: “H” (2) (Applies to 18-1380)

          ORDER AND REASONS

          JANE TRICHE MILAZZO UNITED STATES DISTRICT JUDGE.

         Before the Court are Defendants' First Motion for Summary Judgment (Doc. 110), Motion to Strike Exhibits attached to Intervenor Plaintiff Jung, LLC's Opposition to Defendants' First Motion for Summary Judgment (Doc. 115), and Second Motion for Summary Judgment (Doc. 114). Also before the Court is Intervenor Plaintiff Jung, LLC's Appeal of the Magistrate Judge's April 17, 2019 Order and Reasons denying Jung, LLC's Motion for Leave to Amend its Complaint of Intervention (Doc. 179).

         For the following reasons, Defendants' First Motion for Summary Judgment (Doc. 110) is DENIED, its Motion to Strike (Doc. 115) is DENIED, and its Second Motion for Summary Judgment (Doc. 114) is GRANTED. In addition, Jung's Appeal of the Magistrate Judge's April 17, 2019 Order and Reasons is GRANTED.

         BACKGROUND

         This lawsuit arises out of the renovation of the Jung Hotel and Residences in New Orleans. In late 2014, The Jung, L.L.C. (“Jung”) hired McDonnel Group, L.L.C. (“McDonnel”) to be the general contractor on the renovation. In early 2015, McDonnel purchased builder's risk insurance policies (the “Policies”) from Defendants Starr Surplus Lines Insurance Company (“Starr”) and Lexington Insurance Company (“Lexington”).[1] Under the Policies, each Defendant insured 50% of the renovation project.[2]

         The trouble began when water damaged the hotel on several occasions in 2017. The “water intrusion” events, as the parties refer to them, delayed the renovation. As the delays piled up, so did delay-related costs, which prompted McDonnel to file insurance claims for damages that it alleges were covered under the Policies. When Defendants allegedly failed to timely and properly adjust McDonnel's claims, McDonnel filed suit.[3] McDonnel seeks declaratory relief and damages for Defendants' alleged breach of contract and bad faith claim adjustment.

         On October 23, 2018, Jung moved for leave to intervene in this action.[4]The Magistrate Judge granted Jung's request on November 7, 2018.[5] In its Complaint of Intervention, Jung alleges that it suffered damages as a result of Defendants' bad faith insurance practices.[6]

         On February 11, 2019, Defendants filed their First Motion for Summary Judgment.[7] Defendants argue in this Motion that they are entitled to summary judgment on Jung's claims because Jung's claims depend on it being insured under Defendants' Policies with McDonnel, yet Jung is neither a named insured nor an additional insured under the Policies. Jung opposes the Motion.[8] Defendants responded to Jung's Opposition with a Motion to Strike two exhibits attached to the Opposition.[9] Jung also opposes the Motion to Strike.[10]

         On February 20, 2019, Defendants filed their Second Motion for Summary Judgment against Jung.[11] In it, they argue that even if Jung were insured under the Policies, Jung's claims must fail because the damages Jung seeks are not covered under and specifically excluded by the Policies.[12] Jung opposes the Motion.[13]

         Since Defendants' Motions for Summary Judgment were filed, two sets of developments have transpired that have a bearing on the Motions. The ones affecting the First Motion for Summary Judgment resulted from Motions to Dismiss filed by Defendants against other since-Consolidated Plaintiffs in this case. The developments affecting the Second Motion for Summary Judgment occurred as a result of the briefing for that Motion.

         The first set of developments began on March 8, 2019, when Mechanical Construction Company, L.L.C. n/k/a Bernhard MCC, L.L.C. (“BMCC”), a subcontractor of McDonnel's on the Jung Hotel project, filed its own suit against Defendants.[14] Another subcontractor, All Star Electric, Inc. (“ASE”), followed shortly thereafter with the same type of claims in a separate suit.[15]Both suits generally seek the same type of relief McDonnel seeks: damages based on Defendants' alleged breach of the Policies and bad faith insurance practice. On March 18, 2019, this Court consolidated all three cases.[16]

         On April 9, 2019, Defendants filed Motions to Dismiss Consolidated Plaintiffs BMCC and ASE.[17] Just as Defendants' argue with regard to Jung in their First Motion for Summary Judgment, Defendants argued in these Motions that neither BMCC nor ASE is an additional insured under the Policies. On May 31, 2019, this Court denied the Motions, holding in relevant part that the Policies were ambiguous as to whether the subcontractors were additional insureds, and that “[a]s such, it would be inappropriate to dismiss the Subcontractors' claims at this time.”[18]

         The developments bearing on the Second Motion for Summary Judgment began when Jung filed its Opposition on March 4, 2019.[19] Defendants had previously argued that Jung's claims must fail because the types of damages it sought-mostly delay-related damages-were not covered under the Policies. Thus, even if Jung were insured by the Policies, Defendants argued that the damages it sought were not covered by the Policies, and therefore Defendants were entitled to summary judgment against Jung.

         In response, Jung clarified its claims.[20] It was not merely seeking damages based on Defendants' alleged failure to adjust a claim made by Jung as an additional insured under the Policies. Additionally, it seeks damages allegedly caused by Defendants' failure to adjust McDonnel's claims.

         In a Reply brief on March 12, 2019, Defendants argued that Jung had failed to plead its since-clarified claim and that Jung could not raise “new claims” in opposition to its Second Motion for Summary Judgment.[21] Jung countered this argument in three ways. First, on March 27, 2019, it filed a Motion for Leave to File a First Supplemental and Amending Complaint of Intervention.[22] Second, it filed a Sur-Reply regarding the Second Motion for Summary Judgment.[23] Third, after the Magistrate Judge denied Jung's Motion for Leave to amend its Complaint of Intervention, Jung filed a suit of its own.[24]Jung's Complaint in that separate suit mirrors its proposed First Supplemental and Amending Complaint of Intervention.[25] Because that suit was related to this Consolidated Action, the Court consolidated the cases on May 22, 2019.[26]

         Having laid out the complicated procedural background of this Consolidated Action, the Court will now turn to the Motions pending before it. The Court will first address Defendants' Motions for Summary Judgment and their Motion to Strike before turning to Jung's Appeal of the Magistrate Judge's Order and Reasons denying Jung leave to amend its Complaint of Intervention.

         LEGAL STANDARD

         I. Motions for Summary Judgment

         “The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”[27] “As to materiality . . . [o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.”[28] Nevertheless, a dispute about a material fact is “genuine” such that summary judgment is inappropriate “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.”[29]

         In determining whether the movant is entitled to summary judgment, the Court views facts in the light most favorable to the non-movant and draws all reasonable inferences in his favor.[30] “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.”[31] Summary judgment is appropriate if the non-movant “fails to make a showing sufficient to establish the existence of an element essential to that party's case.”[32]

         “In response to a properly supported motion for summary judgment, the nonmovant must identify specific evidence in the record and articulate the manner in which that evidence supports that party's claim, and such evidence must be sufficient to sustain a finding in favor of the nonmovant on all issues as to which the nonmovant would bear the burden of proof at trial.”[33] The Court does “not . . . in the absence of any proof, assume that the nonmoving party could or would prove the necessary facts.”[34] Additionally, “[t]he mere argued existence of a factual dispute will not defeat an otherwise properly supported motion.”[35]

         II. Motion to Strike

         Under Federal Rule 56(c)(2), “[a] party may object that the material cited to support or dispute a fact cannot be presented in a form that would be admissible in evidence.” Nevertheless, “[a]t the summary judgment stage, materials cited to support or dispute a fact need only be capable of being ‘presented in a form that would be admissible in evidence.'”[36] “This flexibility allows the court to consider the evidence that would likely be admitted at trial-as summary judgment is trying to determine if the evidence admitted at trial would allow a jury to find in favor of the nonmovant-without imposing on parties the time and expense it takes to authenticate everything in the record.”[37]

         III. Appeal from Magistrate Judge's Order and Reasons

         A district judge may refer any non-dispositive pretrial matter to a United States Magistrate Judge.[38] District judges must consider timely objections to rulings by magistrates on such matters, and they must “modify or set aside any part of the order that is clearly erroneous or contrary to law.”[39] “A finding is clearly erroneous only if it is implausible in the light of the record considered as a whole.”[40] More specifically, “[a]n order is clearly erroneous if the court ‘is left with the definite and firm conviction that a mistake has been committed.'”[41] “The district court [is not permitted to] undertake a de novo review of the magistrate's disposition.”[42]

         LAW AND ANALYSIS

         Because this is a diversity action, Louisiana law applies.[43]

         I. First Motion for Summary Judgment

         Defendants argue in this Motion that they are entitled to summary judgment because Jung is neither a named insured nor an additional insured under the Policies, and Jung's claims depend on it being one of the two. This Court has already ruled that the Policies are ambiguous as to whether subcontractors like Consolidated Plaintiffs BMCC and ASE are additional insureds under the Policies.[44] For the same reasons, the Policies are equally ambiguous as to whether Jung is an additional insured.[45] Therefore, the Court is bound by Louisiana law to consider “course of conduct” evidence to determine the meaning of the Policies.[46]

         “Generally, when a contract is determined to be ambiguous, an issue of material fact exists, and the matter is not ripe for summary judgment.”[47]Defendants here did not submit any course of conduct evidence to support their Motion because they argued that the Policies were unambiguous and thus such evidence was both unnecessary and inappropriate. Because this Court finds that such evidence is necessary to interpret the Policies, Defendants have failed to carry their burden to show that they are entitled to summary judgment on this ground.

         II. Motion to Strike

         Defendants seek to strike from the record two exhibits (the “Exhibits”) to Jung's Opposition to Defendants' First Motion for Summary Judgment. The first, marked by Jung as Exhibit L, is the transcript of the deposition of Grayson Bultman, McDonnel's senior project manager on the Jung Hotel renovation.[48] The second, marked as Exhibit M, is a declaration by Joseph A Jaeger, Jr., Jung's manager.[49]

         Because this Court is denying Defendants' First Motion for Summary Judgment on grounds wholly unrelated to the Exhibits, the Court need not strike them from the record. Accordingly, the Court need not address Defendants' arguments that certain statements in the Exhibits would not be admissible at trial.

         III. Second Motion for Summary Judgment

         The Policies insure “against all risks of direct physical loss of or damage to property” involved in the Jung Hotel renovation.[50] Of particular note here, the Policies insure “direct physical loss or damage to the interior of an insured building or structure or other insured property within an insured building or structure cased by or resulting from ‘Water Damage.'”[51] Additionally, the Policies specifically exclude from coverage the following types of damage:

Consequential loss, damage, or expense of any kind or description including but not limited to loss of market or delay, liquidated damages, performance penalties, penalties for non-completion, delay in completion . . . however, the foregoing shall not exclude Delay in Completion Coverage when it is specifically made a part of [these Policies] by endorsement to [these Policies] and as limited by that endorsement.[52]

         In its Complaint of Intervention, Jung seeks, in pertinent part, the following types of damages:

(a) Completion penalties pertaining to capital loan contributions;
(b) Damages for delay in completion of the Apartment renovations;
(c) Damages for delay in completion of the Hotel renovations;
(d) Damages for the inability to host events while the Project was delayed;
(e) Damages relating to hotel operations;
(f) Damages relating to expenses and losses associated with project financing;
(g) Damages relating to ownership labor and overhead coverages; and
(h) Attorney fees[53]

         Defendants argue that the damages Jung seeks cannot be characterized as direct physical loss or damage to property. As such, Defendants argue that these damages are not covered by the Policies. Defendants further argue that the damages clearly fall within the consequential losses excluded by the Policies.

         In response, Jung fails to cite to any evidence to rebut Defendants' contention that the Policies both do not cover and actually exclude the types of damages Jung specifies in its Complaint of Intervention. In fact, Jung fails to even address these arguments by Defendants.

         Instead, Jung responds that Defendants' Motion is premature and seeks denial of the Motion pursuant to Rule 56(d). The Rule requires a nonmovant to show “by affidavit or declaration that, for specified reasons, it cannot present facts essential to justify its opposition.”[54] The sought-after deposition testimony referenced by Jung's counsel in a declaration may help shed light on Jung's since-clarified claim based on Defendants' alleged failure to properly adjust McDonnel's insurance claims. It would not, however, rebut Defendants' arguments regarding the types of damages covered and excluded by the Policies. Accordingly, Jung has not pointed to sufficiently specific reasons to justify Rule 56(d) relief from Defendants' Second Motion for Summary Judgment.

         Defendants carried their initial burden to show that there is no genuine issue of material fact regarding whether the specific consequential damages Jung seeks as an additional insured are either covered by or excluded by the Policies. In response, Jung failed to produce evidence or designate specific facts showing the existence of a genuine issue for trial on this particular claim. Accordingly, Defendants are entitled to summary judgment on Jung's claim that Defendants owe it delay-related damages under the Policies.[55]

         To be clear, the granting of this Motion does not dispose of all of Jung's claims in this suit. As an initial matter, this ruling shall not be interpreted as holding that Jung is not an additional insured under the Policies. That remains a disputed issue of fact. As an additional matter, the granting of Defendants' Second Motion for Summary Judgment is limited to the relief Defendants sought. That is, this Court is awarding Defendants summary judgment on Jung's claim for delay-related damages as an additional insured under the Policies. This Court does not hold, however, that Defendants are entitled to summary judgment on Jung's ...


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