Opelousas Hotel Group L L C v. D D G Construction Inc

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF LOUISIANA

LAFAYETTE DIVISION

OPELOUSAS HOTEL GROUP L L C CASE NO. 6:18-CV-01311

VERSUS JUDGE TERRY A. DOUGHTY

D D G CONSTRUCTION INC MAGISTRATE JUDGE CAROL B.

WHITEHURST

MEMORANDUM RULING

Pending before the Court is a Motion for Summary Judgment on Plaintiff’s Fourth

Amended Complaint [Doc. No. 236] filed by Defendant First Mercury Insurance Company (“First

Mercury”). DDG Construction, Inc. (“DDG”) filed an Opposition [Doc. No. 243], and First

Mercury filed a Reply [Doc. No. 253] to the Opposition.

For the following reasons, the Motion is GRANTED.

I. BACKGROUND AND PROCEDURAL HISTORY

On December 5, 2018, Plaintiff Opelousas Hotel Group, LLC (“Plaintiff”) filed its Original

Complaint for Damages.1 Plaintiff subsequently filed several amended complaints.2 In its Fourth

Amended Complaint, Plaintiff asserted causes of action for breach of contract, negligence in the

supervision and construction of the project, breach of an implied warranty of workmanship,

professional negligence, and redhibition against DDG, its insurers, and several subcontractors.3

Plaintiff sued First Mercury as DDG’s general liability insurer pursuant to the Louisiana Direct

Action Statute.4

1 [Doc. No. 1]

2 [Doc. Nos. 51, 62, 93, 132]

3 [Doc. No. 132, pp. 6–9]

4 La. Rev. Stat. 22:1269

The events leading up to the suit are as follows. On August 12, 2014, Plaintiff entered into

a written contract (“Construction Contract”) with DDG.5 Under the Construction Contract, DDG

agreed to construct as the “prime, general contractor,” a Hampton Inn in Opelousas, Louisiana

(“the Project”) for the original sum of $4,668,330.00.6 Under the Construction Contract, DDG

would construct the entire hotel. DDG does not employ laborers and did not provide any laborers

for the Project.7 Rather, DDG’s role was to hire and manage subcontractors who would be tasked

with the actual construction of the hotel.8 The Construction Contract also provided that it was

governed by Louisiana law.9 According to Plaintiff, on June 1, 2017, DDG was issued a written

notice of default due to DDG’s “lack of progress and finishing the hotel on time, [and] lack of

manpower.”10 The written notice of default allegedly gave DDG seven days to remedy the

default.11 Plaintiff further alleges that after the expiration of the seven days, Plaintiff terminated

the Construction Contract.12

First Mercury issued the following commercial general liability policies (“CGL”) to DDG:

Policy No. CA-CGL-0000031914-01 (07/27/2013 to 07/27/2014) (the “2013 Policy”);13 Policy

No. NJ-CGL-0000045665-01 (07/27/2014 to 07/27/2015) (the “2014 Policy”);14 Policy No. NJ-

CGL-0000045665-02 (07/27/2015 to 07/27/2016) (the “2015 Policy”);15 and Policy No. NJ-CGL-

0000045665-03 (07/27/2016 to 07/27/2017) (the “2016 Policy”).16 The 2013 through 2016

5 [Doc. No. 132, p. 9]

6 [Doc. No. 236-5]

7 [Doc. No. 236-6, p. 24]

8 [Id.]

9 [Doc. No. 236-5]

10 [Doc. No. 236-7, p. 67]

11 [Doc. No. 132, pp. 3–4]

12 [Doc. No. 132, p. 4]

13 [Doc. No. 236-8]

14 [Doc. No. 236-9]

15 [Doc. No. 236-10]

16 [Doc. No. 236-11]

Policies (collectively, the “Policies”) are each subject to a $1,000,000.00 Each Occurrence Limit

and $2,000,000.00 General Aggregate Limit and Products-Completed Operations Aggregate

Limit. In addition, First Mercury issued excess Policy No. IL- EX-0000065023-01 (06/08/2016 to

07/27/2017) (the “Excess Policy”).17 The Excess Policy is subject to a $5,000,000.00 Each

Occurrence Limit, General Aggregate Limit, and Products-Completed Operations Limit. First

Mercury accepted DDG’s defense of the lawsuit subject to a reservation of rights.18

First Mercury contends that the Policies do not provide coverage for Plaintiff’s damages

because the damage did not occur during the First Mercury policy periods. In support of this

argument, First Mercury contends that Plaintiff’s damages did not manifest until after their

replacement contractor discovered the alleged defects in September 2017, after the last First

Mercury policy period terminated on June 27, 2017.19 First Mercury also argues that several

exclusions contained within the Policies prevent Plaintiff from recovering for any of the damage

allegedly caused by DDG.20 DDG contends in opposition that there are genuine issues of material

fact as to when the damage allegedly caused by DDG was discovered and the existence or extent

of any damage caused by DDG.21

The issues are briefed, and the Court is prepared to rule.

II. LAW AND ANALYSIS

A. Summary Judgment Standard

Under Federal Rule of Civil Procedure 56(a), “[a] party may move for summary judgment,

identifying each claim or defense--or the part of each claim or defense--on which summary

17 [Doc. No. 236-12]

18 [Doc. No. 208-1]

19 [Doc. No. 236-1, p. 4]

20 [Id.]

21 [Doc. No. 243]

judgment is sought. 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.

The court should state on the record the reasons for granting or denying the motion.”

“If the moving party meets the initial burden of showing there is no genuine issue of

material fact, the burden shifts to the nonmoving party to produce evidence or designate specific

facts showing the existence of a genuine issue for trial.” Distribuidora Mari Jose, S.A. de C.V. v.

Transmaritime, Inc., 738 F.3d 703, 706 (5th Cir. 2013) (internal quotation marks and citation

omitted).; see also FED. R. CIV. P. 56(c)(1).

A fact is “material” if proof of its existence or nonexistence would affect the outcome of

the lawsuit under applicable law in the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248,

106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). A dispute about a material fact is “genuine” if the

evidence is such that a reasonable fact finder could render a verdict for the nonmoving party. Id.

“[A] party cannot defeat summary judgment with conclusory allegations, unsubstantiated

assertions, or only a scintilla of evidence.” Turner v. Baylor Richardson Med. Ctr., 476 F.3d 337,

343 (5th Cir. 2007) (citing Anderson, 477 U.S. at 248). However, in evaluating the evidence

tendered by the parties, the Court must accept the evidence of the nonmovant as credible and draw

all justifiable inferences in its favor. Anderson, 477 U.S. at 255. “A non-conclusory affidavit can

create genuine issues of material fact that preclude summary judgment, even if the affidavit is self-

serving and uncorroborated.” Lester v. Wells Fargo Bank, N.A., 805 F. App'x 288, 291 (5th Cir.

2020) (citations omitted).

Note that “a district court has somewhat greater discretion to consider what weight it will

accord the evidence in a bench trial than in a jury trial.” Matter of Placid Oil Co., 932 F.2d 394,

397 (5th Cir. 1991); see also Nunez v. Superior Oil Co., 572 F.2d 1119, 1124 (5th Cir. 1978) (“If

decision is to be reached by the court, and there are no issues of witness credibility, the court may

conclude on the basis of the affidavits, depositions, and stipulations before it, that there are no

genuine issues of material fact, even though decision may depend on inferences to be drawn from

what has been incontrovertibly proved . . . . The judge, as trier of fact, is in a position to and ought

to draw his inferences without resort to the expense of trial.”).

B. Analysis

First Mercury contends that the Direct-Action suit against it as DDG’s insurer must be

dismissed for two chief reasons: 1) the policies contain exclusions barring any hypothetical

recovery from First Mercury as DDG’s insurer, and 2) the policies were not in effect because

damages did not “manifest” until after all of the coverage periods had elapsed. DDG responds that

genuine issues of material fact preclude summary judgment. At issue in First Mercury’s first

argument are general principles of contract interpretation and whether the exclusions apply to the

damages claimed by Plaintiff. At issue in First Mercury’s second argument is whether the Court

should apply the “manifestation theory” trigger of policy coverage, or whether it should apply

some other theory.

The parties do not dispute that the interpretation of the Policies is controlled by Louisiana

law. The Court agrees and finds that Louisiana law applies to interpretation of the policies. See

Pioneer Expl., L.L.C. v. Steadfast Ins. Co., 767 F.3d 503, 512 (5th Cir. 2014) (Federal courts sitting

in diversity apply the choice-of-law rules of the forum state.); see also Champagne v. Ward, 2003-

3211 (La. 1/19/05); 893 So.2d 773 (In cases involving contractual interpretation of an insurance

policy, Louisiana courts employ the law of the state whose policies would be most seriously

impacted if its law was not applied.); see also La. C.C. Art. 3537.

1. Insurance Contract Interpretation Under Louisiana Law

Under Louisiana law, an insurer’s duty to defend an insured is a separate and distinct

inquiry from the insurer’s duty to indemnify the insured in the underlying liability case. Arceneaux

v. Amstar Corp., 2015-0588 (La. 9/7/16), 200 So. 3d 277, 281 (citing Elliott v. Cont'l Cas. Co.,

2006-1505 (La. 2/22/07), 949 So. 2d 1247, 1250). In determining whether an insurance contract

creates a duty to defend, Louisiana courts apply the “Eight Corners Rule.” See Pontchartrain Nat.

Gas Sys. v. Texas Brine Co., LLC, 2018-0244 (La. App. 1 Cir. 10/11/18), 264 So. 3d 545, 552–

53, writ denied, 2019-0080 (La. 3/6/19), 264 So. 3d 1204, (citing Maldonado v. Kiewit La. Co.,

2013-0756 (La. App. 1 Cir. 3/24/14), 146 So. 3d 210, 218)). The Eight Corners Rule compares the

plaintiff’s petition to the policy without considering extrinsic evidence. Id. A duty to defend is

created unless the policy unambiguously excludes coverage as applied to the allegations in the

petition. Arceneaux, 200 So.3d at 281–82 (citing Steptore v. Masco Constr. Co., 93-2064 (La.

8/18/94), 643 So. 2d 1213, 1218)); Elliott, 949 So. 2d at 1250. If the pleadings against the insured

disclose even a possibility of liability under the policy, the insurer has a duty to defend the insured.

Id. at 282 (citing Steptore, 643 So. 2d at 1218); Elliott, 949 So. 2d at 1250; and Meloy v. Conoco,

Inc., 504 So. 2d 833, 839 (La. 1987)).

Here, First Mercury accepted DDG’s defense with a reservation of rights. Because DDG

made no claims against First Mercury for failure to accept its defense, the Court assumes for the

purposes of this Motion that First Mercury had a duty to defend and acted in conformity with said

duty. However, the question of an insurer’s duty to defend is a different question than an insurer’s

duty to indemnify.

An insurer’s duty to indemnify depends on the facts established in the lawsuit. Hanover

Ins. Co. v. Superior Labor Servs., Inc., 11-2375, 2016 WL 7156067, at *2 (E.D. La. Dec. 8, 2016)

(“The duty to indemnify is ‘triggered by actual facts that establish liability in the underlying

lawsuit.’”); see also Admiral Ins. Co. v. Dual Trucking, Inc., CV 20-383, 2020 WL 2526952, at

*8 (E.D. La. May 18, 2020). When uncontroverted facts preclude the possibility of a duty to

indemnify, “the duty to defend ceases and the duty to indemnify is negated.” Donahue v. Republic

Nat’l Distrib. Co., 489 F.Supp.3d 455, 470 (E.D. La. 2020).

First Mercury maintains that coverage is excluded under the Policies because of several

exceptions.22 First Mercury also argues that damages did not occur during the policy periods

because defects did not manifest until after the last policy period terminated, and that Plaintiff’s

breach of contract claims against DDG are not an occurrence or property damage as defined in the

Policies.23 DDG argues in response that there are genuine issues of material fact as to whether

coverage under the Policies was triggered due to conflicting testimony as to when the damage

occurred.24 DDG also argues that there are genuine issues of material fact as to the existence of

any deficiencies in the work it performed, and, in the alternative, the extent of damages arising out

of any alleged deficiencies.25

The Court agrees with First Mercury that the exclusions in the Policies clearly and

unambiguously preclude coverage for the damages sought by the Plaintiff in its Direct-Action

Statute suit against First Mercury. The Court also finds that the manifestation theory of trigger of

coverage applies to the Policies and that under the manifestation theory, Plaintiff’s damages did

not occur during the First Mercury policy periods.

22 See [Doc. No. 236-1, p. 5]

23 See [Id.]

24 See [Doc. No. 243, p. 3]

25 See [Id. at pp. 6–7]

i. The Policy Exclusions

First Mercury argues that the following Policy Exclusions preclude suit against it for

indemnity or contribution under the Direct Action Statute: Damage to Property Exclusion,26

Damage to Your Product Exclusion,27 Damage to Impaired Property or Property Not Physically

Injured Exclusion,28 Exterior Insulation and Finish Systems Exclusion (“EIFS Exclusion”),29

Professional Liability Exclusion,30 and Contractual Liability Exclusion.31 The Court will address

each exclusion below.

a. Damage to Property Exclusion

The Policies contain a Damage to Property Exclusion which states that:

j. Damage To Property

“Property damage” to: . . .

(5) That particular part of real property on which you or any

contractors or subcontractors working directly or indirectly

on your behalf are performing operations, if the “property

damage” arises out of those operations; or

(6) That particular part of any property that must be restored,

repaired or replaced because “your work” was incorrectly

performed on it.32

Under the Policies, “Your Work” is defined as follows:

22. “Your work”:

a. Means:

(1) Work or operations performed by you or on your

behalf; and

(2) Materials, parts or equipment furnished in connection

with such work or operations.

26 See [Doc. Nos. 236-8, pp. 8-9, 236-9 pp. 66-67, 236-10, pp. 128–129, and 236-11, pp. 197–98]

27 See [Doc. Nos. 236-8, p. 9, 236-9 p. 67, 236-10, p. 129, and 236-11, p. 198]

28 See [Id.]

29 See [Doc. Nos. 236-8, p. 33, 236-9 p. 90, 236-10, p. 154, and 236-11, p. 224]

30 See [Doc. Nos. 236-8, p. 31, 236-9 p. 91, 236-10, p. 155, and 236-11, p. 225]

31 See [Doc. Nos. 236-8, p. 6, 236-9 p. 64, 236-10, p. 126, and 236-11, p. 195]

32 See supra footnote 26.

b. Includes:

(1) Warranties or representations made at any time with

respect to the fitness, quality, durability, performance or

use of “your work”, and

(2) The providing of or failure to provide warnings or

instructions.33

First Mercury asserts that Exclusions (j)(5) and (j)(6) of the Damage to Property Exclusions are

intended to limit coverage for defective work performed by the insured.34

In Supreme Servs. & Specialty Co. v. Sonny Greer, Inc., 2006-1827 (La. 5/22/07), 958 So.

2d 634, 641, the Louisiana Supreme Court held that a CGL containing the “work product”

exclusion “does not insure any obligation of the policy holder to repair or replace his own defective

product.” The court also noted that a CGL policy “is not written to guarantee the quality of the

insured’s work or product.” Id. (quoting McMath Const. Co. v. Dupuy, 2003-1413 (La. App. 1 Cir.

11/17/04), 897 So. 2d 677, writ denied, 2004-3085 (La. 2/18/05), 896 So. 2d 40).

Here, the Damage to Property Exclusion unambiguously precludes coverage for any

damage arising out of DDG’s defective work. Subsection j(5) applies to the property in question

here because the Plaintiff alleges that subcontractors hired by DDG performed defective work.

Similarly, subsection j(6) also applies as Plaintiff hired replacement contractors and subcontractors

to finish and repair DDG’s allegedly deficient work. There is also no question that DDG’s work

qualifies as “your work” under the Policies. DDG hired various subcontractors to complete the

construction of the hotel. Therefore, the work to construct the hotel qualifies as work or operation

performed “on your (DDG’s) behalf.”

The evidence makes clear that all of the damage occurred on property worked on by DDG’s

subcontractors and did not affect other property. Ladd Ehlinger’s Report, the report relied upon by

33 [Doc. Nos. 236-8, p. 20, 236-9 p. 78, 236-10, p. 140, and 236-11, p. 209]

34 [Doc. No. 236-1, p. 19]

DDG’s corporate representative, identifies numerous errors made by Plaintiff’s architect and

DDG.35 Specifically, the following errors were identified and attributed to DDG and the Plaintiff’s

architect in Ehlinger’s Report:

inadequate waterproofing of an elevator pit,

floating vanities falling off the wall,

improper Exterior Insulation and Finish System (“EIFS”),

the roof access hatch opens the wrong direction,

stairwells missing layers of gypsum board,

fireproofing, and incorrect paint,

the Store Front and windows lack end dams to prevent leaks,

unconventional behavior by the architect,

the structural steel column block outs were not filled with concrete,

improper framing causing door frames not to fit properly,

ceilings not uniform,

lobby walls out of plumb with elevator frames,

a single stud (rather than a double stud) installed on the underside of

the floor trusses,

the elevator shaft failing to meet structural requirements,

two fresh air makeup units for HVAC not installed,

electrical and mechanical work not up to code,

dryer lint traps installed too far below the slab,

washing machine pad not properly designed to accommodate the

volume of water discharged by the washing machines,

inability of roof drains to discharge into the storm drainage,

no provisions to run irrigation piping under the parking lot,

use of the wrong forms, and

conflicts of interest.36

All of these alleged errors concern the particular parts of property that DDG or its subcontractors

worked on, and none reference damage to other property. Additionally, the Fourth Amended

Complaint alleged the following problems associated with the design and construction of the

Project:

One of the two fresh air makeup units was not installed;

roof drains not tied into storm drainage;

failed to install conduit in parking areas to allow for electrical wiring

to light poles;

35 [Doc. No. 236-16]

36 [Id.]

failed to properly design and install irrigation lines under the parking

lot to service landscape areas around the building;

failed to properly design and install commercial washing machine

pad to accommodate volume of water discharged by the washing

machines;

failed to design and install the elevator shaft in accordance with

structural requirements;

failed to properly design and install the structure and interior spaces;

failed to fill structural steel columns with concrete;

failed to design and install the structure to required two-hour fire

rating;

failed to properly construct and waterproof the elevator pit;

failed to properly install the roof access hatch;

failed to properly design and install dryer lint trap;

failed to design and install electrical work in compliance with

applicable code sections;

failed to design and install mechanical work in compliance with

applicable code sections;

defectively designed and constructed the exterior EFIS cladding;

failed to properly design exterior window bracing and framing;

failed to properly design and construct truss system;

failed to properly design and install the foundation system and failed

to design and install adequate blocking to support floating vanities.37

Every specific item of damage identified by Plaintiff only concerns that particular part of property

that must be restored, repaired, or replaced because DDG’s work was incorrectly performed on

that property, and no item of damage identifies damage to other property, i.e. damage to property

that DDG’s subcontractors did not design or construct. Accordingly, the Court finds that the

Damage to Property Exclusion applies to exclude coverage of all damages related to repairing or

correcting DDG’s allegedly deficient work.

b. Damage to Your Product Exclusion

The Policies define and exclude damage to “Your Product.” “Your Product” is defined as:

(k) Any goods or products, other than real property,

manufactured, sold, handled, distributed or disposed of by:

(a) You;

37 [Doc. No. 132, pp. 5–6]

(b) Others trading under your name; or

(c) A person or organization whose business or assets you

have acquired; and

(2) Containers (other than vehicles), materials, parts or

equipment furnished in connection with such goods or

products.

b. Includes

(1) Warranties or representations made at any time with

respect to the fitness, quality, durability, performance or use

of “your product”; and

(2) The providing of or failure to provide warnings or

instructions[.]38

In Atain Specialty Ins. Co. v. VIG II, LLC, CV 15-6499, 2017 WL 3867672 (E.D. La. Feb. 9, 2017),

the court analyzed a similarly worded “Your Product Exclusion.” The court noted that the

exclusion “encompasses damage to the product itself.” Id. at 6. The court first determined what

qualified as the insured’s “product,” and then determined whether the plaintiff alleged damage to

anything other than the insured’s product. Id. at 6–7. The insurer claimed that the plaintiff’s entire

home was the insured’s product. Id. at 6. The court noted that the insured sold “the entire home”

to plaintiffs. Id. The policies defined “product” as “[a]ny goods or products, other than real

property, manufactured, sold, handled, distributed or disposed of by . . . [y]ou.” Id. Based on this

definition, the court found that the home was a good or product that was both manufactured and

sold by the insured, and that the Damage to Your Product provisions precluded indemnification

for all damage to the plaintiffs’ home. The court further noted that the insurer owes coverage only

if the petition “includes claims for damage to anything other than the home itself.” Id. at *7. The

petition contained no allegations of damage to anything other than the home itself so the court

found that the policies and petition “unambiguously preclude coverage.” Id.

38 See supra footnote 27.

Here, DDG was the general contractor for the Project. DDG’s corporate representative

stated that DDG’s role was to manage the entire construction of the hotel. Therefore, the Project

itself – the construction of the hotel – is DDG’s product. The Damage to Your Product Exclusion

unambiguously precludes coverage for such products. First Mercury owes coverage only for

damage to other property. As explained above, Plaintiff has not identified damage to any property

other than property constructed or designed by DDG or one of its subcontractors. Like the plaintiff

in Atain, Plaintiff seeks only the cost of repairing the damage to the Hampton Inn and remedying

the defects in the Project. Accordingly, the Court finds that the Damage to Your Product Exclusion

precludes coverage for damages arising out of the cost of repairing damage to the Project itself.

c. Damage to Impaired Property or Property Not Physically

Injured

The Policies include a “Damage to Impaired Property Exclusion” which states:

m. Damage To Impaired Property Or Property Not Physically

Injured

“Property damage” to “impaired property” or property that has not

been physically injured, arising out of:

(1) A defect, deficiency, inadequacy or dangerous condition

in “your product” or “your work”; or

(2) A delay or failure by you or anyone acting on your behalf

to perform a contract or agreement in accordance with its

terms.

This exclusion does not apply to the loss of use of other property

arising out of sudden and accidental physical injury to “your

product” or “your work” after it has been put to its intended use.39

Section V in the Policies includes the following relevant definitions:

8. “Impaired property” means tangible property, other than “your

product” or “your work”, that cannot be used or is less useful

because:

a. It incorporates “your product” or “your work” that is

known or thought to be defective, deficient, inadequate or

dangerous; or

39 See supra footnote 28.

b. You have failed to fulfill the terms of a contract or

agreement; if such property can be restored to use by the

repair, replacement, adjustment or removal of “your

product” or “your work” or your fulfilling the terms of the

contract or agreement.40

In Stewart Interior Contractors, L.L.C. v. Metalpro Indus., L.L.C., the Louisiana Fourth Circuit

Court of Appeals examined an identical provision in a CGL. The court found the provision to be

“clear and unambiguous” and noted that it “precludes coverage from damage to property that has

not been physically injured or for which only loss of use is sought.” 2007-0251 (La. App. 4 Cir.

10/10/07), 969 So. 2d 653, 663–64, citing N. Am. Treatment Sys., Inc. v. Scottsdale Ins. Co., 2005-

0081 (La. App. 1 Cir. 8/23/06), 943 So. 2d 429, writ denied, 2006-2918 (La. 2/16/07), 949 So. 2d

423, and writ denied, 2006-2803 (La. 2/16/07), 949 So. 2d 424; PCS Nitrogen Fertilizer, L.P. v.

U.S. Filter/Arrowhead, Inc., 2001-2577 (La. App. 1 Cir. 11/8/02), 834 So. 2d 456, 459. The court

also noted that the exclusion “does not apply where there is physical damage to property other than

the insured’s work or product after the product has been put to its intended use.” Id. citing Gaylord

Chem. Corp. v. ProPump, Inc., 1998-2367 (La. App. 1 Cir. 2/18/00), 753 So. 2d 349, 355.

Here, as stated above, the Ehlinger Report and Fourth Amended Complaint describe

numerous items which were inadequately constructed or designed by DDG or its subcontractors.

There is no evidence that any of these defective items damaged property which was not constructed

or designed by DDG or its subcontractors. Accordingly, the Court finds that the Damage to

Impaired Property or Property Not Physically Injured Exclusion clearly and unambiguously

excludes liability for loss of use attendant to the repair of property constructed or designed by

DDG or its contractors.

40 [Doc. Nos. 236-8, p. 9, 236-9 p. 67, 236-10, p. 129, and 236-11, p. 198]

d. Exterior Insulation and Finish Systems Exclusion

The Policies include an EIFS Exclusion which states:

A. This insurance does not apply to “bodily injury”, “property

damage” or “personal and advertising injury” arising out of, caused

by, or attributable to, whether in whole or in part, the following:

1. The design, manufacture, construction, fabrication,

preparation, distribution and sale, installation, application,

maintenance or repair, including remodeling, service,

correction or replacement, of any “exterior insulation and

finish system” or any part thereof, or any substantially

similar system or any part thereof, including the application

or use of conditioners, primers, accessories, flashings,

coatings, caulking or sealants in connection with such a

system; or

2. “Your product” or “your work” with respect to any

exterior component, fixture or feature of any structure if an

“exterior insulation and finish system”, or any substantially

similar system, is used on the part of that structure

containing that component, fixture or feature.

B. The following definition is added to the Definitions Section:

“Exterior insulation and finish system” means a non-load bearing

exterior cladding or finish system, and all component parts therein,

used on any part of any structure, and consisting of:

1. A rigid or semi-rigid insulation board made of expanded

polystyrene and other materials;

2. The adhesive and/or mechanical fasteners used to attach

the insulation board to the substrate;

3. A reinforced or unreinforced base coat;

4. A finish coat providing surface texture to which color may

be added; and

5. Any flashing, caulking or sealant used with the system for

any purpose.41

This EIFS Exclusion precludes coverage for “property” damage attributable to any EIFS. The EIFS

Exclusion also excludes coverage for the insured’s “product” or “work” with respect to a structure

using EIFS or a substantially similar system.

41 See supra footnote 29.

Here, the Fourth Amended Complaint alleges damages for defectively designed and

constructed exterior EIFS cladding.42 Additionally, the Ehlinger Report states that the EIFS was

not properly designed or constructed. Accordingly, the Court finds that the EIFS Exclusion is clear

and unambiguous and that it excludes coverage for damage related to the improper design or

construction of the EIFS.

e. Professional Liability Exclusion

The Policies contain a Professional Liability Exclusion which states:

1. This insurance does not apply to “bodily injury,” “property

damage” or “personal and advertising injury” arising out of the

rendering of or failure to render any professional services by you or

on your behalf, but only with respect to either or both of the

following operations:

a. Providing engineering, architectural or surveying services

to others in your capacity as an engineer, architect or

surveyor; and

b. Providing, or hiring independent professionals to provide,

engineering, architectural or surveying services in

connection with construction work you perform. . . .

2. Subject to Paragraph 3. below, professional services include:

a. Preparing, approving, or failing to prepare or approve,

maps, shop drawings, opinions, reports, surveys, field

orders, change orders, or drawings and specifications; and

b. Supervisory or inspection activities performed as part of

any related architectural or engineering activities.

3. Professional services do not include services within construction

means, methods, techniques, sequences and procedures employed

by you in connection with your operations in your capacity as a

construction contractor.43

This exclusion precludes coverage for “property damage” arising out of the rendering or failure to

render professional services by DDG and its subcontractors. Additionally, this exclusion precludes

coverage for property damage arising out of providing or hiring independent professionals to

42 [Doc. No. 132, p. 26]

43 See supra footnote 30.

provide engineering, architectural, or surveying services in connection with construction work

DDG performs. See Project Consulting Servs., Inc. v. Emps. Ins. Co. of Wausau, No. CV 20-1441,

2021 WL 4148100 (E.D. La. Sept. 13, 2021), appeal dismissed, No. 21-30651, 2022 WL 1165408

(5th Cir. Feb. 25, 2022) (Where the court held that an insurer had no duty to defend the insured

from a professional liability claim because of a similarly worded professional liability exclusion).

Here, Plaintiff alleges several damages associated with the design of the Project.44 The

Court finds that the Professional Liability Exclusion is clear and unambiguous. The Court also

finds that this exclusion precludes coverage of DDG providing engineering, architectural, or

surveying services, and DDG hiring independent professionals to provide engineering,

architectural, or surveying services in connection with construction work performed by DDG.

f. Contractual Liability Exclusion

The Policies include a Contractual Liability Exclusion which excludes the following:

“Bodily injury” or “property damage” for which the insured is

obligated to pay damages by reason of the assumption of liability in

a contract or agreement. This exclusion does not apply to liability

for damages:

(1) That the insured would have in the absence of the

contract or agreement; or

(2) Assumed in a contract or agreement that is an “insured

contract”, provided the “bodily injury” or “property

damage” occurs subsequent to the execution of the contract

or agreement. Solely for the purposes of liability assumed in

an “insured contract”, reasonable attorney fees and

necessary litigation expenses incurred by or for a party other

than an insured are deemed to be damages because of

“bodily injury” or “property damage”, provided:

(a) Liability to such party for, or for the cost of, that

party’s defense has also been assumed in the same

“insured contract”; and

(b) Such attorney fees and litigation expenses are for

defense of that party against a civil or alternative

44 See [Doc. No. 132, pp. 5–6]

dispute resolution proceeding in which damages to

which this insurance applies are alleged.

An “occurrence” in the breach of contract context takes place when the defective workmanship or

the incorporation of defective materials result in related property damage. Markel Am. Ins. Co. v.

Schubert’s Marine E., Inc., CIV.A. 04-376, 2007 WL 54808, at *3 (E.D. La. Jan. 5, 2007) (citing

Hartford Cas. Co. v. Cruse, 938 F.2d 601, 604–05 (5th Cir. 1991)). Here, as explained above,

although Plaintiff has identified several defects in DDG’s work, Plaintiff has not identified any

other property damage caused by those defects. Accordingly, the Court finds that no “occurrence,”

as defined in the Policies, has taken place, and that the Contractual Liability Exclusion precludes

coverage for any contractual liability that may arise out of DDG’s defective work.

ii. Trigger of Coverage

Although the Court finds that the Policies exclude coverage of any hypothetical damage

Plaintiff may seek to recover from First Mercury on behalf of DDG, the Court nonetheless will

examine whether coverage under the Policies was triggered. First Mercury argues that coverage of

the Policies is triggered once the damages first “manifest,” and that the Policies do not afford

coverage to DDG because the damages did not manifest until after the last Policy terminated on

June 27, 2017. Additionally, First Mercury argues that breach of contract claims do not constitute

“an occurrence” under the Policies. In response, DDG argues that there is a genuine issue of

material fact as to when the damages first manifested because of testimony by the owner of the

construction company hired to replace DDG and testimony by DDG’s corporate representative.

The Court finds that the manifestation theory of trigger of damages applies to the Policies

and that there is no genuine issue of material fact as to whether damages occurred during the First

Mercury policy periods.

a. Manifestation of Damages

Louisiana courts generally apply the manifestation theory of damages to determine when

property damage takes place for purposes of triggering coverage for construction defects. See

Mann v. Tim Clark Constr., LLC, 2018-0961 (La. App. 4 Cir. 5/22/19), 273 So. 3d 397, 402–03,

writ denied, 2019-01019 (La.10/1/19), 280 So. 3d 158; Rando v. Top Notch Props., L.L.C., 2003-

1800 (La. App. 4 Cir. 6/2/04), 879 So. 2d 821, 833. Under the manifestation theory, property

damage “occurs” when it first becomes manifest, regardless of when the act that caused the damage

occurred. Mann, 273 So. 3d at 402–03 (citing Eagle Pipe & Supply, Inc. v. Amerada Hess Corp.,

2010-2267 (La. 10/25/11), 79 So. 3d 246, 278 n.75); M & R Drywall, Inc. v. MAPP Constr., LLC,

2017-0186 (La. App. 1 Cir. 4/29/19), 280 So. 3d 260, 276, writ denied sub nom. M&R Drywall,

Inc. v. Mapp Constr., LLC, 2019-01325 (La. 11/19/19), 282 So. 3d 1073, and writ denied, 2019-

01403 (La. 11/19/19), 282 So. 3d 1073, and writ denied, 2019-01411 (La. 11/19/19), 282 So. 3d

1074. Further, “[w]hen uncontroverted facts preclude the possibility of a duty to indemnify, the

duty to defend ceases and the duty to indemnify is negated.” Donahue, 489 F. Supp. 3d at 470.

The Court finds that the manifestation theory of trigger of coverage applies here. Further,

the uncontroverted testimony establishes that damages manifested after the last First Mercury

policy period terminated, precluding the possibility that First Mercury has a duty to indemnify

DDG.

The Court rejects DDG’s argument that there is a genuine issue of material fact as to

whether coverage was triggered under the Policies. In support of its argument, DDG relies upon

the testimony of Pinu Patel (“Patel”), owner of the construction company hired to replace DDG,

and Suni Desai (“Desai”), the corporate representative of DDG.

According to DDG, Desai testified that he “could not recall” whether DDG did any

additional work during or immediately following the issuance of the alleged notice of default. As

noted above, the notice of default was allegedly issued on June 1, 2017, the Construction Contract

was terminated by Plaintiffs seven days afterwards, and the last First Mercury policy Period

terminated on June 27, 2017. DDG’s argument as to when work on the Construction Project ended

is irrelevant as to whether coverage under the Policies was triggered. It is undisputed that DDG

performed work on the Project while the Policies were in effect. The pertinent question is whether

any damages manifested before June 27, 2017, the date the last First Mercury policy Period ended.

DDG also cites to Patel’s deposition testimony to support its argument. Patel testified that

the Project was approximately fifty percent finished when his company took over construction of

the hotel; specifically, he stated:

Fifty percent when I -- when they told me to take over, and that's the

reason I told them there's not enough money left because there's a lot

of redo's that we would need to do. And then on top of it, whoever

the sub-contractor, the new sub- contractor, would have had to walk

in there and find out what's happening, what happened, how did it do,

and all that good stuff.45

According to DDG, “there is a question as to when the visit that Mr. Patel referenced took place

such that any issues with the work could have manifested or been identified at that time.”46 Patel’s

company took over the Project in September 2017,47 but it is unclear when Patel’s initial visit took

place.

The date of Patel’s visit could be a relevant issue if he had testified that he observed defects

during that initial visit, but he testified that he observed no defects during his first visit.

Specifically, Patel testified:

45 [Doc. No. 243-2, pp. 32-33]

46 [Doc. No. 243, p. 6]

47 [Doc. No. 236-7, p. 198]

Q Although no errors were pointed out, in your experience as a

general contractor while you were there, --

A Uh-huh.

Q -- did you observe any construction defect errors?

A No.48

Further, Patel testified that construction defects were not “pointed out” during his visit, that the

visit took place for “30, 40 minutes max,” that “everything was locked,” that he “didn’t want to go

inside,” and that he was not there long enough to “say or point out any errors.”49 Patel’s testimony

demonstrates that any factual issue as to when his visit took place is irrelevant because there is no

evidence that he observed any defect during his visit.

Desai also testified that Patel’s company discovered the defects while trying to obtain

approval from city inspectors so that the hotel could open. This demonstrates that the defects must

have been discovered sometime after Patel’s company took over. Patel’s company took over in

September of 2017. The last First Mercury policy period ended in June of 2017. Desai’s testimony

demonstrates that there is no factual issue as to when the damages were first discovered, i.e., when

the damages first “manifested.” Accordingly, the Court finds that coverage under First Mercury’s

Policies was not triggered because the damage did not manifest until sometime after the last Policy

expired.

III. CONCLUSION

For the reasons set forth herein,

IT IS ORDERED, ADJUDGED, AND DECREED that the Motion for Summary

Judgment on Plaintiff’s Fourth Amended Complaint [Doc. No. 236] filed by Defendant First

Mercury Insurance Company (“First Mercury”) is hereby GRANTED.

48 [Doc. No. 243-2, p. 32]

49 [Id.]

IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that any claim against

First Mercury set out in the Fourth Amended Complaint [Doc. No. 132] is hereby DISMISSED

WITH PREJUDICE.

MONROE, LOUISIANA, this 29th day of December, 2022.

/lerky A. Dought j

Unttited States District Fudg

22