NEW ORLEANS – The 5th U.S. Circuit Court of Appeals recently turned down a construction company's bid to recover damages from its excess insurance provider after the insurer denied the contractor's claim regarding a courthouse project that went wrong.
Satterfield and Pontikes Construction Inc. (S&P) filed suit in the U.S. District Court for the Southern District of Texas against its excess insurance provider, U.S. Fire Insurance Company, for refusing to cover damages S&P incurred after its contract for the courthouse construction project in Texas was terminated.
The district court granted U.S. Fire a summary judgment in the case, and S&P appealed the decision to the appeals court. In a ruling issued Aug. 2, U.S. Circuit Judges Edith Brown Clement, Stephen A. Higginson and James C. Ho upheld the district court decision.
The original complaint said S&P was hired by Zapata County, Texas, to work on a courthouse building. As general contractor, S&P hired several subcontractors for the project. S&P also purchased two layers of insurance to help in the event of damages. The first layer of insurance consisted of American Guarantee and Liability Insurance and Amerisure Mutual Insurance Company, which combined had a per-occurrence limit of $3 million. The second layer of insurance, for excess insurance, was through U.S. Fire, which had a limit of $25 million that would only kick in once the first layer of insurance was depleted.
After several problems with the project, Zapata County terminated its relationship with S&P and sued the contractor for damages to the courthouse, which they claimed was caused by S&P’s negligence. Zapata County was awarded over $8.3 million, and S&P in turned sued itsr subcontractors, collecting almost $4.5 million. Still short of the money they owed Zapata County, S&P looked to their insurance providers to make up the difference.
Both AGIC and Amerisure contributed a little over $3 million to the shortfall. With about $440,000 needed to satisfy its debt to the county, S&P looked to U.S. Fire to make up the difference, but U.S. Fire argued they were not obligated to pay the shortfall, causing S&P and Amerisure to sue U.S. Fire for breach of policy.
U.S. Fire claimed that over $2 million of the award from the subcontractors covered the damages S&P was seeking from U.S. Fire, which would lead to S&P receiving a "double recovery." S&P, for its part, contended they could allot the money however they chose,
“The issue here is whether an insured can round up general settlements from its subcontractors, unilaterally decide that they will be allocated to uncovered damages, and then go after the insurers that would cover the damages if the loss was properly allocated to that policy,” the appeals court said in their decision.
Like many insurance policies, U.S. Fire had limitations to their coverage that excluded property damage caused by exposure to fungi, like mold and bacteria. The U.S. Fire policy also did not cover attorneys' fees or legal costs, all of which were incurred during S&P’s litigation. S&P later attempted to demonstrate that the money went to both covered and non-covered damages, but the court did not find their explanation believable.
“The district court found these contentions unpersuasive and untimely,” the appeals court said in upholding the lower court's decision. “It concluded that S&P failed to raise a factual dispute capable of frustrating an award of summary judgement to U.S. Fire.”