State Farm Fire & Casualty v. Diner Concepts, Inc.

FILED
U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
MAR 22, 2010
JOHN LEY
CLERK
[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 09-14097
Non-Argument Calendar
________________________
D.C. Docket No. 08-02426-CV-GET-1
STATE FARM FIRE & CASUALTY COMPANY,
Plaintiff-Counter-Defendant-
Appellee,
versus
DINER CONCEPTS, INC., et al.,
Defendants-Counter-Claimants,
MICHAEL D. NAUGHTON, Trustee for the
Brian Naughton Insurance Trust No. 1,
Defendant-Counter-Claimant-
Appellant.
________________________
Appeal from the United States District Court
for the Northern District of Georgia
________________________
(March 22, 2010)
Before BLACK, PRYOR and COX, Circuit Judges.
PER CURIAM:

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Blair-Naughton LLC (“Blair-Naughton”) won a judgment against David
Bernstein, Diner Concepts, Inc., and DinerMite Diners (collectively, “the Bernstein
Defendants”) in district court in Kansas. On August 11, 2008, the jury in that case
found that the Bernstein Defendants breached a sales contract with Blair-Naughton
and breached an express warranty of freedom from defect when the Bernstein
Defendants delivered to Blair-Naughton a diner that suffered from multiple
construction defects. The jury found that Blair-Naughton suffered economic injury
on both claims, but the court awarded Blair-Naughton $900,000 on the breach of
warranty claim only (so as to avoid double recovery). The jury also found that Diner
Concepts is the alter ego of David Bernstein and DinerMite Diners.
The Bernstein Defendants had an insurance policy (the “Policy”) with State
Farm Fire and Casualty Company (“State Farm”). The business liability coverage in
the Policy says State Farm “will pay those sums that the insured becomes legally
obligated to pay as damages because of bodily injury, property damage, personal
injury or advertising injury to which this insurance applies.” (RE 5 at 20.) With
regard to property damage, the Policy states that it applies only to that damage
“caused by an occurrence which takes place in the coverage territory during the
policy period.” (Id.) And, the Policy defines such an occurrence as “an accident,
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including continuous or repeated exposure to substantially the same general harmful
conditions which result in bodily injury or property damage[.]” (Id. at 32.)
In response to an October 10, 2007 letter from the Bernstein Defendants’
attorney to State Farm informing the insurance company of the lawsuit brought by
Blair-Naughton and seeking coverage, State Farm provided the Bernstein Defendants
with a defense. However, on November 2, 2007, State Farm sent David Bernstein a
letter that stated, “We wish to call your attention to the fact that we specifically
reserve our right to deny defense or indemnity to you, Diner-Mite Diners, Inc[.] and
Diner Concepts, Inc[.]. . . .” (RE 6.) And, State Farm reiterated the point, as to each
of the Bernstein Defendants, in a November 15, 2007 letter also sent to David
Bernstein. (RE 7.)
The month before the case in Kansas went to trial, State Farm filed this
declaratory judgment action against the Bernstein Defendants and Blair-Naughton1
in the Northern District of Georgia seeking a declaration that the Policy does not
provide coverage for the liability alleged (and later reduced to judgment) in the
Kansas lawsuit. The district court granted summary judgment to State Farm, finding
that there was no “occurrence” as defined in the Policy, and therefore no coverage for
Michael D. Naughton, acting as trustee for the Brian Naughton Insurance Trust No. 11
(“Appellant”), was substituted for Blair-Naughton as a defendant in the declaratory judgment action.
Appellant is the successor in interest to Blair-Naughton.
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the judgment against the Bernstein Defendants. (RE 180 at 9-11.) The district court
also found that State Farm had not waived its coverage defenses as to DinerMite. (Id.
at 11.) Michael D. Naughton, acting as trustee for the Brian Naughton Insurance
Trust No. 1, appeals the judgment.2
This court reviews a district court’s grant of summary judgment by applying
the same legal standards used by the district court. See, e.g., Hilburn v. Murata Elecs.
N. Am., Inc., 181 F.3d 1220, 1225 (11th Cir. 1999). Summary judgment is
appropriate where “‘there is no genuine issue as to any material fact and the moving
party is entitled to a judgment as a matter of law.’” Wooden v. Bd. of Regents of the
Univ. Sys. of Ga., 247 F.3d 1262, 1271 (11th Cir. 2001) (quoting Fed. R. Civ. P.
56(c)).
We find no error in the district court’s determination that the Policy does not
provide coverage for the judgment against the Bernstein Defendants in the Kansas
case. The Policy unambiguously covers liability for property damage that is “caused
by an occurrence.” (RE 5 at 20.) An “occurrence” is defined as “an accident,
including continuous or repeated exposure to substantially the same general harmful
conditions which result in bodily injury or property damage.” (Id. at 32.) The
Though Appellant is not insured by the Policy, it appears that the Policy gives Appellant the2
right to litigate coverage of the Policy (RE 5 at 29), and State Farm does not argue otherwise.
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breaches of contract and warranty proven in the Kansas case are not accidents. See
Custom Planning & Dev., Inc. v. Am. Nat’l Fire Ins. Co., 606 S.E.2d 39, 41 (Ga. App.
2004) (interpreting the same language and holding that breaches of warranty and
contract that do not include negligence are not accidental and, therefore, not
occurrences under the insurance policy). Georgia law is clear that accidental causes
are unintended acts and are different from unintended injuries resulting from
intentional acts. See Owners Ins. Co. v. James, 295 F. Supp. 2d 1354, 1364 (N.D. Ga.
2003) (citing Provident Life & Accident Ins. Co. v. Hallum, 576 S.E. 2d 849, 851 (Ga.
2003)); see also Perry v. State Farm Fire & Cas. Co., 676 S.E. 2d 376, 378 (Ga. App.
2008) (“An accidental injury is an injury that is unexpected but may arise from a
conscious voluntary act. In contrast, an injury from accidental means is one that is
the unexpected result of an unforeseen or unexpected act that was involuntarily or
unintentionally done.” ) (quotation and citation omitted).
The parties do not dispute that the property damage in this case was caused by
a knowing and intentional act–delivery by the Bernstein Defendants of a diner built
to one set of building plans when the foundation on which that diner was installed
had already been poured to accommodate a diner to be constructed according to
different building plans. Therefore, there was no accidental cause and no occurrence;
and, there is no coverage. And, for the reasons stated by the district court, we find
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Appellant’s argument that State Farm waived its coverage defenses as to DinerMite
meritless. Therefore, the district court properly granted State Farm summary
judgment on its declaratory judgment claim.
Finally, because a plaintiff cannot recover for an insurer’s bad faith refusal to
pay a claim where no coverage exists, see O.C.G.A. § 33-4-6, State Farm was entitled
to summary judgment in Appellant’s counterclaim also.
AFFIRMED.
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