Ground Control’s claims were dismissed on summary judgment based on the trial court’s legal conclusion that because neither party had obtained the required certificates of responsibility from the State Board of Public Contractors, the parties’ contract was void. The Supreme Court of Mississippi agreed the contract was void but reversed and remanded for further proceedings based solely on theories of unjust enrichment and quantum meruit.

While the state court case was on remand, Capsco’s liability insurers, Greenwich Insurance Company and Indian Harbor Insurance Company, filed a complaint for declaratory judgment in the U.S. District Court for the Southern District of Mississippi seeking a declaration that they did not owe a defense or indemnity to Capsco regarding Ground Control’s suit.

Ground Control counterclaimed for coverage of its claims against Capsco.

In state court, a jury awarded Ground Control over $825,000 in damages against Capsco. On appeal, the Mississippi Supreme Court this time ordered the parties either to accept a remittitur that would reduce the award to $199,096 or to proceed to a new trial.

In the coverage action, the district court held that the two insurers did not owe Capsco a duty to defend.

In state court, the parties accepted the remittitur, and the state court entered final judgment.

After final judgment was entered in state court, the district court held that no indemnification was due, and it entered final judgment.

Ground Control appealed to the Fifth Circuit, arguing that Greenwich had to indemnify Capsco.

Greenwich argued that the Mississippi Supreme Court’s initial reversal of the state trial court’s dismissal of the case permitted Ground Control on remand to pursue, under principles of unjust enrichment and quantum meruit, “the value of what it expended in labor and supplies on the project.” Greenwich argued that expenses for labor and supplies did not amount to property damage covered by the policy.

For its part, Ground Control asserted that much of the work it performed under the contract was to repair physical property. In particular, it argued that: (1) Capsco had Ground Control repair physical damage other contractors had caused at the project; (2) Capsco had to alter physical property because of erroneous specifications and directives; and (3) other contractors damaged Ground Control’s work at the project.

The Fifth Circuit’s Decision

The Fifth Circuit, applying Alabama law, affirmed.

In its decision, the circuit court explained that there was no insurance coverage for Ground Control’s expenses for labor and supplies to make repairs to physical property unless the insured, Capsco, was legally obligated to pay those amounts “as damages because of . . . ‘property damage’ to which this insurance applies.”

The Fifth Circuit rejected Ground Control’s argument. It reasoned that Capsco’s obligation was to pay the party with whom it contracted for its work. Because of the failure of either party to get a certificate of responsibility, any right to recovery in the litigation shifted from contract to quantum meruit.

Accordingly, the circuit court continued, Capsco was obligated to pay the reasonable value of the services Ground Control provided.

The Fifth Circuit then ruled that Capsco was “not paying for property damage or loss of its use; it was paying for labor and materials.” Payment “for work” was “a step removed from paying for property damage that necessitated the work,” the circuit court added.

“Purely economic losses” were not physical injury to tangible property – that is, property damage – it concluded.

The case is Greenwich Ins. Co. v. Capsco Industries, Inc., No. 18-60032 (5th Cir. Aug. 12, 2019). Attorneys involved include: For GREENWICH INSURANCE COMPANY, INDIAN HARBOR INSURANCE COMPANY, Plaintiffs-Counter Defendants – Appellees: Michael Riley Moore, John Anderson Banahan, Bryan, Nelson, Schroeder, Castigliola & Banahan, Pascagoula, MS. For GROUND CONTROL, L.L.C., Defendant-Counter Claimant – Appellant: Blewett William Thomas, Thomas Law Firm, Columbus, MS.