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Harleysville Worcester Insurance v. Paramount Concrete
Citations: 123 F. Supp. 3d 282; 2015 U.S. Dist. LEXIS 104869; 2015 WL 4751029Docket: No. 3:11-cv-578 (SRU)
Court: District Court, D. Connecticut; August 7, 2015; Federal District Court
In this insurance coverage action, Harleysville Worcester Insurance Company filed a declaratory judgment against Paramount Concrete, R.I. Pools, and Scottsdale Insurance Company, seeking a ruling that it had no duty to indemnify Paramount in underlying litigation stemming from damage to swimming pools made with defective shotcrete. The action arose after R.I. Pools sued Paramount in May 2009 for products liability due to significant cracking in nineteen pools, resulting in a jury verdict on February 17, 2011, that awarded R.I. Pools $2,760,207.90 in compensatory damages and punitive damages for Paramount's reckless conduct. Harleysville, which provided a Commercial General Liability (CGL) insurance policy covering property damage caused by accidents, defended Paramount while reserving the right to contest coverage. Following the unfavorable verdict, Harleysville sought a declaratory judgment, arguing that the policy did not cover the awarded damages and that certain exclusions applied. Paramount counterclaimed for a declaratory judgment and damages, alleging bad faith on Harleysville's part. On March 31, 2014, the court granted summary judgment in favor of Paramount and R.I. Pools, establishing coverage under the policy. A bench trial held in December 2014 focused on whether Paramount 'expected or intended' its shotcrete to fail, a crucial factor in determining coverage. Ultimately, the court found that Harleysville did not prove by a preponderance of the evidence that Paramount had such expectations regarding the failure of its product. The court's findings of fact and conclusions of law are detailed within the ruling. An 'occurrence' under the policy is defined as an accident, which includes continuous or repeated exposure to harmful conditions. Although 'accident' is not explicitly defined, Connecticut case law interprets it as an unforeseen and unplanned event leading to an unfortunate result. 'Property damage' is defined as physical injury to tangible property, including loss of use. The unintentional sale of a defective product that affects a third party's finished product qualifies as an 'occurrence' causing 'property damage.' Examples include the incorporation of defective materials in various products leading to impairment, such as tainted juice concentrate and asbestos in buildings. In a relevant case, it was ruled that Paramount's defective shotcrete incorporated into pools constituted 'property damage' due to an 'occurrence,' thereby establishing coverage. The burden then shifted to Harleysville to demonstrate that policy exclusions applied. Harleysville cited an exclusion for expected or intended injuries and several business risk exclusions meant to prevent coverage for defective work or products. However, it was concluded that these exclusions did not apply, as Paramount sought coverage for damages caused by its product, not for the cost of remedying the defect. The jury's finding of recklessness did not resolve the question of whether injuries were expected or intended, necessitating a bench trial on this issue. Concrete consists of water, Portland cement, and aggregates (sand and rock), with potential admixtures to modify properties such as hardening time and shrinkage. Shotcrete, a high-velocity application method, is more challenging to work with than conventional concrete due to its quicker hardening and the need for precise placement. The hydration process binds aggregates together with a paste formed from water and cement, where the quality of this paste, influenced by the water/cement ratio and curing, directly affects the concrete's workability and strength. For optimal strength, a water/cement ratio between 0.4 and 0.5 is recommended, yielding a compressive strength of at least 4,000 psi. The type and quality of aggregates, including their shape and texture, also significantly impact concrete's properties. Smooth, rounded aggregates are preferred for better concrete quality, while poorly graded aggregates can lead to inconsistencies and weaknesses. Compressive strength is a critical measure of concrete quality; deficiencies in strength often indicate broader issues in composition and processing. Factors affecting the strength and uniformity of concrete include handling methods, the age of the concrete at placement, and temperature. Concrete typically achieves 80% of its compressive strength within 28 days, but it can continue to gain strength for months. Building codes mandate a minimum compressive strength of 2,500 psi after 28 days, requiring no single sample to fall below 75% of this strength, and no set of three samples to fall below 85%. Concrete is inherently weak in tensile strength, which makes it prone to cracking due to shrinkage. Steel reinforcement enhances tensile strength and helps distribute shrinkage stress. Distress or failure in concrete is usually caused by multiple factors, including poor materials, inadequate workmanship, and environmental conditions. Temperature and moisture changes contribute significantly to shrinkage-related cracking, particularly through freeze/thaw cycles, which can lead to destructive cracking. High-quality concrete, low water content, sound aggregates, and proper curing improve resistance to these cycles. Air-entrained concrete, which incorporates air voids to relieve pressure from freezing, can withstand many freeze/thaw cycles if it has a compressive strength over 4,000 psi. However, maintaining the correct air content in air-entrained mixtures requires careful monitoring and proper mixing for uniformity. The Vona family and Steve Riviere co-owned Paramount Stone, a successful masonry business, and established Paramount Concrete in 2005, contributing approximately $1.5 million to the venture. Richard Vona assisted Riviere in launching the concrete plant. Richard Vona and Riviere lacked prior experience in operating a concrete plant before establishing Paramount Concrete. Richard conducted research by visiting local plants, consulting industry experts, and attending the 'World of Concrete' trade show. He sought guidance from the Concrete Manufacturers Bureau of the National Ready Mix Concrete Association (NRMCA) to select a manufacturer for a concrete batch plant, ultimately choosing the Vince Hagen Company. An expert witness later testified that Vince Hagen’s plants were of a satisfactory intermediate grade but not premier quality. Paramount's plant, a 'dry batch plant,' operated by batching all ingredients dry into trucks for mixing. The plant's operator, known as the 'batchman,' utilized a computerized system to input mix designs, which was relatively easy to learn. Manuals for the batching system were always accessible near the control panel. While Richard was involved in the plant's development, he did not engage in its operational management or learn concrete production processes or quality control. After the plant’s establishment, he largely disconnected from day-to-day activities, leaving Riviere responsible for operations until his departure in April 2009. Riviere, who lacked formal training in concrete production or quality control, prepared for his role through self-education and collaboration with testing labs. John 'Red' Kavanaugh served as the batchman at Paramount Concrete for approximately two and a half years, receiving training from his predecessor, Bob Kovaleski, who was trained by a technician from Vince Hagen. Kavanaugh attended a training session at the 'World of Concrete' trade show and participated in two out of three sessions of an American Concrete Institute (ACI) course, though he did not complete the associated test. He sought additional training but was denied requests for an advanced ACI course due to cost concerns. Kavanaugh felt his training was incomplete, acknowledging that while he knew how to perform his job, he lacked understanding of the underlying principles. Riviere, Kavanaugh's supervisor, terminated Kavanaugh's employment in 2007 following customer complaints about his interactions, although Riviere stated that the termination was not related to Kavanaugh's performance as a batchman. Despite some interpersonal issues, Riviere noted Kavanaugh was proficient in his role. During Kavanaugh's tenure, Paramount Concrete struggled with profitability, and he and Riviere often debated efficient mixing strategies that balanced cost and quality. The company lacked a formal quality control process, relying instead on the batchman and drivers for oversight. Significant quality control issues arose, including a malfunctioning water valve in the new water system, which could potentially affect the consistency and strength of the concrete. Kavanaugh and Riviere attempted various fixes for the valve, but problems persisted. Kavanaugh believed that the valve's malfunctions did not significantly impact concrete quality, as he monitored water input using a meter and visual inspections, despite his method being somewhat informal. Kavanaugh possessed a strong understanding of concrete composition and could assess the water content in the mix through inspection, allowing for adjustments to maintain proper proportions. Paramount lacked a moisture meter, essential for accurately gauging the water content of the shotcrete mix, leading to reliance on manual inspection, a method Kavanaugh compared to checking a steak's doneness by touch. While Kavanaugh acknowledged that a moisture meter would yield better results, he noted that such devices are not mandatory, with approximately 60% of small concrete plants in the U.S. lacking one. Paramount acquired a moisture meter in 2008 as part of its state certification process. Additionally, Paramount's trucks, dating back to the 1980s, often faced operational challenges due to age and wear, particularly with mixing fins that were prone to breakage, complicating the delivery of consistent concrete quality. Kavanaugh expressed frustration over the non-repair of mixing fins, which could take a week or more to fix and hindered optimal operations. He attempted to persuade Riviere to prioritize these repairs, but Riviere frequently declined, citing the company's financial constraints. Nonetheless, Riviere claimed that Kavanaugh did not require prior approval for repairs and denied denying repair requests, asserting that any fins over 50% worn would be addressed. Paramount's seven trucks consistently passed inspections, with all four trucks seeking state certification receiving approval. During operations, hardened concrete sometimes dislodged and clogged the mixing truck's pump and hoses. Regular inspections of the concrete drums were implemented, and an initial cleaning procedure was attempted but ultimately abandoned due to logistical challenges and neighborhood complaints. Paramount's trucks lacked rotation counters, which are critical for tracking the mixing time of concrete; without this, there was an increased risk of concrete becoming stale before delivery. Kavanaugh expressed concerns about the quality of shotcrete delivered, which he attributed to the time taken for transport. He noted disagreements with Riviere regarding acceptable distances for timely delivery of fresh concrete, with Riviere acknowledging that over 45 minutes from batching to job site was too long. Additionally, Kavanaugh revealed that mason sand, which is less suitable for concrete due to its higher fine material content, was used at Paramount’s plant. This could impact the strength and durability of the concrete, necessitating changes to the mix design to achieve desired qualities. Although mason sand can be used, it requires careful adjustments to avoid compromising the concrete’s integrity. Kavanaugh estimated that mason sand constituted about 5% of sand deliveries to Paramount Concrete, stored in the same bin as concrete sand, making it impossible to determine the proportions in the concrete mixture. Despite Kavanaugh's concerns and complaints to Riviere, Riviere dismissed the issue, strongly denying any intentional use of mason sand to cut costs. He asserted that mason sand was visually distinct from concrete sand, and everyone at Paramount Concrete understood they were not interchangeable. Richard Vona reviewed approximately 1,500 sand-delivery tickets and found only nine for mason sand deliveries, while Paramount's records indicated payment was for concrete sand. Guy Odierno, president of the sand and gravel supplier, testified about occasional incorrect invoices labeling delivered concrete sand as mason sand, attributing these errors to long-standing supplier relationships. He assured that these errors did not affect the actual materials delivered. Paramount's shotcrete was supplied to R.I. Pools and other companies, with R.I. Pools being a significant customer. Of the sixty pools shot using Paramount's shotcrete, nineteen experienced cracking, prompting concerns within Paramount, especially since the owners of R.I. Pools were closely related to the Vonas. Richard Vona expressed he had no prior knowledge of any potential defects until informed by his cousin in April 2009, emphasizing that the pool failures had severe personal implications, straining family ties. Kavanaugh expressed surprise at discovering the cracked pools, despite his initial concerns. He maintained that while he and Riviere had frequent disagreements about the business, these never led to the production of unsafe concrete. Kavanaugh insisted he never knowingly sent out deficient products. Investigations by R.I. Pools, Paramount, and their insurers were conducted to determine the cracking's cause. R.I. Pools engaged structural engineer Gerard Feldman, who analyzed nine pools and produced a report. Feldman had American Petrographic Services examine four core samples, which criticized the shotcrete's freeze-thaw resistance but found the overall quality satisfactory. The water/cement ratio was appropriate, and the mixture showed good uniformity without significant reactivity issues. However, the cause of cracking remained ambiguous, with indications that improper shotcrete application contributed to the problem. Feldman noted significant variability in compressive strength among core samples, suggesting poor quality control. He concluded that cracking resulted from shrinkage in low-strength areas of poorly mixed shotcrete. Feldman reaffirmed these findings in court. Additionally, a report from Connecticut Testing Laboratories analyzed eleven shotcrete cores from two pools over three years old, revealing one extensively cracked core and one in good condition. The two cores analyzed contained a mixture of crushed siliceous rock, coarse aggregate, and siliceous sand within a hardened Portland cement paste, which was in an advanced state of hydration. Sand particle shapes ranged from subrounded to angular, with common mica flakes. The CTL report indicated that the shotcrete did not contain excess crushed material or fines. However, a cracked core displayed non-uniform distribution of materials and variability in the water-cement ratio, with a surface characterized by weakly bound, discrete, paste-coated aggregates, indicative of rebound in shotcrete applications. During the underlying trial, expert Timothy Walker identified three primary causes for the pool cracks: the strength of the shotcrete, improper rebar placement and insufficient steel in the pool shell, and the skills of the workers applying the shotcrete. He noted significant variations in the shotcrete but could not definitively determine whether these issues stemmed from poor material or application. Walker concluded that the voiding in the shotcrete core sample was primarily due to application techniques, though he acknowledged that poor quality shotcrete contributed to the failure. At the December 2014 bench trial, expert Geoffrey Hichborn testified for Harleysville, asserting that Paramount had a capable concrete plant but failed to ensure quality control. He identified several deviations from industry standards, including the use of mason sand, poor truck maintenance, irregular chemical admixture additions, and issues with water input control. Hichborn emphasized mason sand's disruptive presence, supported by delivery tickets and testimonies, though he did not personally verify the tickets or consider potential mislabeling by suppliers. His assessments suggested that the inhomogeneous concrete produced by Paramount, with substantial variations in composition and water-cement ratio, confirmed the problematic inclusion of mason sand. Mason sand was included in the concrete mix design, necessitating more water to achieve workable concrete, which compromised the strength and increased the likelihood of cracking. Hichborn suspected excessive water usage due to the mason sand, a faulty water valve, and the absence of a moisture meter. He concluded with high engineering probability that Paramount's manufacturing issues, particularly the use of mason sand, resulted in nonuniform shotcrete, leading to pool shell shrinkage and subsequent cracking. Hichborn believed Paramount was aware that its practices would yield low-strength shotcrete causing such damage. However, he did not personally inspect any of the nineteen pools, the concrete plant, or the mixing trucks, and relied on trial descriptions and aerial images. He did not evaluate driver logs or all provided materials, nor did he meet with key individuals or review relevant depositions. Despite considering Kavanaugh's efforts to be sincere, he found prior investigations incomplete. In legal conclusions, Paramount's Commercial General Liability (CGL) policy excludes coverage for expected or intended bodily injury or property damage. Harleysville does not argue that Paramount intended for the pools to crack, but the determination hinges on whether Paramount's actions suggested an expectation of harm. Under Connecticut law, this assessment focuses on the subjective expectations of the insured, rather than an objective perspective. No Connecticut appellate case has addressed how the probability of harm influences this exclusion, although the Second Circuit has interpreted similar exclusions in a narrow manner, associating "expected" with constructive intent. Expected injury is established when the insured, while not intending to cause harm, is aware that damages will likely result from their intentional actions. In *City of Johnstown v. Bankers Standard Ins. Co.*, the court held that an insurer could not avoid its duty to defend simply by demonstrating that the insured had been warned of potential damages or had taken a calculated risk. The insurer failed to prove that the insured knew the damages would directly follow from their act, thus necessitating the insurer to defend against claims from injured parties. The court emphasized that excluding all losses potentially expected by the insured could severely limit insurance recoveries. In contrast, Connecticut Superior Court rulings suggest that an insured expects or intends injury if it knows or should know there is a substantial probability of damage from its actions. This expectation aligns with the standard for recklessness, where an actor acknowledges the high probability of harm, despite hoping for a harmless outcome. However, the interpretation of expected injury does not align with a purely subjective standard, as seen in *Walukiewicz*. The court rejected applying an objective tort standard to the insurance contract interpretation, highlighting that Paramount must have been aware of a substantial probability of harm for the exclusion to apply. Merely foreseeable harm is insufficient, nor does a jury's finding of reckless disregard automatically negate coverage under the expected or intended injury exclusion. The insurer, Harleysville, failed to demonstrate that the Vonas were aware of any quality control issues at Paramount Concrete. Their roles were primarily financial, and Richard Vona distanced himself from operations after the plant's launch. It is unlikely they would have anticipated their product harming pools, especially given their largest customer, R.I. Pools, was family-owned. The failure of the pools and subsequent litigation caused significant damage to both business operations and family relationships. Harleysville could not prove that Riviere intended or expected any injury, as Riviere's testimony indicated he was unaware of major issues with Paramount's shotcrete. Although not formally trained in concrete mixing, Riviere understood the basics, including the importance of mixing time and temperature. He took measures to minimize delays in transportation and was aware that mason sand should not be included in concrete, asserting that he never purchased it for use in Paramount's shotcrete production. Despite attempts to cut costs due to Paramount's lack of profitability, Riviere maintained that the company faced no major challenges in achieving state certification in 2008 and considered job site issues to be isolated incidents rather than systemic flaws. Kavanaugh disputed many of Riviere's claims, citing issues such as a malfunctioning water meter, broken equipment, and the occasional use of mason sand. However, he maintained that he never produced a batch of shotcrete he deemed unsafe, expressing surprise that the shotcrete led to significant cracking. During the December 2014 bench trial, Harleysville did not effectively challenge Kavanaugh's testimony and sought to attribute the cracking to the use of mason sand. Nonetheless, the evidence regarding mason sand usage was inconclusive, with some deliveries recorded during the relevant period. Riviere testified that mason sand was never utilized, while Paramount allegedly paid for concrete sand despite delivery tickets indicating mason sand. Odierno confirmed he did not deliver mason sand to Paramount Concrete and identified the probable source of the confusion. Hichborn did not perform tests on Paramount's shotcrete, and existing tests did not identify mason sand as a cause of cracking. Even if mason sand was used, it does not demonstrate that Paramount was aware the shotcrete would likely cause harm. Hichborn acknowledged that concrete can theoretically be made with mason sand. Kavanaugh, the only Paramount employee to testify about mason sand usage, believed the shotcrete was reasonably safe despite its inclusion. He expressed surprise at the damage caused by Paramount's product. Harleysville established that Paramount had significant operational deficiencies, including a lack of quality control and inexperienced management, which led the jury to find Paramount acted "recklessly." However, these deficiencies do not prove that Paramount knowingly intended for the shotcrete to be defective. The evidence does not show that Paramount recognized the severity of the issues or that the shotcrete was likely to cause damage, thus failing to demonstrate expected or intended injury. Therefore, the motion for judgment on partial findings was granted, obligating Harleysville to indemnify Paramount for damages caused by the shotcrete. The Connecticut Appellate Court affirmed the jury's verdict but remanded for a damages calculation. The definition of "accident" pertains to the event causing injury, while "occurrence" includes continuous exposure to damage over time, broadening the concept beyond instantaneous events. Claims for property damage arise when individuals or properties are exposed to harmful phenomena like heat, moisture, or radiation; however, it is essential that the damage is not the occurrence for which the insured seeks coverage. In a swimming pool scenario, shotcrete is directly applied to the pool shell, which is reinforced and includes various embedded materials. Curing is critical as it allows cement particles to form interlocking crystalline structures that enhance strength over time, typically requiring seven days. The "slump" of fresh concrete, which measures its consistency, is determined through a standard test; a higher slump indicates greater fluidity. Concrete sand is processed to eliminate impurities, and non-uniform concrete can lead to strength issues despite individual areas being classified as strong. Proper placement of reinforcing bars is essential to prevent cracking, and air entrainment can reduce strength, particularly in mixtures exceeding 5,000 psi. Ownership of Paramount Concrete was divided between Steve Riviere and Grace Vona, the latter being minimally involved. The National Ready Mixed Concrete Association (NRMCA) sets industry standards for concrete preparation. Riviere managed operations at both Paramount Concrete and Paramount Stone and hired Kovaleski based on past work experience, while Kavanaugh expressed confusion over his unexpected termination. Vona testified that state certification for concrete plants is not mandatory, with only about 50% of plants certified; certification is only needed for government contracts. Paramount had its trucks and plant certified by Connecticut in 2008, during which rotation counters were added to the trucks. Kavanaugh expressed concerns to Riviere about the distance of a concrete pool site from the plant, deeming it irresponsible to keep concrete in a truck for too long. The basic components of Paramount's shot-crete mixes included Portland cement, gravel, concrete sand, water, and air entrainment, with varying chemical additives. Kavanaugh did not recall any mixes specifically requiring mason sand, and an expert reviewed 22 of the 50 mix designs without finding any that included mason sand. Aggregates should be stored separately to avoid mixing. Riviere was unaware that mason sand was less expensive than concrete sand at the time. If mason sand was indeed delivered, it would affect specific delivery counts, and while tickets indicated asphalt sand deliveries, Kavanaugh stated that asphalt sand was never supplied to Paramount. Odierno asserted that any asphalt sand ticket would be incorrect, as it was not purchased during that period. The document references various legal cases discussing objective and subjective standards for expected or intended injury, highlighting inconsistencies in the application of these standards in different jurisdictions. Riviere terminated Kavanaugh's employment at Paramount, which may have influenced Kavanaugh's credibility. The assessment of both Kavanaugh and Riviere's credibility is hindered by the lack of access to their testimonies.