Lafayette Insurance Company v. Peerboom et al
Filing
68
Memorandum Opinion and Order granting 24 MOTION for Summary Judgment. A separate judgment will be entered. Signed by District Judge Tom S. Lee on 6/2/11 (LWE)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF MISSISSIPPI
JACKSON DIVISION
LAFAYETTE INSURANCE COMPANY
VS.
PLAINTIFF
CIVIL ACTION NO. 3:10cv336 TSL-FKB
EDWARD PEERBOOM, HEATHER
PEERBOOM, ABSOLUTE FOUNDATION
SOLUTIONS, INC., ET AL.
DEFENDANTS
MEMORANDUM OPINION AND ORDER
Plaintiff Lafayette Insurance Company filed the present
action seeking a declaratory judgment that its commercial general
liability insurance policy issued to defendant Absolute Foundation
Solutions (Absolute) provides no coverage for damages to the home
of Edward and Heather Peerboom, which the Peerbooms have claimed
was caused by Absolute’s negligence in performing certain work on
their home.
The case is presently before the court on Lafayette’s
motion for summary judgment pursuant to Rule 56 of the Federal
Rules of Civil Procedure.
The Peerbooms and Absolute have
separately responded to the motion and the court, having
considered the memoranda of authorities, together with
attachments, submitted by the parties, concludes the motion is
well taken and should be granted.
For purposes of the present motion, the following facts are
not in dispute:
Edward and Heather Peerboom’s home in Hattiesburg,
Mississippi flooded five times during an approximate eight-year
period, from January 1998 to August 2005.
In August 2009, after
they were informed by FEMA that it would no longer provide them
flood insurance if the home were not elevated, the Peerbooms hired
Absolute to raise the structure twenty-four inches above the flood
zone so it could be reshored and the flood insurance on the house
could be continued.
In general terms, the project involved
excavating beneath the home’s slab foundation, placing hydraulic
jacks at various locations below the slab, and using the jacks to
evenly raise the structure, a few inches at a time.
By midday on
August 28, 2009, Absolute had raised the structure approximately
twenty-one inches without incident.
Absolute’s crew then left for
lunch, and returned to discover that the house had fallen,
resulting in substantial damage to the entire structure.
On February 25, 2010, the Peerbooms filed suit against
Absolute and Caballero in the Circuit Court of Lamar County,
Mississippi, asserting claims of negligence, breach of contract
and fraud, and seeking compensatory damages for the total
destruction of their home and their resulting emotional distress,
and demanding punitive damages on account of Cabellaro’s alleged
fraud.1
Upon receiving notice of the suit, Absolute filed a claim
1
See Edward Peerboom and Heather Peerboom v. Absolute
Foundation Solitions, Inc., and Cesar Caballero, Case No. 2010-36
(Lamar County Cir. Ct.).
2
with Lafayette under its CGL policy, and tendered defense of the
underlying action to Lafayette.
Lafayette denied coverage, and
agreed to defend Absolute and Cabellero, under reservation of
rights, following which Lafayette filed the present action,
seeking a declaratory judgment that it is not obligated to defend
or indemnify Absolute/Cabellero under its CGL policy, and it now
seeks summary judgment on its complaint herein
Lafayette’s policy is a standard CGL policy which requires
Lafayette to “pay those sums that the insured becomes legally
obligated to pay as damages because of ... ‘property damage,’ ...
caused by an ‘occurrence,’” and to defend Absolute against any
lawsuit seeking such damages.2
Among other bases for its motion,
Lafayette contends that any “property damage” alleged in the
2
The policy’s coverage Part A states:
A. Coverage under Part A-Bodily Injury and Property Damage
Liability
1. Coverage under the Insuring Agreement
a. We will pay those sums that the insured becomes
legally obligated to pay as damages because of "bodily
injury" or "property damage" to which this insurance
applies. We will have the right and duty to defend the
insured against any "suit" seeking those damages.
However, we will have no duty to defend the insured
against any "suit" seeking damages for "bodily injury"
or "property damage" to which this insurance does not
apply. We may, at our discretion, investigate any
"occurrence" and settle any claim or "suit" that may
result. But . . .
b. This insurance applies to “bodily injury” and
“property damage” only if:
(1) The “bodily injury” or “property damage” is caused
by an “occurrence” that takes place in the “coverage
....
3
Peerbooms’ complaint was not caused by an "occurrence," as that
term is defined in the policy and interpreted under Mississippi
law.
It further argues that even if an “occurrence” had been
alleged, the insureds’ actions, and the damages flowing therefrom,
are subject to one or more exclusions in the policy, including,
inter alia, what are known as “business risk” exclusions.3
Under Mississippi law, which applies in this diversity
action, the determination whether a liability carrier has a duty
to defend depends on the policy language and the allegations of
the complaint.
QBE Ins. Corp. v. Brown & Mitchell, Inc., 591 F.3d
439, 443 (5th Cir. 2009) (citing U.S. Fidelity & Guar. Co. v.
Omnibank, 812 So. 2d 196, 200 (Miss. 2002)).
Under this so-called
“eight-corners” test, the allegations in the complaint are
analyzed against the language in the policy to determine coverage
3
Lafayette also contends the Peerbooms’ claims for fraud,
breach of contract and punitive damages do not allege an
“occurrence” under the policy and Mississippi case law.
Additionally, it argues that there is no coverage under Part B,
for “Personal or Advertising Injury,” as the facts alleged in the
underlying action do not implicate any of the listed “offenses”
making up the definition of “Personal and Advertising Injury.”
Absolute has not responded to Lafayette’s motion as it
pertains to coverage for the underlying breach of contract claim,
and has expressly confessed Lafayette’s arguments that the
underlying action does not allege “bodily injury” or “Personal and
Advertising Injury,” as defined by the CGL policy, and that
coverage does not lie for the Peerbooms’ fraud claim. And in the
court’s view, the Peerbooms have implicitly confessed the motion
on these issues by making no response to Lafayette’s arguments on
these points. The parties’ dispute thus centers on whether any of
the “property damage” claimed by the Peerbooms was caused by an
"occurrence," and if so, whether coverage is excluded under the
business risk exclusions.
4
and the duty to defend.
Id.
If the complaint alleges facts which
are arguably within the policy's coverage, a duty to defend
arises.
Id.
See Sennett v. U.S. Fidelity & Guar. Co., 757 So. 2d
206, 212 (Miss. 2000) (stating, “[a] liability insurance company
has an absolute duty to defend a complaint which contains
allegations covered by the language of the policy, but it has
absolutely no duty to defend those claims which fall outside the
coverage of the policy”).
In their complaint against Absolute, the Peerbooms allege
that they entered into a contract with Absolute “to raise [their]
structure up to 24 inches above its previous level while
maintaining the integrity of the structure;” that on August 28,
2009, while “Absolute was performing the job on the Peerbooms’
structure ... [t]he defendants failed to use approved engineering
techniques, or failed to use generally accepted methods in
performing the jacking operations, or failed to use sufficient and
proper equipment in performing the jacking operation,” as a result
of which “the leveling of the ... house failed causing it to be
completely destroyed.”
They further allege that Absolute “did not
provide even support to keep the structure’s integrity and thus
uneven forces caused the structure to break and collapse,”
resulting in a total loss of their home.
The complaint further
alleges that Caballero falsely represented to them that his
company “had the requisite equipment and expertise to safely
5
support the house by jacking it up evenly, so as to not cause
bending.”
Three requirements must be met in order to trigger a duty to
defend, and potentially indemnify, which are: (1) the Peerbooms
must allege they sustained a loss because of “property damage”;
(2) the alleged damage must be alleged to have been caused by an
“occurrence”; and (3) there must be no valid exclusion that
applies.
See Delta & Pine Land Co. v. Nationwide Agribusiness
Ins. Co., 530 F.3d 395, 399-400 (5th Cir. 2008).
It is undisputed
that the Peerbooms allege they sustained a loss caused by
“property damage.”
The issues are whether the alleged “property
damage” was caused by an “occurrence” and if so, whether any
exclusion applies.
Lafayette’s policy defines “occurrence” as “an accident,
including continuous or repeated exposure to substantially the
same general harmful conditions.”
While the policy defines
“occurrence” as an “accident,” the policy does not define
“accident.”
However, in a series of decisions, the Mississippi
Supreme Court has provided guidance as to the meaning of the term.
The court, for example, has explained that an “insured's
intentional actions [do] not constitute ‘accidents,’ and the
damages resulting therefrom [do] not amount to ‘occurrences,’”
even if the insured acts in a negligent manner.
Architex
Association, Inc. v. Scottsdale Insurance Co., 27 So. 3d 1148,
6
1159 (Miss. 2010).
That is, "even if an insured acts in a
negligent manner, that action must still be accidental and
unintended to implicate policy language."
Id. at 1158 (quoting
United States Fidelity & Guar. Co. v. Omnibank, 812 So. 2d 196,
197 (Miss. 2002)).
Moreover, since “[a]n accident by its very
nature produces unexpected and unintended results[,] [i]t follows
that bodily injury or property damage, expected or intended from
the standpoint of the insured, cannot be the result of an
accident.”
Omnibank, 812 So. 2d at 200.
Thus, an act is not an
"accident," and thus not an "occurrence" if “(1) the act is
committed consciously and deliberately, without the unexpected
intervention of any third force; and (2) the likely (and actual)
effect of the act was well within the actor’s foresight and
anticipation.”
(Miss. 1985).
Allstate Ins. Co. v. Moulton, 464 So. 507, 509
See also Omnibank, 812 So. 2d at 201 (stating that
“a claim resulting from intentional conduct which causes
foreseeable harm is not covered, even where the actual injury or
damages are greater than expected or intended”).
Recently, in Architex Association, Inc. v. Scottsdale
Insurance Co., the Mississippi Supreme Court considered the
meaning of “occurrence” in the context of an insured’s claim for
coverage for property damage due to a construction defect.
So. 3d 1148.
27
In that case, Architex, the contractor on a hotel
construction project, filed suit against its CGL carrier,
7
Scottsdale Insurance Co., after Scottsdale failed to defend or
indemnify Architex in the project owner’s suit against Architex to
recover damages based on allegations that the building was a total
loss due to a subcontractor’s failure to place rebar in the
foundation.
The trial court granted summary judgment for
Scottsdale, reasoning that although Architex did not intend its
subcontractors to do defective or improper work, it “intentionally
subcontracted the ... work to [subcontractors]”; “the hiring of
those subcontractors was not an ‘accident,’” and, “the hiring of
the subs, was a ‘course consciously devised and controlled by [the
insured]’ which undeniably set in motion the ‘chain of events
leading to the injuries complained of.’” Id. at 1154.
On appeal,
the Supreme Court considered “whether [Architex's] intentional
hiring or utilization of subcontractors to perform work on one of
its projects negates coverage included in the ... policies issued
by Scottsdale ... to Architex.”
Id. at 1149.
The court began by acknowledging “a clear jurisdictional
split regarding whether defective subcontractor construction
constitutes an ‘occurrence’ under a CGL policy,” with “‘one line
of cases [holding] that faulty or improper construction does not
constitute an accident [and that] the damage is [instead] the
natural and ordinary consequence of the insured's act,’” and
“‘[t]he other line of cases [holding] that improper or faulty
construction does constitute an accident as long as the resulting
8
damage is an event that occurs without the insured's expectation
or foresight.’” Id. at 1156 (quoting Lee Builders, Inc. v. Farm
Bureau Mut. Ins. Co., 281 Kan. 844, 137 P.3d 486, 491 (2006)).
The court in Architex considered that “part of the confusion
between insurers and insureds, and in conflicting opinions of
courts, is caused by branding faulty workmanship, defective work,
and other similar phrases as ‘occurrences’ or not.”
1161.
Id. at 1159-
The court stated that faulty or improper construction, or
defective workmanship (or gaining knowledge of same) is not in
itself an “occurrence,” but rather is “typically the result of
either accidental or intentional acts,” id. at 1157 (emphasis
added), and it noted that CGL policies “are designed to provide
liability protection for the general contractor and their
subcontractors for accidental, inadvertent acts which breach
accepted duties and proximately cause damage to a person or
property,” id. at 1156 (emphasis added).
The court concluded that
whether a contractor’s acts are intentional, or instead
accidental/inadvertent, will depend on the facts of the particular
case.
Making this point, the court wrote:
Faulty workmanship, defective work, et al., may be
accidental, intentional, or neither. ... [T]he
underlying facts will determine whether the complaint of
"property damage" (defective or faulty workmanship) was
proximately caused by breach of a recognizable duty and
whether that breach was accidental or intentional; or,
whether the "property damage" was caused by neither. In
two of the three aforementioned scenarios, no coverage
9
would exist. Only when "property damage" is proximately
caused by an accident (an inadvertent act) does an
"occurrence," as defined by the policy, trigger
coverage.
Id. at 1161.
See also Carl E. Woodward LLC v. Acceptance Indem.
Co., No. 1:09cv781-LG-RHW, 2011 WL 98404, 6-7 (S.D. Miss. Jan. 12,
2011) (stating that “pursuant to the Architex decision, faulty
workmanship and the hiring of a subcontractor are not as a matter
of law excluded from coverage, and this Court must look to the
facts and evidence presented in this case to determine whether
coverage exists”); National Builders and Contractors Ins. Co. v.
Slocum Const., LLC, Civ. Action No. 2:09cv217KS-MTP, 2010 WL
2545450, 8 (S.D. Miss. June 18, 2010) (recognizing that under
Architex, “construction defects may, in fact, constitute an
‘accident’ or ‘occurrence’ under an ISO CGL policy, based upon the
underlying cause of the defects”).
In Architex, the court concluded the record was
insufficiently developed for the court to answer with certainty
the question whether the contractor’s or subcontractor’s actions
which caused the construction defect were “accidental, intentional
or neither.”
Id.
In the court’s opinion, the same is true in the
case at bar.
Obviously, in the house-jacking operation, something
went awry; otherwise the Peerbooms’ house would not have fallen.
However, the Peerbooms’ complaint against Absolute does not put
forward a specific theory of why the house fell.
The Peerbooms
broadly allege in the underlying complaint that it fell because
10
Absolute “failed to use approved engineering techniques, or failed
to use generally accepted methods in performing the jacking
operations, or failed to use sufficient and proper equipment in
performing the jacking operation.”
Yet there is nothing in their
allegations to indicate whether these alleged failures were
intentional or accidental.
Likely that is because, as the
Peerbooms otherwise candidly allege, they do not “know the precise
cause of the failure.”
They allege simply that, “[f]or reasons
unknown to them, the structure’s support system failed in at least
one location, causing the structure to loose [sic] an even level,
and eventually the entire structure broke.”
Not only does the Peerbooms’ complaint not identify what
caused the house to fall, but to date, none of the parties has
offered an explanation or theory, or, so far as the court is
aware, even claims to have an opinion about what likely went
wrong.4
In their response to the present motion, the Peerbooms
state that chief among the many questions that remain unanswered
in this case is “why the house fell.”
Indeed, they assert the
answer to this question is “perhaps unknowable.”
Jeff Junkins, an
Absolute employee who participated in the Peerboom job for
4
An August 31, 2009 report prepared by Lafayette adjuster
Mickey Carney, of GAB Robins, recited that Hal Kane of Kane &
Associates Engineers and Constructors was to investigate and
develop theory(ies) about the cause, and indicated that Kane’s
report would be ready the first week of September 2009. The
Peerbooms note in their response that although it is well past
that date, Lafayette has not produced any report from Kane.
11
Absolute, has submitted an affidavit in which he states that he is
“still unable to determine what caused the Peerboom home to rotate
and collapse.”
In determining whether coverage exists, or the potential for
coverage exists so that Lafayette has a duty to defend, and
perhaps to indemnify, depending on the outcome of the underlying
case, it is the court’s charge to evaluate whether the allegations
in the underlying complaint, or the “true facts” made known to the
insurer, fall within the coverage of the policy.
591 F.3d at 444.
QBE Ins. Corp.,
Here, the Peerbooms’ complaint leaves open the
possibility that the "property damage" at issue was proximately
caused by an accident (an inadvertent act), and that their claimed
“property damage” was thus the result of an "occurrence."5
Accordingly, summary judgment cannot be granted on this basis.6
Of course, “even if there has been ‘property damage’ caused
by an ‘occurrence,’ coverage is not automatic.
It also must be
5
Since the act which likely caused the claimed “property
damage” is as yet undetermined, then it is likewise not known at
this point whether “the likely (and actual) effect of the act was
well within [Absolute’s] foresight and anticipation.” Allstate
Ins. Co. v. Moulton, 464 So. 507, 509 (Miss. 1985).
6
Lafayette has argued that for the same reasons the
Peerbooms’ claimed “property damage” was not caused by an
“occurrence”, their claimed losses are excluded from coverage as
“‘property damage’ expected or intended from the standpoint of the
insured.” However, just as the court cannot conclude as a matter
of law that the Peerbooms’ claimed “property damage” was not
caused by an “occurrence,” the court cannot conclude as a matter
of law that their claimed losses are excluded under the policy’s
“Expected or Intended Injury” exclusion.
12
ascertained, under the facts specific to each case, if any other
exclusions and/or exceptions to exclusions apply.”
So. 3d at 1161.
Architex, 27
In its motion, Lafayette relies on the policy’s
exclusion of coverage for “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.
...
Paragraph (6) of this exclusion does not apply to
“property damage” included in the “products-completed
operations hazard”.
“Your work” is defined, in pertinent part, as “work or operations
performed by you or on your behalf.”
These exclusions, usually labeled j(5) and j(6) in standard
CGL policies, are “business risk” exclusions, “common features in
commercial general liability insurance policies that are designed
to exclude coverage for defective work performed by the insured.”
Mid-Continent Cas. Co. v. JHP Dev., Inc., 557 F.3d 207, 211 (5th
Cir. 2009).
exclude
The “business risk” exclusions operate together to
coverage for an insured's faulty workmanship, the
rationale for the exclusions being that “faulty workmanship is not
an insurable ‘fortuitous event,’ but a ‘business risk’ to be borne
by the insured and not the insurer.”
Acadia Ins. Co. v. Peerless
Ins. Co., 769 F. Supp. 2d 229, 234 (D. Mass. 2010) (citing Couch
on Insurance 3rd, § 129:11).
Thus, “[a] policy containing this
13
type of [“business risk”] exclusion ... treats differently the
risk that an insured's substandard services or supplies will cause
damage to his own work product and the risk that his slipshodness
will injure someone or something else.”
Federated Mut. Ins. Co.
v. Grapevine Excavation Inc., 197 F.3d 720, 725 n.22 (5th Cir.
1999) (citing Hartford Casualty Co. v. Cruse, 938 F.2d 601, 603
(5th Cir. 1991); see also Wilshire Ins. Co. v. RJT Const., LLC, 581
F.3d 222, 226 (5th Cir. 2009) (“[a] CGL policy generally protects
the insured when his work damages someone else's property.
The
‘your work’ (“business risk”) exclusion prevents a CGL policy from
morphing into a performance bond covering an insured's own
work.”)(citing Mid-Continent Cas. Co., 557 F.3d at 212).
The subject exclusions apply only to damage caused while the
work is ongoing, id. at 213, a requirement that is clearly met
here, since the claimed damage occurred during the house-jacking
operation.
By its terms, exclusion j(5) applies only to “property
damage” to “[t]hat particular part of real property on which [the
insured] [is] performing operations, if the ‘property damage’
arises out of those operations.
And, the Fifth Circuit has held
that “the plain meaning of exclusion j(6) is that property damage
only to parts of the property that were themselves the subjects of
the defective work is excluded.”
Id. at 214.
The court in ACUITY v. Burd & Smith Construction, Inc.
addressed the nature of a CGL policy, and of business risk
14
exclusions, stating, “[A] CGL policy is not a performance bond and
is not intended to protect a contractor's business risk to replace
or repair defective work that does not conform to the agreed
contractual requirements; rather, the policy is intended to
protect the insured from liability because the insured's goods,
products, or work cause bodily injury or damage to property other
than the insured's work product.”
721 N.W.2d 33, 41 (N.D. 2006)
(citing Grinnell Mutual Reinsurance Co. v. Lynne, 686 N.W.2d 118
(N.D. 2004)).
The court wrote:
Consistent with that purpose, other courts have
generally construed those property damage exclusions to
exclude coverage when the property damage is to the
property on which the insured has contracted to perform
operations and not to exclude coverage when the property
damage is to property that the insured was not
performing operations on. See Hartford Cas. Co. v.
Cruse, 938 F.2d 601, 603-04 (5th Cir. 1991); Southwest
Tank and Treater Mfg. Co. v. Mid-Continent Cas. Co., 243
F. Supp. 2d 597, 603-04 (E.D. Tex. 2003)..... Some
courts have specifically recognized that facts in each
case are determinative of the particular part of
property on which an insured is performing its
operations and that buildings may be divided into parts
in attempting to determine which part or parts are the
object of the insured's work product. A common thread
for deciding whether there is coverage for property
damage is the scope of the insured's contract. See
Hartford Cas. Co., 938 F.2d at 603....
Id. (additional citations omitted).
As one court has observed,
“[a]lthough it may be possible to define the scope of the instant
exclusion in the abstract .... buildings can be divided into so
many parts that attempting to determine which part or parts are
the subject of the insured's operations can produce several
15
reasonable conclusions.”
Travelers Cas. and Surety Co. v.
Dormitory Authority State of N.Y., 732 F. Supp. 2d 347, 366
(S.D.N.Y. 2010) (quoting Columbia Mut. Ins. Co. v. Schauf, 967
S.W.2d 74, 80 (Mo. 1998).
In the case at bar, a determination of
whether exclusion j(5) or j(6) applies to the Peerbooms’ claimed
damage depends on identifying “the particular part” of the
Peerbooms’ property on which Absolute was working, or “performing
operations,” at the time of the alleged “occurrence.”
As in the case at bar, the “decisive issue” in Hartford
Casualty Co. v. Cruse, relied on by defendants, was “definition of
[the insured’s] work product.”
938 F.2d 601, 603 (5th Cir. 1991).
In Cruse, homeowners had sued the insured, alleging it defectively
performed foundation leveling services on their home, which
resulted in diminution in value of the home and damages to various
other parts of the house (e.g. “doors out of plumb, surfaces such
as window sills and counter tops abnormally out of level,
separation of interior walls from the floor, and cracked
sheetrock”).
The policy at issue in Cruse excluded “property
damage to work performed by ... the named insured arising out of
the work or any portion thereof....”
Id. at 603.
The court held
that the exclusion “only applie[d] to the cost of repair to the
foundation itself, and [did] not apply to the diminution in the
value of the Cruses' home that remained after correction of J&J's
16
faulty work, and to repair costs for other property... to the
extent that these particular items of damage require repair other
than to the foundation itself.”
Id. at 604.
The court stated:
The Cruses hired J&J (the insured) to perform foundation
work. Damages due to defective foundation work that
affected property other than the foundation do not fall
within the terms of Exclusion (o), which “carves out of
the policy damage to the particular work performed by
the insured, but not the overall damage that the
incorporation of the defective work product causes to
the entire entity.” Todd Shipyards Corp. v. Turbine
Service, Inc., 674 F.2d 401, 421 (5th Cir.) (work
product not the ship, and not even the entire turbine,
but only the components of the turbine that insured
attempted to repair or replace), cert. denied, 459 U.S.
1036, 103 S. Ct. 447, 74 L. Ed. 2d 602, 459 U.S. 1036,
103 S. Ct. 448, 74 L. Ed. 2d 603 (1982); accord
Travelers Ins. Co. v. Volentine, 578 S.W.2d 501, 503-04
(Tex. Civ. App.-Texarkana 1979, no writ) (insured's work
or work product was repair of engine valves only, thus
coverage extended to other parts of damaged engine).
J&J performed work on the foundation only, not the
entire house, and this fact distinguishes the present
case from those cases where the general contractor
undertakes to construct or reconstruct an entire
structure, and damage is limited to that structure.
See, e.g., [T.C. Bateson Constr. Co. v. Lumbermens Mut.
Casualty Co., 784 S.W.2d 692, 697-98 (Tex. App.-Houston
[14th Dist.] 1989, writ denied)(business risk exclusion
applies because builder contracted to construct entire
library and all damage was to building itself); Sarabia
v. Aetna Cas. and Sur. Co., 749 S.W.2d 157, 157-58 (Tex.
App.-El Paso 1988, no writ) (“major overhaul” of a
diesel truck engine, with no damage “after the overhaul
other than what [insured] had repaired, replaced or
reworked”); [Eulich v. Home Indemnity Co., 503 S.W.2d
846, 849 (Tex. Civ. App.-Dallas 1973, writ ref'd
n.r.e.)(construction of entire building; exclusion
applied to damage to building after it collapsed due to
installation of steel member with less strength than
required by contract).
938 F.2d at 603-04.
17
The facts presented in Wilshire Insurance Co. v. RJT
Construction, LLC, also relied on by defendants, were similar to
those in Cruse.
RJT Construction, the named insured under a CGL
policy, was hired to “raise[], level[], and stabiliz[e] the
foundation of the residence that had been induced to move as a
result of the accidental discharge of water from a plumbing
system.”
581 F.3d at 224.
Some five years after RJT completed
its work, cracks appeared in the walls and ceiling of the home,
which the owner attributed to defective foundation repairs by RJT.
At issue in Wilshire was the “your work” exclusion, a “business
risk” exclusion of coverage for “‘[p]roperty damage’ to ‘your
work’ arising out of it or any part of it and included in the
‘products-completed operations hazard.’”
The court held that
“[t]he exclusion precludes coverage for the cost of repairing
RJT's own work, the foundation. ... The exclusion, however, only
precludes coverage for liability for repairing or replacing the
insured's own defective work; it does not exclude coverage for
damage to other property resulting from the defective work.”
at 226.
The court observed:
The complaint alleges that the faulty foundation caused
damage to other parts of the house that RJT did not work
on including the walls and ceilings. The “your work”
exclusion does not preclude coverage for damage to the
parts of the house resulting from the allegedly faulty
foundation. Because these damages present a covered
claim, Wilshire must defend the entire suit.
18
Id.
Id. at 227.
In Wilshire, although the insurer contended that the
underlying complaint defined RJT’s work to include the entire
house, the court found otherwise, stating, “To the contrary, the
complaint makes clear that RJT was brought onto the job as the
‘foundation repair subcontractor.’” Id. at 227 n.16.
See also E &
R Rubalcava Constr., Inc., 147 F. Supp. 2d 523, 528 (N.D. Tex.
2000) (where insured was hired to construct foundations for
homebuilder, damage to homes from defective foundation work not
excluded since “that particular part” of the property on which
insured worked were the foundations) (citing Cruse).
The facts in the present case are materially distinguishable
from those of Cruse and Wilshire, and in the court’s opinion,
dictate a different result.
In Cruse and Wilshire, the insureds
were hired to perform foundation leveling or repair services and
in each case, the insured performed work on the foundation only,
not the remaining parts of the house.
The Cruse court noted, in
fact, that this is what distinguished Cruse from other cases in
which an insured’s work product was the entire structure or
building project, rather than simply a portion thereof.
938 F.2d at 603-604.
Cruse,
See Essex Ins. Co. v. Patrick, No. Civ A.
SA05CA337-OG, Civ. A. SA05CA629-OG, 2006 WL 3779812 (N.D. Tex.
Oct. 16, 2006) (noting distinction in Cruse, and finding exclusion
applicable to all claimed damage where insureds were responsible
for entire building project, since “[t]here is nothing to suggest
19
that damages occurred to any property that was not part of the
work undertaken by the insureds”).
Here, Absolute was hired by
the Peerbooms not to repair or level the foundation, but to raise
the elevation of the entire home.
Numerous cases have found the
business risk exclusions applicable in analogous circumstances.
For example, and in contrast to Cruse and Wilshire, the
insured in Grinnell Mutual Reinsurance Co. v. Lynne, 686 N.W.2d
118 (N.D. 2004), Lynne, was hired by one Larson to construct a new
foundation for a farmhouse.
This required Lynne to lift the house
from its existing foundation and support the house with iron
timbers while constructing a new foundation under the house.
While Lynne was in the process of raising the house, the iron
timbers “rolled over.”
Id. at 121.
The house fell off the
support jacks and into the basement approximately three feet.
Id.
The insurer argued that exclusions (j)(5) and (j)(6) applied to
exclude coverage under its CGL policy.
The insured argued that
the “particular part” of the property on which he was working was
not the house, but rather the foundation of the house, and that
any damage to the house should be covered.
Id. at 124.
The
court, however, held that exclusion (j)(5) of the policy operated
to preclude coverage for the insured’s claim for defense and
indemnity against Larson's claim for damage to his house, stating:
The language of the policy indicates “[t]hat particular
part of real property” on which Lynne was working is
subject to the exclusion. The particular part of real
property on which Lynne was working was the house.
20
Thus, damage to the house resulting from Lynne's work
will not be covered by the policy due to the exclusions
included in the policy.
Id. at 125.
In concluding that the business risk exclusion
precluded coverage for damages to the house, the court noted that
the purpose of such exclusions “is to prevent policyholders from
converting liability insurance into protection from foreseeable
business risks” and that “[a] commercial liability insurance
policy is not meant to act as a warranty of the insured's work.”
Id. at 124.
As in Grinnell, the court in Barber v. Berthiaume, No.
CV054009532S, 2009 WL 3740736 (Conn. Super. Oct. 19, 2009), found
the business risk exclusion applicable where a house toppled and
sustained damage while the insured contractor was in the process
of raising the house so that he could construct new piers under
the house.
Citing Grinnell, the court found the damage to the
house was excluded because “the house in this case was being
raised as part of the contract Berthiaume was obligated to
perform” and “the house would not have toppled if it was not
raised by Berthiaume.”
Id. at 1.
In Auto-Owners Insurance Co. v. Chorak & Sons, Inc.,
No. 07 C 4454, 2008 WL 3286986 (N.D. Ill. Aug. 8,2008), as part of
his contractual duty to strengthen the frame construction of a
home, the insured contractor had to lift the house one to two
inches off its foundation to replace the home’s “sill plate,” a
21
two inch by six inch wooden plate that sits atop the foundation.
The insured placed floor jacks throughout the property for use in
raising the house.
When the insured was raising the house, it
slid off its foundation, resulting in catastrophic damage to the
home’s structure.
Id. at 1.
The insured argued that exclusions
j(5) and j(6) only excluded damage to the sill plate, since that
was the “particular part” of the property on which it was
performing work.
Id. at 2.
The court, however, agreed with the
carrier’s position that the damage to the entire house fell within
exclusions j(5) and j(6), since “the structure on which Chorak
(the insured) was working was the entire house.
with replacing the sill plate.
Chorak was tasked
This required work in the entire
house; that is, Chorak had to raise the entire house in order to
complete the assigned task,” id. at 3, and thus the damage to the
house was excluded.
The court noted that this result was
consistent with the purpose of CGL policies, stating,
Excluding the damage to the house under exclusions j(5)
and j(6) also effectuates the cited purpose of CGL
policies. Such policies are “intended to protect the
insured from liability for injury or damage to persons
or property of others; they are not intended to pay the
costs associated with repairing or replacing the
insured’s defective work and products.” Traveler's, 258
Ill. Dec. 792, 757 N.E.2d at 503; State Farm Fire and
Cas. Co. v. Tillerson, 334 Ill. App. 3d 404, 268 Ill.
Dec. 63, 777 N.E.2d 986, 993 (Ill. App. Ct. 2002)
(“these exclusions are premised on the theory that
liability policies are not intended to provide
protection against the insured's own faulty workmanship
or product, which are normal risks associated with the
conduct of the insured's business”). Here, Chorak
requests coverage for its defective work. Put another
22
way, it asks for Auto-Owners to cover damage as a result
of the normal risks associated with lifting a home.
Chorak does not request coverage for damage to any other
property.
Id. at 4.
In Erie Insurance Exchange v. Pugh, No. 98 CA 53, 1999 WL
812292 (Ohio App. 2 Dist. Oct. 8, 1999), the insured contractor
was hired to construct an addition and basement renovation of a
residence.
The insured’s employee was working on the basement
foundation when a weakened control support gave way and the main
residence collapsed into the basement.
Id. at 1.
The collapse of
the residence was found to be the “direct result of undermining
all footers on the foundation walls without proper shoring of the
residence and the footers.”
Id.
The court held the exclusion
applied to the damage to the residence, since “‘that particular
part of real property upon which operations are being performed’
involved the foundation which supported the entire residence, and
since such operations set off the reaction which caused all of the
subsequent damage.”
Id. at 2.
In so holding, the court observed
that “the isolation of the foundation as the only place where
faulty operations were being performed when the house fell down,
and the assessment of damages accordingly, could lead to
completely illogical results.”
7
Another
Company, Inc., 21
which the insured
location to a new
case that
Mass App.
was hired
site, and
Id.7
bears mention is Frankel v. J. Watson
Ct. 43, 484 N.E.2d 104 (1986), in
to move a farmhouse from its existing
to install it upon a new concrete
23
In the case at bar, notwithstanding defendants’
characterization of the scope of Absolute’s work as being confined
to the foundation, it is clear from the Peerbooms’ complaint (as
well as from their description of the work in their memorandum in
response to Lafayette’s motion) that Absolute was hired not to
merely work on the foundation but instead to raise the elevation
of the Peerboom’s entire home to satisfy FEMA requirements and
thereby qualify for federal flood insurance.
This was to be
accomplished by using a system of jacks to lift the entire house,
including the existing slab, and then constructing a new concrete
foundation on which the home would ultimately rest.
Unlike the
foundation which the insured was to construct. After the house
was moved onto the new foundation, the superstructure began to
sag, causing it extensive damage. The court held the damage to
the structure itself was not excluded under a policy exclusion for
property damage to “that particular part of any property ... the
restoration, repair or replacement of which ... is necessary by
reason of faulty workmanship thereon by ... the insured.” The
court interpreted the exclusion as “creating a distinction between
damage to the insured’s work product and damage to larger units of
which the insured’s work product is but a component,” id. at 10506 (citations omitted), and held that “the ‘particular part’ of
the property affected by the alleged faulty workmanship of the
insured was the foundation,” id. at 106. In Frankel, in contrast
to the present case, the structure was not damaged in the move
itself; rather, the damage occurred after the work was completed
and occurred because the new foundation was defective. Had the
insured dropped the home in the move, the result would likely have
been different. In any event, Donovan v. Commercial Union
Insurance Co., 44 Mass. App. Ct. 596, 692 N.E. 2d 536 (1998), the
court questioned Frankel’s narrow interpretation of the reach of
the exclusion, and it has since been suggested that there is
“significant doubt as to whether Frankel is still good law in
Massachusetts.” See Federal Ins. Co. v. Hermitage Ins. Co., No.
Civ. A. 00-12310-DPW, 2002 WL 31194872, at 1 (D. Mass. Sept. 25,
2002).
24
insureds in Cruse and Wilshire, Absolute performed work, not on
the foundation only, but on the entire house; and this fact
distinguishes the present case from Cruse and Wilshire and other
similar cases where a contractor undertakes to work on a discrete
part of a structure and defects in his work cause damage to other
property.
The fact that the Peerbooms recognize that Absolute’s
work included the structure of the home, and not only the
foundation, is implicit in the various allegations in their
complaint that Absolute “was performing the job on the Peerbooms’
structure,” that it was Absolute’s duty “to provide even support
to keep the structure’s integrity,” that Caballero had “the
requisite expertise and equipment to raise the structure
twenty-four inches above its then-current elevation without
damaging the structure,” and that they entered into a contract
with Absolute to “raise the Peerbooms’ structure.”
added).
(Emphasis
And in response to the motion, they repeatedly state that
Absolute was hired “to raise the structure,” and was in the
business of “raising houses.”
(Emphasis added).
In addition,
they state that prior to Absolute’s beginning the jacking
procedure, they contacted its insurance agent to inquire whether
coverage was in force “in the event the house was dropped.”
From the foregoing, it is manifest that the “particular part”
of the property on which Absolute was hired to perform work and on
which it was working was the Peerbooms’ entire house.
25
The risk
that the house would fall and sustain damage in the process of
Absolute’s house-raising operation and sustain damage as a result
was not merely a fortuitous event but a business risk which falls
squarely within exclusions j(5) and j(6).8
For this reason,
Absolute’s motion for summary judgment is well taken.9
8
Contrary to the Peerbooms’ urging, the exclusion
applies, notwithstanding that Absolute was working to raise the
house, as opposed to working on the house. See NGM Ins. Co. v.
Stoltzfus Constr., LLC, No. 1:09-CV-01717, 2011 WL 397667 (M.D.
Pa. Jan. 10, 2011) (finding reasoning in Grinnell lucid and
persuasive, and noting that Grinnell court applied exclusion to
damage to the house notwithstanding that insured in Grinnell “was
working on raising the house rather than working on the house
itself”).
9
The court notes that in addition to these exclusions,
Lafayette also relies on the policy exclusion for “property
damage” to
(1) Property you own, rent, or occupy, including any
costs or expenses incurred by you, or any other person,
organization or entity, for repair, replacement,
enhancement, restoration or maintenance of such property
for any reason, including prevention of injury to a
person or damage to another’s property
...
Pointing to Webster’s Dictionary’s definition of “occupy” to mean
“to take or hold possession or control of” or “to reside in as an
owner or tenant,” Lafayette contends for application of exclusion
(j)(1), which precludes coverage for “property damage” to
“[p]roperty you own, rent, or occupy,” claiming that on the date
in question, Absolute had control of the Peerboom home. See
SnyderGeneral Corp. v. Century Indem. Co., 113 F.3d 536, 539 (5th
Cir. 1997) (observing that under Texas law, the care, custody and
control exclusion only precludes insurance coverage in cases in
which the insured totally and physically manipulates property).
Because the court concludes that exclusions j(5) and j(6) preclude
the court need not determine whether exclusion j(1) is also
applicable.
26
Accordingly, it is ordered that Absolute’s motion for summary
judgment is granted.10
A separate judgment will be entered in accordance with Rule
58 of the Federal Rules of Civil Procedure.
SO ORDERED this 2nd day of June, 2011.
/s/Tom S. Lee
UNITED STATES DISTRICT JUDGE
10
The court notes that the Peerbooms have included in
their response to the motion a Rule 56(f) request for continuance
of the motion so they can conduct discovery toward ascertaining
what caused the house to fall. However, since the proposed
discovery is not pertinent to the basis of the court’s conclusion
that summary judgment is in order, their request will be denied.
27
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