CYNTHIA K GROOM V HOME-OWNERS INS CO
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STATE OF MICHIGAN
COURT OF APPEALS
CYNTHIA K GROOM,
UNPUBLISHED
April 19, 2007
Plaintiff-Appellant,
v
HOME-OWNERS INSURANCE COMPANY,
No. 272840
Ottawa Circuit Court
LC No. 05-053144-CZ
Defendant-Appellee.
Before: Saad, P.J., and Hoekstra and Smolenski, JJ.
PER CURIAM.
In this insurance coverage dispute, plaintiff appeals as of right the trial court’s grant of
summary disposition in favor of defendant. We affirm in part, reverse in part and remand.
This dispute arises out of an earlier lawsuit between plaintiff and defendant’s insured
Knoll Construction, Inc. (Knoll). In 2000, plaintiff purchased a newly constructed condominium
from Knoll. Sometime after she moved into the condominium, plaintiff discovered that the roof
leaked. Plaintiff then sued Knoll for the costs associated with repairing the defective roof and
the damage caused by water intrusion, which included the costs associated with eliminating
mold. Plaintiff also sought compensation for personal injuries caused by her exposure to the
mold. In 2004, after a trial on the merits, the jury returned a verdict in plaintiff’s favor and found
that Knoll was liable for $80,000 in property damage and $16,000 in personal injuries. In
addition, the trial court awarded plaintiff more than $51,000 in attorney fees and costs.
After the entry of judgment in favor of plaintiff, defendant notified plaintiff that it would
not pay the judgment against Knoll. As a result, plaintiff initiated the present declaratory action.
Before the trial court, the parties did not dispute that Knoll became legally obligated to pay
plaintiff for property damage and bodily injury arising out of activities that occurred during the
policy period and in the coverage territory. In addition, defendant conceded that the policy
covered Knoll’s obligation to pay for plaintiff’s bodily injuries. However, defendant contended
that the property damage at issue was not caused by an occurrence within the meaning of the
commercial general liability (CGL) policy issued to Knoll. Defendant noted that the term
“occurrence,” as used in CGL policies, has been judicially defined to refer only to damage
caused to the property of others, as opposed to damage to an insured’s work product. Because
the property damage was to Knoll’s work product alone (i.e., the condominium), defendant
further argued, it did not constitute damage caused by an occurrence within the meaning of the
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policy. The trial court agreed with defendant and granted its motion for summary disposition
under MCR 2.116(C)(10).
This appeal followed.
I. Standards of Review
This Court reviews de novo a trial court’s decision to grant summary disposition.
Hamade v Sunoco (R&M), Inc, 271 Mich App 145, 153; 721 NW2d 233 (2006). A motion for
summary disposition under MCR 2.116(C)(10) tests the factual sufficiency of a claim. Dressel v
Ameribank, 468 Mich 557, 561; 664 NW2d 151 (2003). Summary disposition is appropriate
under MCR 2.116(C)(10) if “there is no genuine issue as to any material fact, and the moving
party is entitled to judgment or partial judgment as a matter of law.”
The proper interpretation of a contract is also a matter of law that this Court reviews de
novo. Clark v DaimlerChrysler Corp, 268 Mich App 138, 141; 706 NW2d 471 (2005). Where a
contract is unambiguous, it is not open to judicial construction and must be enforced as written.
Rory v Continental Ins Co, 473 Mich 457, 468; 703 NW2d 23 (2005).
II. Faulty Workmanship as an “Occurrence” under the Policy
Plaintiff first argues that the trial court erred when it concluded that the property damage
at issue was not caused by an occurrence within the meaning of the CGL policy. We disagree.
Under the terms of the CGL policy issued to Knoll, defendant agreed to “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.” However, the policy also provided that,
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 territory”; and
(2) The “bodily injury” or “property damage” occurs during the policy period.
Further, the policy defined an “occurrence” as “an accident, including continuous or repeated
exposure to substantially the same general harmful conditions.”
In interpreting CGL policies that use substantially the same language as the present
policy, courts have split into two main lines on the question whether coverage is triggered by
poor workmanship that causes injury to the work product itself. In both lines of cases, the focus
is on the proper interpretation of the term “accident.”
In one line of cases, the term “accident” is interpreted to exclude damage caused by
faulty workmanship to the work product itself. See Kvaerner Metals Div of Kvaerner US, Inc v
Commercial Union Ins Co, 589 Pa 317; 908 A2d 888, 899 (2006); Monticello Ins Co v Wil-Freds
Const, Inc, 277 Ill App 3d 697, 705-706; 661 NE2d 451 (1996); United States Fidelity &
Guaranty Corp v Advance Roofing & Supply Co, 163 Ariz 476; 788 P2d 1227 (Ariz App, 1989);
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McAllister v Peerless Ins Co, 124 NH 676; 474 A2d 1033 (1984). The decision in McAllister
exemplifies the reasoning behind this line of cases.
The plaintiff in McAllister was a landscaper who had been hired to landscape a property
and construct a leach field. The customer later sued the plaintiff for faulty workmanship and
breach of contract. McAllister, supra at 678. The customer did not claim that the plaintiff’s
faulty workmanship “caused damage to any other property than the work product, nor did he
claim any damage to the work product other than the defective workmanship.” Id. The plaintiff
then brought a declaratory action to determine coverage for the liability asserted in the
underlying complaint. Id. In examining the issue, the court in McAllister noted that the policy
defined an “‘occurrence’ in the standard fashion as ‘an accident, including continuous or
repeated exposure to conditions, which results in property damage.’” Id. at 680. It then
concluded that the “fortuity implied by reference to accident or exposure is not what is
commonly meant by a failure of workmanship.” Id. For this reason, the court concluded that the
policy at issue did not include coverage for a claim of defective workmanship. Id.
Under an alternate line of cases, courts have held that faulty workmanship constitutes an
occurrence as long as the insured did not intend for the damage to occur. See Lennar Corp v
Great American Ins, Co, 200 SW 3d 651, 668-669 (Tex App, 2006) (noting that business risks
are normally eliminated through exclusions—not through the occurrence requirements of the
insuring agreement); American Family Mutual Ins Co v American Girl, Inc, 268 Wis 2d 16; 673
NW2d 65, 78 (2004); Fidelity & Deposit Co of Maryland v Hartford Casualty Ins Co, 189 F
Supp 2d 1212, 1219 (D Kan, 2002); Erie Ins Exch v Colony Dev Corp, 136 Ohio App 3d 406;
736 NE 2d 941 (1999).
In American Girl, the court interpreted a CGL policy issued to a general contractor hired
to build a warehouse for American Girl. American Girl, supra at 28. The general contractor
hired a soil engineer to analyze the proposed construction site and provide advice on its
preparation. The general contractor then prepared the site according to the soil engineer’s
advice. Id. After the warehouse was completed in 1994, it began to settle. Id. By 1997, “the
settlement approached one foot, the building was buckling, steel supports were deformed, the
floor was cracking, and sewer lines had shifted.” Id. at 29. Eventually, engineers determined
that the building was not safe for occupancy and the building was dismantled. Id. The insurer
then initiated an action seeking a declaration concerning the coverage provided by the CGL
policy. Id. at 30.
In examining whether the policy covered the loss of the warehouse, the court in American
Girl first recognized that the policy covered property damage that resulted from an occurrence.
Id. at 38. It then turned to the proper interpretation of the term “occurrence.”
“Occurrence” is defined as “an accident, including continuous or repeated
exposure to substantially the same general harmful conditions.” The term
“accident” is not defined in the policy. The dictionary definition of “accident” is:
“an event or condition occurring by chance or arising from unknown or remote
causes.” Webster’s Third New International Dictionary of the English Language
11 (2002). Black’s Law Dictionary defines “accident” as follows: “The word
‘accident,’ in accident policies, means an event which takes place without one’s
foresight or expectation. A result, though unexpected, is not an accident; the
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means or cause must be accidental.” Black’s Law Dictionary 15 (7th Ed. 1999).
[Id.]
After examining the ordinary meaning of the term “accident,” the court explained that,
No one seriously contends that the property damage to the [warehouse] was
anything but accidental (it was clearly not intentional), nor does anyone argue that
it was anticipated by the parties. The damage to the [warehouse] occurred as a
result of the continuous, substantial, and harmful settlement of the soil underneath
the building. [The soil engineer’s] inadequate site-preparation advice was a cause
of this exposure to harm. Neither the cause nor the harm was intended,
anticipated, or expected. [Id.]
For this reason, the court concluded that the faulty preparation of the site constituted an
“occurrence” within the meaning of the policy. Id. at 39.
The court further rejected the insurer’s argument that breach of contract and warranty
claims can never be an “occurrence,” because CGL policies are not intended to cover contract
claims arising out of the insured’s defective work or product. The court explained,
We agree that CGL policies generally do not cover contract claims arising out of
the insured’s defective work or product, but this is by operation of the CGL’s
business risk exclusions, not because a loss actionable only in contract can never
be the result of an “occurrence” within the meaning of the CGL’s initial grant of
coverage. This distinction is sometimes overlooked, and has resulted in some
regrettably overbroad generalizations about CGL policies in our case law. [Id.]
Hence, the court enforced the plain and ordinary meaning of the term “accident” rather than read
into it an exclusion for claims based on defective work products.
Were we writing on a clean slate, we would follow the reasoning of American Girl and
apply the general coverage provisions of the CGL policy at issue according to its plain and
ordinary meaning. Hence, we would conclude that faulty workmanship constitutes an
occurrence within the meaning of the CGL policy as long as the insured did not intend for the
damage to occur. However, we are not writing on a clean slate.
This Court considered whether defective workmanship constituted an occurrence within
the meaning of a CGL policy in Hawkeye-Security Ins Co v Vector Const Co, 185 Mich App
369; 460 NW2d 329 (1990). In that case, Vector was hired to perform concrete work on a
project. Id. at 371. After Vector completed the improvements, it learned that the concrete that it
had ordered from a third-party did not comply with the project specifications. Id. As a result,
the concrete had to be removed and replaced. Id. at 371-372. The general contractor sued
Vector and Vector filed a claim with its insurer. The insurer denied the claim and sought a
declaratory judgment concerning the coverage provided by the CGL policy. Id. at 372. In
determining that the policy did not cover damage to the insured’s own work product, the court in
Hawkeye adopted the reasoning and conclusion stated in McAllister, supra, and concluded that
“the defective workmanship of Vector, standing alone, was not the result of an occurrence within
the meaning of the insurance contract.” Id. at 377-378.
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A decade later, this Court again examined the conditions under which faulty
workmanship may give rise to a claim under a CGL policy. In Radenbaugh v Farm Bureau
General Ins Co, 240 Mich App 134, 136; 610 NW2d 272 (2000), the plaintiffs sold a doublewide mobile home to purchasers. As part of the sale, the plaintiffs provided the purchasers with
erroneous schematics and instructions that were used in the construction of a basement for the
home. Id. As a result, the home and basement suffered damage. Id. The purchasers sued the
plaintiff, but the defendant refused to defend or indemnify the plaintiff. After settling with the
purchasers, the plaintiff sued defendant for breach of the CGL policy. Id.
Relying on Hawkeye, the defendant argued that it was not required to defend the plaintiff
because the underlying claims for damage were not the result of an occurrence. Id. at 140. The
court disagreed, noting that the underlying complaint alleged damages “broader than mere
diminution in value of the insured’s product caused by alleged defective workmanship, breach of
contract, or breach of warranty.” Id. at 141. Relying on Calvert Ins Co v Herbert Roofing &
Insulation Co, 807 F Supp 435 (ED Mich, 1992), the court in Radenbaugh concluded that, where
defective workmanship results in damage to the property of others, an accident exists within the
meaning of the CGL policy. Radenbaugh, supra at 145-148. However, where the “‘damage
arising out of the insured’s defective workmanship is confined to the insured’s own work
product, the insured is the injured party, and the damage cannot be viewed as accidental within
the meaning of the standard liability policy.’” Id. at 147, quoting Calvert, supra at 438. Because
the defective workmanship resulted in damage to the basement, which was the property of
others, the court concluded that the defendant was obligated to defend and indemnify the
plaintiff. Radenbaugh, supra at 149.
Based on the holdings in Hawkeye and Radenbaugh it is clear that Michigan follows the
line of cases that hold that defective workmanship by itself does not constitute an occurrence.
See Hawkeye, supra at 378. Rather, in order to constitute an occurrence, the defective
workmanship must result in damage to persons or to property other than the work product itself.
Radenbaugh, supra at 147. Hence, we must examine the nature of the damages resulting from
the faulty workmanship to determine whether the faulty workmanship constitutes an “accident”
and, therefore, an “occurrence” within the meaning of the CGL policy.
In the present case, Knoll was responsible for constructing a condominium with a
defective roof. The defective roof allowed water to leak into the condominium, which in turn
damaged other parts of the condominium. The condominium itself was Knoll’s work product.
Because the property damage caused by the defective roof was limited to the condominium, the
faulty workmanship does not constitute an occurrence within the meaning of the CGL policy.
Radenbaugh, supra at 147. Therefore, the trial court did not err when it concluded that the CGL
policy at issue did not cover property damage to the condominium.
III. Products-Completed Operations
Plaintiff next contends that the trial court erred by failing to address whether the
“completed operations” provisions in the CGL policy provided coverage for the property damage
at issue independently of the general coverage provisions. Because the completed operations
coverage provides coverage for faulty workmanship, plaintiff further argues, she is entitled to
summary disposition in her favor. We disagree.
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The CGL policy at issue provides coverage for three broad categories of injuries.
“Coverage A” insures against bodily injury and property damage liability, “Coverage B” insures
against personal and advertising injury liability, and “Coverage C” insures against medical
payments. At no point does the policy provide independent coverage for “products-completed
operations.” Rather the policy defines “products-completed operations hazard” to include “all
‘bodily injury’ and ‘property damage’ occurring away from premises you own or rent and arising
out of ‘your product’ or ‘your work’ . . . .” Further, the policy specifically provides that the
“Products-Completed Operations Aggregate Limit is the most we will pay under Coverage A for
damages because of ‘bodily injury’ and ‘property damage’ included in the ‘products-completed
operations hazard.’” Hence, under the plain terms of the policy, the products-completed
operations hazard describes a type of bodily injury and property damage insured under Coverage
A and subject to the scope of coverage provided by Coverage A. Therefore, the property damage
must be the result of an occurrence in order to be covered by the CGL policy. We have already
determined that the property damage to the condominium was not caused by an occurrence
within the meaning of the CGL policy. Consequently, the trial court did not err by declining to
grant summary disposition in favor of plaintiff on this basis.
IV. Attorney Fees
Finally, plaintiff argues that the trial court erred when it determined that the policy did
not cover the award of attorney fees in the underlying suit. We agree.
The CGL policy at issue provides that the insurer will “pay those sums that the insured
becomes legally obligated to pay as damages . . . .” (emphasis added). Further, the policy
specifically disclaims any liability to pay sums other than damages except as “explicitly provided
for under supplementary payments coverages A and B.” (emphasis removed). The section
dealing with supplementary payments coverages A and B does not provide for the payment of
attorney fees taxed against the insured. However, it does provide that the insurer will pay “costs
taxed against the insured in the ‘suit.’” Hence, defendant will only be obligated to pay the award
of attorney fees, if the award constitutes either “damages” or “costs,” as those terms are used in
the CGL policy.
“In ascertaining the meaning of a contract, we give the words used in the contract their
plain and ordinary meaning that would be apparent to a reader of the instrument.” Rory, supra at
464. Under its plain and ordinary meaning, the term “damages” refers to “the estimated money
equivalent for loss or injury sustained.” Random House Webster’s College Dictionary (1992).
Because the term “damages” refers to the loss or injury sustained, and attorney fees are not part
of the loss or injury, we conclude that the term “damages,” as used in the CGL policy, does not
include an award of attorney fees.
Although the term “costs,” as a legal term of art, does not normally include attorney fees,
see Nemeth v Abonmarche Development, Inc, 457 Mich 16, 42; 576 NW2d 641 (1998), because
the CGL policy at issue does not define what constitutes costs, we must give the word its “plain
and ordinary meaning that would be apparent to a reader of the instrument.” Rory, supra at 464.
The ordinary meaning of the term “Costs” is “money awarded to a successful litigant for legal
expenses, charged against the unsuccessful litigant.” Random House Webster’s College
Dictionary (1992). This understanding of the ordinary meaning of the term “costs” is also
supported by our Supreme Court’s decision in Macomb Co Taxpayer’s Ass’n v L’Anse Creuse
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Public Schools, 455 Mich 1, 10; 564 NW2d 457 (1997). In that case, our Supreme Court had to
determine whether an award of “costs” to a party prevailing in an action under the Headlee
Amendment, Const 1963, art 9, § 29, included attorney fees. Id. at 2. In examining the issue, the
Court noted that the Michigan Constitution must be interpreted according to the meaning that the
great mass of the people would give the term. Id. at 7. Based on this rule of construction, the
Court refused to give the term “costs” its technical meaning under the so-called American rule
for awarding costs. Id. at 8. Instead, the Court concluded that the common understanding of the
term “costs” includes all expenses arising from the conduct of litigation. Id. at 10. Hence, the
ordinary understanding of the term “costs” includes an award of attorney fees.
The trial court erred when it concluded that the term “costs” should be given its technical
legal meaning, as understood in light of the American-rule for awarding costs, instead of the
ordinary meaning that “would be apparent to a reader of the instrument.” Rory, supra at 464.
Therefore, under the plain and ordinary understanding of the term “costs,” as used in the CGL
policy, defendant is obligated to pay an award of attorney fees as a cost “taxed against the
insured in the ‘suit.’” For this reason, we reverse the trial court’s grant of summary disposition
to the extent that it determined that the CGL policy did not cover the award of attorney fees and
remand for entry of summary disposition in favor of plaintiff on this issue.
Affirmed in part, reversed in part and remanded for further proceedings consistent with
this opinion. We do not retain jurisdiction.
/s/ Henry William Saad
/s/ Joel P. Hoekstra
/s/ Michael R. Smolenski
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