Mark Bloom, et al., Respondents, vs. Western National Mutual Insurance Company, Appellant.

Mark Bloom, et al., Respondents, vs. Western National Mutual Insurance Company, Appellant. A05-2093, Court of Appeals Unpublished, July 3, 2006.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2004).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A05-2093    

 

Mark Bloom, et al.,

Respondents,

 

vs.

 

Western National Mutual Insurance Company,

Appellant.

 

Filed July 3, 2006

Certified question answered in the affirmative

Parker, Judge*

 

Hennepin County District Court

File No. CT 04-12851

 

 

James T. Martin, Gislason, Martin & Varpness, P.A., 7600 Parklawn Avenue South, Suite 444, Edina, Minnesota 55435 (for appellant)

 

Elaine S. Vorberg, Childress Duffy Goldblatt, Ltd., 515 North State Street, Suite 2200, Chicago, IL  60610; and

 

David B. Sand, Elizabeth Brama, Briggs and Morgan, P.A., 80 South Eight Street, Suite 2200, Minneapolis, Minnesota 55402-2157 (for respondent)

            Considered and decided by Lansing, Presiding Judge; Willis, Judge; and Parker, Judge.

U N P U B L I S H E D   O P I N I O N

PARKER, Judge

This is an appeal from the denial of the insurer's motion for summary judgment and certification of a question as important and doubtful in an insurance-coverage dispute in which the homeowners claimed coverage under their homeowners' insurance policy for the costs incurred in renovating their home after discovering damage.  The certified issue is as follows: 

When water enters a home due to defective design, faulty workmanship or faulty materials furnished in connection with construction or remodeling and causes damage, is that damage excluded from coverage under either the "errors, omissions and defects" exclusion or the "wear and tear" exclusion, or is it covered as an ensuing loss?

 

D E C I S I O N

            When reviewing a certified question arising from denial of a summary judgment award, an appellate court must determine whether there are any genuine issues of material fact and whether the district court was correct in its application of the law.  Employers Mut. Cas. Co. v. A.C.C.T., Inc., 580 N.W.2d 490, 493 (Minn. 1998).  Questions of law are reviewed de novo.  Id.  Under Minnesota law, on established facts, insurance-coverage issues and the construction and interpretation of a policy are questions of law.  Jenoff, Inc. v. New Hampshire Ins. Co., 558 N.W.2d 260, 262 (Minn. 1997).

The analysis of the parties' arguments requires that this court examine the underlying insurance policy.  If a policy is unambiguous, this court must give the language its ordinary and usual meaning and not redraft the contract.  Simon v. Milwaukee Auto. Mut. Ins. Co., 262 Minn. 378, 385, 115 N.W.2d 40, 45 (1962).  If this court concludes that the policy language is ambiguous, the ambiguity must be resolved in the insured's favor.  Columbia Heights Motors, Inc. v. Allstate Ins. Co., 275 N.W.2d 32, 36 (Minn. 1979).  The policy should be interpreted "according to what a reasonable person in the position of the insured would have understood."  Canadian Universal Ins. Co. v. Fire Watch, Inc., 258 N.W.2d 570, 572 (Minn. 1977).  "Exclusions are narrowly interpreted against the insurer."  SCSC Corp. v. Allied Mut. Ins. Co., 536 N.W.2d 305, 314 (Minn. 1995).  But if the insurer demonstrates the applicability of an exclusion, the insured bears the burden of proving an exception to the exclusion.  Id.

In June 2002, the Blooms discovered the presence of significant moisture, deterioration, and rot and mold affecting the wooden sheathing and structural members of their home.  Testing of the home revealed significant rot and deterioration of fiberboard sheathing, framing, and felt paper to the extent that large portions of such components were mush.  The investigation revealed that the primary cause of the mold and structural damage was water infiltration through the exterior envelope of the home.  The cause of the water intrusion was the failure of the window installations, absent or inadequate roof flashing, breaches in the drainage plane at the interface of the lath and wall sheathing, an inadequate drainage plane, and the direct application of stucco to wooden structural members.

Western argues that the district court erroneously interpreted the insurance policy so as to include coverage for the Blooms' damages.  Western argues that any damage suffered by the Blooms is excluded from coverage pursuant to the following exclusions: (1) errors, omissions, and defects and (2) wear and tear.  Western also argues that the damage is not covered under the ensuing-loss clause of the insurance policy. 

Errors, omissions, and defects

The errors, omissions, and defects exclusion states:

b.         Errors, Omissions, and Defects "We" [appellant] do not pay for loss which results from one or more of the following:

 

1)                 an act, error, or omission (negligent or not) relating to:

. . . .

 

b)         the design, specification, construction,  workmanship, or installation of property;

. . . .

                                   

2)                 a defect, a weakness, the inadequacy, a fault, or unsoundness in materials used in construction or repair whether on or off the "insured premises";

 

except as provided under the Incidental Property Coverage for Collapse.

 

(Emphasis added.)

            The district court found that under the errors, omissions, and defects exclusion, losses directly caused by faulty workmanship were excluded.  Here, this included the inadequate flashing, the breaches in the drainage plane at the interface of the lath and wall sheathing, the inadequate drainage plane, and losses caused by the direct application of stucco to wooden structural members.  The district court found, however, that the damages as a result of rot and mold were not excluded under the clause because these damages were covered as ensuing losses.  The district court concluded that the loss covered under the errors, omissions, and defects exclusion is the "cost of going back and redoing the job right," not the rot and mold.

Western argues that the district court failed to give the words "which results from" their proper meaning and instead essentially substituted the word "to" in place of "which results from" in finding that the language provides coverage for the "cost of going back and redoing the job right."  Western essentially argues that a construction defect existed and, therefore, all consequent damage is excluded because the mold and rot damage was a result of faulty construction.  We agree. 

When relying on an exclusion to deny coverage, Western bears the burden of proving the application of the exclusion.  SCSC, 536 N.W.2d at 313-14.  We conclude that, given its plain and usual meaning, the language of the exclusion does not support the district court's interpretation.

The district court noted that "it is not disputed that the majority of damages for which [the Blooms] seek reimbursement occurred because rain came in or through negligently designed or installed windows, flashings, stucco, etc."  (Emphasis added.)  An exterior invasive stucco investigation summarized that the primary cause for the mold contamination and structural damage was water infiltration due to the "failure of the window installations, absent or inadequate roof flashing, breaches in the drainage plane at the interface of the lath and wall sheathing, an inadequate drainage plane, and the direct application of the stucco to wooden structural members."  The investigation report lists several construction defects and faults in workmanship that caused the water intrusion.  When given its plain and ordinary meaning, the language of the errors, omissions, and defects provisions excludes coverage because the damage was a loss that resulted from faulty workmanship and materials.

The evidence shows that the damages resulted from "an act, error, or omission relating to the design, specification, construction, workmanship, or installation" or from a "defect, weakness, the inadequacy, fault, or unsoundness in materials used in construction or repair of the home."  The Blooms argue that the evidence is insufficient to establish, as a matter of law, that construction defects caused the damages.  The Blooms argue that openings in the exterior of their home may have existed, despite proper construction, causing damage.  The Blooms argue that Western has not met its burden that the errors, omissions, and defects exclusion applies.  We conclude that there was enough evidence to establish that construction defects caused the damages.  Experts who inspected the home confirmed that the damage was caused by faulty workmanship and materials.

The district court found that any deterioration or rot and mold affecting the wooden sheathing or structural members of the home was not directly caused by the faulty workmanship or material, but water intrusion thereafter.  The evidence does not support the district court's finding but shows that Western has met its burden of proving that the damage resulted from faulty workmanship.

Wear and tear

            The wear and tear exclusion states:

Wear and Tear "We" [appellant] do not pay for loss which results from wear and tear, marring, deterioration, inherent vice, latent defect, mechanical breakdown, rust, wet or dry rot, corrosion, mold, contamination, or smog.  

 

The district court found that the wear-and-tear exclusion did not apply because, the court reasoned, the plain language of the exclusion denies coverage for "any and all results, both known and unknown, from the presence of [wet or dry rot and mold]" rather than the actual mold and rot.  The district court determined that the exclusion did not apply to the Blooms' damages because the Blooms were seeking coverage for the wet rot and mold themselves and not "anything that resulted from either of these two occurrences."  The district court reasoned that the Blooms' claim involved coverage which is "different than coverage for the repair or replacement of the mold or wet dry rot itself."  The district court continued, "If [appellant] meant to exclude coverage for [wet or dry rot and mold], it should have [stated in its policy], ‘We do not pay for . . . wet or dry rot, corrosion, mold . . . .'"

            We conclude that the language of the wear-and-tear exclusion denies coverage for losses that result from wet or dry rot and mold along with the actual mold and rot.  Any damages, such as the cost of repair and replacement of materials that occurred as a result of mold or rot, are excluded, including the actual mold and rot.

In their claim, the Blooms seek relief for the "cost to remediate, repair and restore or replace" the damage to their home.  The district court found that the Blooms were seeking coverage not for damages as a result of rot and mold but the for the actual mold and rot.  However, the Blooms' claim shows that they were actually seeking relief for the damage that resulted from the rot and mold.  Additionally, one would be hard pressed to categorize damages into those for "mold and rot" and those "which resulted from" mold and rot.  Once mold or rot has infested the structure of a house, the damage is more rightfully labeled as damage that resulted from mold or rot.

Interpreting the language of the wear-and-tear exclusion as a reasonable person would, we conclude that the wear-and-tear exclusion denies coverage for mold and rot and damages that result from mold and rot. 

Ensuing loss

The ensuing-loss language of the insurance policy is at the heart of the district court's finding.  The district court found that "the deterioration, rot and mold affecting the wooden sheathing and structural members of the home are ensuing losses within the meaning of the policy.  They are not losses which result from wet or dry rot or mold; they are damages of wet or dry rot and mold."  (Emphasis added.)

The insurance policy states:

"We" [appellant] do not pay for loss if one or more of the following exclusions apply to the loss.  However, "we" do pay for an ensuing loss that is otherwise covered by this policy.

   

(Emphasis added.)  In finding that the Blooms' damages were an ensuing loss, and therefore covered by the policy, the district court defined ensuing loss as "a loss that is not directly caused by faulty workmanship but nonetheless follows as a chance, [which is a] likely, or necessary consequence of faulty workmanship."  Because it was not disputed that most of the Blooms' damages occurred because rain came in or through the home due to various errors and omissions of the contractor, the district court found the damages to be ensuing losses "because they were not directly caused by the faulty workmanship or material, but by water intrusion thereafter."

            Western argues that the ensuing-loss clause does not create or provide coverage for an otherwise excluded loss.  It argues that the district court was wrong to find that the Blooms' damages were covered under the ensuing-loss clause because the Blooms' damages were not "otherwise covered" as required by the clause.  Western argues that any ensuing loss was specifically excluded by both the defective construction and the rot-and-mold exclusions.  Western also argues that because the rot and mold is inseparable from any resulting damage that is otherwise excluded under the policy, the rot and mold is not an ensuing loss and therefore not covered.  We agree.

Western finds support in this court's decision in Sentinel Mgmt. Co. v. New Hampshire Ins. Co., 563 N.W.2d 296 (Minn. App. 1997).  In Sentinel, asbestos was found on carpeting and other surfaces inside the insured's building.  Id. at 298.  This court determined that the asbestos contamination was a covered risk under the "all-risk" policy.  Id. at 301.

This court next had to determine whether the wear-and-tear exclusion of the policy excluded coverage for the asbestos contamination.  Id.  It was determined that the asbestos contamination was the result of everyday wear and tear, such as the opening and closing of doors, the screwing of bolts into the ceiling, and the accidental strikes of the ceiling with broom and mop handles, all of which was exacerbated by air circulation.  Id.  This court noted that the contamination was "inevitable, due to the presence of asbestos-containing materials" but "not a certainty."  Id.at 300.  Although this court found that the contamination was caused by ordinary wear and tear, it concluded that the contamination was covered as an ensuing loss.  Id.

            The language of the policy in Sentinel excluded damage "‘unless the loss by a peril not otherwise excluded ensues and then the company shall be liable for only such ensuing loss.'"  Id. at 301 (emphasis added).  This court explained that "an ‘ensuing loss' clause . . . brings within coverage a loss from a covered peril that follows as a consequence of an excluded peril."  Id.  This court continued, "an ensuing loss is covered even if an excluded peril is a ‘but for' cause of the loss."  Id.

The insured argued the release of the asbestos fibers in the building, while ensuing from ordinary wear and tear, was also a distinct peril and, therefore, covered under the policy as an ensuing loss.  Id.  This court agreed.  Id.  This court reasoned that the damage as a result of screwing bolts into and hitting the ceiling is separable from the asbestos contamination.  Id  This court also pointed out the fact that the insured, in arguing that there were two distinct perils, was not attempting to use the ensuing-loss provision as a way to nullify any other exclusion.  Id.

We conclude that the Blooms' damage caused by mold and rot is not covered as an ensuing loss.  Unlike Sentinel, in which this court concluded that the release of the asbestos fibers in the building was a separable and distinct peril from regular wear and tear, the mold and rot here are not separable and distinct perils.  The mold resulted from water that entered into the home through the faulty installation and workmanship of the contractor.  In order for mold and rot to take hold and cause injury, water or moisture must be present.  Without the faulty installation and workmanship, as indicated by the expert investigation, the water and moisture should not have entered the Blooms' home to produce mold and rot.  The mold and rot was caused by water that entered the home, a direct result of faulty installation and workmanship.  It is not a surprise that mold and rot were found due to water intrusion.  Unlike Sentinel, the water intrusion and resulting rot and mold are "a single phenomenon."  There was no intervening cause other than time.

There are times when an ensuing loss will be covered.  As stated in Sentinel, "an ensuing loss is covered even if an excluded peril is a ‘but for' cause of the loss."  Id.  But the ensuing loss must still be covered under the policy.  Here, faulty construction and workmanship is the ‘but for' cause of the mold-and-rot damage but the mold and rot, the ensuing loss, is excluded under the wear-and-tear exclusion.  The damage resulting from mold and rot is not covered under its own provision, therefore, the mold-and-rot damage cannot be an ensuing loss.

Because the district court did not make findings on the issues of waiver and estoppel, this court will not review these issues.  See Thiele v. Stich, 425 N.W.2d 580, 582 (Minn. 1988) (stating that appellate courts generally will not review matters not argued and considered in the court below).

Accordingly, we answer the certified question in the affirmative as follows:  when water enters a home because of defective design, faulty workmanship, or faulty materials furnished in connection with construction or remodeling and causes damages, we conclude that the damages are excluded from coverage under either the "errors, omissions, and defects" or "wear and tear" exclusions.  We therefore reverse the district court's order denying Western's motion for summary judgment.

            Certified question answered in the affirmative.

* Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.