HASTINGS MUTUAL INS CO V MOSHER DOLAN CATALDO & KELLY INC
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STATE OF MICHIGAN
COURT OF APPEALS
HASTINGS MUTUAL INSURANCE
COMPANY,
UNPUBLISHED
May 18, 2006
Plaintiff-Appellant,
v
No. 265621
Oakland Circuit Court
LC No. 04-056508-CK
MOSHER, DOLAN, CATALDO & KELLY,
INC.,
Defendant-Appellee,
ON RECONSIDERATION
and
LISA FEINBLOOM AND DAVID FEINBLOOM,
Defendants.
Before: Davis, P.J., Cavanagh and Talbot, JJ.
PER CURIAM.
Plaintiff appeals as of right from the trial court’s order granting judgment in favor of
defendant Mosher, Dolan, Cataldo & Kelly, Inc. (“Mosher”). We reverse.
Plaintiff argues that the trial court erred by granting summary disposition in Mosher’s
favor. We agree. Both parties moved for summary disposition under MCR 2.116(C)(10). This
Court reviews a trial court’s ruling on a motion for summary disposition de novo. Maskery v
Univ of Michigan Bd of Regents, 468 Mich 609, 613; 664 NW2d 165 (2003). Interpretation and
construction of insurance contracts are also questions of law that this Court reviews de novo.
Shefman v Auto-Owners Ins Co, 262 Mich App 631, 636; 687 NW2d 300 (2004).
A motion for summary disposition under MCR 2.116(C)(10) tests the factual sufficiency
of the complaint. Corley v Detroit Bd of Ed, 470 Mich 274, 278; 681 NW2d 342 (2004). When
reviewing a motion for summary disposition, this Court considers the pleadings, affidavits,
depositions, admissions, and other documentary evidence submitted in the light most favorable
to the nonmoving party. Id. Where the proffered evidence fails to establish a genuine issue
regarding any material fact, the moving party is entitled to judgment as a matter of law. Id.
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“An insurance policy is an agreement between parties that a court interprets ‘much the
same as any other contract’ to best effectuate the intent of the parties and the clear, unambiguous
language of the policy.” Auto-Owners Ins Co v Harrington, 455 Mich 377, 381; 565 NW2d 839
(1997), quoting Auto-Owners Ins Co v Churchman, 440 Mich 560, 566; 489 NW2d 431 (1992).
When confronted with a dispute between the parties to an insurance contract over the meaning of
the policy, the reviewing court “must determine what the agreement is and enforce it.”
Radenbaugh v Farm Bureau Gen Ins Co of Michigan, 240 Mich App 134, 138; 610 NW2d 272
(2000). In making that determination, the reviewing court must look to the contract as a whole
and confer meaning on all its terms. Harrington, supra at 381. When an insurance policy
contains ambiguous terms, this Court will construe the terms of the policy in favor of the insured.
Nabozny v Burkhardt, 461 Mich 471, 477 n 8; 606 NW2d 639 (2000). However, “[t]his Court
cannot create ambiguity where none exists.” Churchman, supra at 567. Where there is no
ambiguity, the terms of the contract must be construed according to their plain and ordinary
meanings. St Paul Fire & Marine Ins Co v Ingall, 228 Mich App 101, 107; 577 NW2d 188
(1998). Moreover, the terms of an insurance contract are to be interpreted in accordance with the
definitions in that contract, or, if no definitions are provided, are to be given a meaning
according to their “common usage.” Cavalier Mfg Co v Employers Ins of Wausau (On Remand),
222 Mich App 89, 94; 564 NW2d 68 (1997). An insured bears the burden of proving coverage;
however, it is the insurer that must prove that an exclusion to coverage is applicable. Heniser v
Frankenmuth Mut Ins, 449 Mich 155, 161 n 6; 534 NW2d 502 (1995).
“Interpretation of an insurance policy ultimately requires a two-step inquiry: first, a
determination of coverage according to the general insurance agreement and, second, a decision
regarding whether an exclusion applies to negate coverage. This Court has held that an
insurance policy provision is valid ‘as long as it is clear, unambiguous and not in contravention
of public policy.’” Harrington, supra at 382 (citations omitted). The first step of this Court’s
inquiry, therefore, is to determine whether coverage exists according to the general insurance
agreement. Id. In order to do so, we must first decide which commercial general liability
(“CGL”) policies, if any, apply to Mosher’s claim in this case. Mosher argues that the 2001
policy applies to its “visible mold” claim because the framing of the house in 2001 caused the
mold. Mosher further argues that the 2001 and 2002 policies cover its “other losses” for
defective work claims, and that the 2003 policy does not apply to any of its claims. Plaintiff
does not discuss these issues, but simply contends that the policies contain identical terms and
provisions. Regardless of which policy is used, however, the relevant policy language, contained
in all three CGL policies, provides:
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 territory”; and
(2). The “bodily injury” or “property damage” occurs during the policy
period.
***
13. “Occurrence” means an accident, including continuous or repeated
exposure to substantially the same general harmful conditions.
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***
17.
“Property damage” means:
a.
Physical injury to tangible property, including all resulting
loss of use of that property. All such loss of use shall be deemed to
occur at the time of the physical injury that caused it; or
b.
Loss of use of tangible property that is not physically
injured. All such loss of use shall be deemed to occur at the time
of the “occurrence” that caused it.
Thus, according to the policy language, before we inquire into whether the property
damage at issue occurred during a particular policy period, we must first determine whether it
was caused by an “occurrence” within the meaning of the policies.
The policies in question provide coverage for “bodily injury” or “property damage” that
was “caused by an ‘occurrence.’” “Occurrence” is defined in the policies as “an accident,
including continuous or repeated exposure to substantially the same general harmful conditions.”
Because the term “accident” is not defined in the policy, we must define that term according to
its common usage. Cavalier Mfg Co, supra at 94. Our Supreme Court has found that the term
“accident,” as is it commonly used, means “an undesigned contingency, a casualty, a happening
by chance, something out of the usual course of things, unusual, fortuitous, not anticipated, and
not naturally to be expected.” Frankenmuth Mut Ins Co v Masters, 460 Mich 105, 114; 595
NW2d 832 (1999).
The damages at issue here include visible mold found on the sub-floor material and joists
above the basement ceiling, for which the arbitrator found Mosher liable. The arbitrator also
found Mosher liable for “other” deficiencies, including: (1) the mason subcontractor failed to
properly install the Michigan fieldstone by leaving “unfilled cavities in two locations,” (2)
Mosher failed to satisfy applicable building code requirements regarding “brick ties” by
installing 28-gauge anchors rather than 22-gauge as required by code, (3) Mosher failed to
satisfy the code that requires flashing and weeps over lintels and below sills on all of the
windows, (4) Mosher failed to install flashing at various miscellaneous locations, (5) Mosher
failed to install additional ductwork for combustion air large enough to satisfy code
requirements, and (6) Mosher failed to install sleeves in the exterior wall of the residence for
several pipe penetrations in violation of code requirements. Mosher provided an affidavit from
John Kelly that confirmed that subcontractors completed all of these projects. As discussed
below, we find that these damages are not “accidents” within the meaning of the policies.
Of particular import to our resolution of this issue is Hawkeye-Security Ins Co v Vector
Const, 185 Mich App 369; 460 NW2d 329 (1990), involving an insured who allegedly
performed defective concrete work for an improvement project at a waste water treatment plant.
When the owner of the plant discovered that the concrete installed by Vector, which,
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incidentally, was provided by a subcontractor, did not meet project specifications, Vector was
forced to remove and repour approximately 13,000 yards of concrete. Id. at 371-372. Vector
sought indemnity from its insurance carrier pursuant to the terms of a CGL policy.1 Id. at 372.
The court held that “the defective workmanship of Vector, standing alone, was not the result of
an occurrence within the meaning of the insurance contract.” Id. at 378 (emphasis added).
The Vector Court discussed with approval Bundy Tubing Co v Royal Indemnity Co, 298
F2d 151 (CA 6, 1962), which involved an insured’s defective workmanship that caused damage
to the property of others, but distinguished Bundy on its facts. In Bundy, the insured was the
manufacturer of radiant heat tubing installed in the concrete floors of buildings. Id. at 151. A
defect in the tubing caused it to leak, which in turn caused damage to certain furnishings inside
the buildings. Id. at 152. In order to replace the defective tubing, portions of the concrete floors
had to be removed and repoured. Id. at 153. The owners of several of the buildings brought suit
against the insured alleging breach of warranty and negligence. Id. at 151-152. The insurer
agreed to indemnify only for the cost of replacing various damaged furnishings, and the insured
brought suit to recover for the other alleged damages, including the costs of removing and
repouring the concrete floors. Id. at 153.
The Sixth Circuit held that the insurer was required to indemnify the insured for the costs
of removing the defective tubing and the costs of installing new tubing, but not for the costs of
the new tubing itself, clearly ruling that the broader duty to defend was mandated. Id. at 154.
The property damage that was not confined to the insured’s own work product was deemed to be
“unforeseen, unexpected and unintended” and therefore an “accident,” id. at 153, which would
qualify as an occurrence under the terms of the policy at issue in the present case. The Bundy
court, moreover, rejected the argument that an “accident,” or “occurrence,” cannot arise on the
basis of the insured’s negligence or breach of warranty. Id.
Further, in Radenbaugh, supra, the plaintiffs alleged breach of contract against their
insurance carrier for breach of its duty to defend and indemnify plaintiffs in an underlying cause
of action that arose out of the sale of a doublewide mobile home. Radenbaugh, supra at 136. In
conjunction with the sale, the plaintiffs provided erroneous schematics and instructions to
contractors hired by the purchaser of the home for the construction of the home’s basement
foundation and erection of the home on its basement. Id. The homeowner alleged that the
plaintiffs’ defective instructions to the basement contractor caused the basement of the mobile
home to be improperly constructed and the home improperly erected. Id. at 136-137. As a result
of the alleged faulty instructions, the basement was rendered unusable because water seeped into
and condensed on the walls, causing mildew and mold. Id. at 142. The plaintiffs filed suit
against their insurance carrier seeking to enforce its duty to defend and indemnify the plaintiffs
pursuant to a CGL policy. Id. at 136-137.
This Court in Radenbaugh acknowledged the holdings of both Vector and Bundy:
1
The policy in Vector, supra, is substantially similar to the policies at issue in this action.
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At first blush, the result in Bundy appears to be inconsistent with the result
in Vector. Whereas the Vector court held there was no coverage for damage
arising out of the insured’s defective workmanship, in Bundy, the Sixth Circuit
held that the insured was required to pay for damage arising out of the insured’s
defective workmanship.
*
*
*
The holdings in Bundy and Vector can be reconciled by focusing on the
property damage at issue in each case. In Vector, the insured’s defective
workmanship resulted only in damage to the insured’s work product. In Bundy,
the insured’s defective workmanship resulted in damage to the property of others.
Taken together, these cases stand for the proposition that when an insured’s
defective workmanship results in damages to the property of others, an
“accident” exists within the meaning of the standard comprehensive liability
policy. This construction is supported by the definition of “accident” adopted by
the Michigan Supreme Court.2 [Radenbaugh, supra at 146-147, quoting Calvert
Ins Co v Herbert Roofing & Insulation Co, 807 F Supp 435 (ED Mich 1992),
(emphasis and footnote added).]
The Radenbaugh Court, further relying on analogous federal decisions, found that,
because the defendant’s defective work had caused damage to the plaintiff’s property that was
not part of defendant’s work product, an “occurrence” had occurred under the terms of the
policy. Radenbaugh, supra at 147. It should be noted that the definition of “occurrence” in
Radenbaugh was identical to the definition of “occurrence” in the present case. Radenbaugh,
supra at 140. In interpreting this policy language, this Court held that CGL policies do not cover
damages that consist of a mere diminution in value of the insured’s work product caused by
alleged defective workmanship, breach of contract, or breach of warranty. Id. at 140-141.
Accordingly, the rule is clear:
[W]hen an insured’s defective workmanship results in property damage to the
property of others, an ‘accident’ exists within the meaning of the standard
comprehensive liability policy. . . . However, when 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]
2
The Radenbaugh Court cited Vector, supra at 374, quoting Guerdon Industries, Inc v Fidelity
& Cas Co, 371 Mich 12, 18-19; 123 NW2d 143 (1963), for the definition of “accident” as “an
undesigned contingency, a casualty, a happening by chance, something out of the usual course of
things, unusual, fortuitous, not anticipated, and not naturally to be expected.” Radenbaugh,
supra at 147.
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In the present case, the arbitrator found that all the defects in the Feinblooms’ home
resulted from Mosher’s poor workmanship or installation of defective materials, constituting
both a breach of contract and a breach of the implied warranty of habitability. Further, the
arbitrator found that all the defects could be remedied by either replacing the defective materials
or repairing the defective work. The arbitrator specifically rejected the Feinblooms’ contention
that Mosher’s defective work had caused damage to other property in the home, such as the
Feinblooms’ furniture, that was not part of defendants’ work product. Thus, there is no evidence
indicating that either the visible mold or the “other losses” went beyond Mosher’s liability to
repair or replace its own defective products. Therefore, the damages from the visible mold and
the “other losses” are excluded from coverage because they are not “occurrences” according to
the general insurance agreement. Radenbaugh, supra at 147; Harrington, supra at 382.
With regard to the “other losses,” the trial court erroneously distinguished Vector on its
facts, stating:
The construction company distinguishes Vector Construction on grounds
that it applies where “an insured’s defective workmanship . . . results solely in
damage to the insured’s work product” and not to situations where “a
subcontractor’s work damages the insured’s property.” All of the problems with
the home in this case were the result of work done by subcontractors and,
therefore, coverage is available. See Calvert Ins Co v Herbert Roofing and
Insulation Co, 807 F Supp 435 (ED Mich 1992) (distinguishing Vector and
providing coverage on this basis).
*
*
*
The Court agrees that this is the proper analysis, and that Vector
Construction can be distinguished on grounds that the defects are attributable to
the subcontractors. Therefore, Hastings can avoid coverage only if the policies’
exclusions apply.
The trial court erroneously relied on Calvert, supra, as support for its holding. In
Calvert, the defendant roofing company installed a roof at a school. Shortly after completion of
the project, the roof leaked and “caused damage to the interior of the school building (e.g.,
ceiling tiles, light fixtures, lockers, flooring, etc.), the exterior of the building (e.g., walls and
foundation), and to various articles of personal property of school district employees and
students.” Calvert, supra at 436. The federal district court, interpreting policy language nearly
identical to that in the instant case, wrote, “the Court gleans three elements that must be
established in order to establish coverage: (1) an accident, (2) resulting in bodily injury or
property damage, (3) which is neither expected nor intended from the standpoint of the insured.”
Id. at 437. Nowhere in Calvert did the Court distinguish Vector on its facts or indicate that
Vector does not apply to situations in which a subcontractor’s work damages the insured’s
property. In fact, as noted above, Boichot Concrete Company, a subcontractor, supplied the
defective concrete that Vector installed. Vector, supra at 371.
Finally, in applying the policy language to the specific facts of this case to determine
coverage, as we are required to do, we find that Mosher’s argument and the trial court’s holding
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cannot stand in light of the rule explained in Radenbaugh, supra. Specifically, the policy
language defines Mosher’s work as follows:
21.
“Your Work” means:
a.
Work or operations performed by you or on your behalf;
and
b.
Materials, parts or equipment furnished in connection with
such work or operations.
“Your Work” includes:
a.
Warranties or representations made at any time with respect
to the fitness qualify, durability, performance or use of
“your work”, and
b.
The providing of or failure to provide warnings or
instructions.3 [Emphasis and footnote added.]
According to the plain language of the policies, Mosher’s “work” includes work performed by
subcontractors. Additionally, the existence of an “occurrence” is dependent on the nature of the
act, not on who performs it. The defects in Mosher’s and its subcontractor’s work are, therefore,
not “occurrences” within the meaning of any of the CGL policies, and, thus, not covered losses.
In light of this finding, it is unnecessary to apply any of the exclusions to any of the CGL
policies. Harrington, supra at 382.
The trial court erred by granting summary disposition in favor of Mosher and in denying
summary disposition for plaintiff with regard to plaintiff’s duty to indemnify. The CGL policy,
however, also created a duty to defend against claims for covered damages. “It is well settled in
Michigan that an insurer’s duty to defend is broader than its duty to indemnify.” Radenbaugh,
supra at 139.
The duty of the insurer to defend the insured depends upon the allegations
in the complaint of the third party in his action against the insured. This duty is
not limited to meritorious suits and may even extend to actions which are
groundless, false or fraudulent, so long as the allegations against the insured even
arguably come within the policy coverage. An insurer has a duty to defend,
despite theories of liability asserted against any insured which are not covered
under the policy, if there are any theories of recovery that fall within the policy.
[Smorch v Auto Club Ins Co, 179 Mich App 125, 128; 445 NW2d 192 (1989).]
3
This language is found verbatim in the 2001 and 2002 CGL policies. The 2003 CGL policy
contains the substantially identical wording, but is it found in Section V(22), and it is listed
slightly differently.
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Where there is doubt concerning whether the complaint “alleges liability of the insurer under the
policy, the doubt must be resolved in the insured’s favor.” Radenbaugh, supra at 138 (citation
omitted). The insurer owes the duty to defend until such time as the insurer has confined the
claims against the insured to those theories that the policy would not cover. American Bumper
and Mfg Co v Hartford Fire Ins Co, 207 Mich App 60, 67; 523 NW2d 841 (1994). “Until that
point, the allegations must be regarded as coming arguably within the liability policy, thus
resulting in a duty to defend.” Id.
Because the Feinblooms’ complaint in arbitration alleged damages to property other than
Mosher’s work-product, i.e., household furniture, this damage was arguably covered by the
policy; therefore, plaintiff had a duty to defend Mosher. The arbitrator’s later determination that
Mosher is not liable for those damages does not affect plaintiff’s initial duty to defend against the
Feinblooms’ claims. Smorch, supra. However, once the Feinblooms claims are limited to only
damages that fall outside the scope of the policy, i.e., Mosher’s own work-product, plaintiff’s
duty to defend ends. American Bumper, supra. On remand, it is therefore necessary to
determine at what point in time, if any, plaintiff can confine the Feinblooms’ claims against
Mosher to those theories that the policy would not cover, and to determine the extent of
plaintiff’s liability for the cost of Mosher’s defense until that point.
Reversed and remanded for further proceedings consistent with this opinion. We do not
retain jurisdiction.
/s/ Alton T. Davis
/s/ Mark J. Cavanagh
/s/ Michael J. Talbot
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