Pulte Homes of N.M., Inc. v. Indiana Lumbermens Ins. Co.
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1 IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO 2 Opinion Number:___________ 3 Filing Date: December 17, 2015 4 NO. 33,283 5 PULTE HOMES OF NEW MEXICO, INC., and 6 PULTE HOMES, INC., 7 Third Party Plaintiffs-Appellants, 8 v. 9 INDIANA LUMBERMENS INSURANCE 10 COMPANY, 11 Third Party Defendant-Appellee. 12 APPEAL FROM THE DISTRICT COURT OF BERNALILLO COUNTY 13 Alan Malott, District Judge 14 Craddock Davis & Krause, LLP 15 Michael J. Craddock 16 Dallas, TX 17 for Appellants 18 Civerolo, Gralow, Hill & Curtis, P.A. 19 Kerri L. Allensworth 20 Albuquerque, NM 21 for Appellee 1 OPINION 2 GARCIA, Judge. 3 {1} Third-party plaintiffs Pulte Homes of New Mexico, Inc. and Pulte Homes, Inc. 4 (collectively, Pulte), appeal the district court’s grant of summary judgment in favor 5 of third-party defendant Indiana Lumbermens Insurance Company (ILM) on the issue 6 whether ILM had a duty to defend Pulte against claims brought by homeowners 7 alleging construction defects in Pulte-built homes. We conclude that (1) claims of 8 defective or defectively installed windows and doors in Pulte’s two defense tenders 9 to ILM constituted claims for “property damage” caused by an “occurrence” under 10 the policy at issue; (2) the “your work” policy exclusion precluded coverage for this 11 occurrence with regard to Pulte’s May 2009 defense tender because no facts were 12 alleged tending to show that the defective or defectively installed windows and doors 13 caused damage to property other than the windows and doors themselves; (3) the 14 “insured contract” exception to the policy’s “contractual liability” exclusion did not 15 override the separate and independent “your work” exclusion with regard to the May 16 2009 tender; however, (4) the “your work” exclusion did not preclude coverage after 17 Pulte’s March 2012 defense tender, because the tender contained claims tending to 18 show that the defective or defectively installed windows and doors damaged the 19 stucco surrounding those windows and doors. We therefore partially reverse the 1 district court’s grant of summary judgment in favor of ILM and remand the case to 2 the district court for further proceedings. 3 BACKGROUND 4 A. The Homeowners’ Initial Complaint 5 In the mid-2000s, Pulte built 107 homes in the Seville subdivision (Seville) on {2} 6 the west side of Albuquerque, New Mexico. Pulte contracted with a company named 7 Western Building Supply (WBS) to provide the windows for those homes, but a 8 contractor other than WBS installed those windows. Pulte also contracted with WBS 9 to provide and install the homes’ sliding glass doors. In June 2007, a large group of 10 homeowners in the subdivision sued Pulte, alleging numerous construction defects 11 in their homes. Although the homeowners amended their complaint four times 12 between June 2007 and September 2009 to add plaintiffs, the complaint’s allegations 13 about the construction defects remained substantially the same in these amended 14 complaints. Pertinent here, the complaint alleged that Pulte used “substandard and 15 inadequate windows that leak[.]” In June 2008, most of the homeowners agreed to 16 arbitrate their disputes with Pulte. 17 B. Pulte’s First Defense Tender and Its Third-Party Complaint Against ILM 18 In May 2009, Pulte tendered its first demand for a defense to ILM—the {3} 19 insurance company that had issued a commercial general liability policy to WBS 2 1 naming Pulte as an additional insured. Although Pulte did not include a copy of the 2 homeowners’ complaint with its defense tender, Pulte did provide a copy of an 3 arbitration award involving six of the plaintiff homeowners and three of the homes 4 at issue in this case. These homeowners were David and Kerri Scott (Scott), Michael 5 and Stacey Leyba (Leyba), and Timothy and Vena Brown (Brown). The award 6 described the following defects concerning the homes’ windows and sliding glass 7 doors: 8 9 10 11 12 13 14 15 The Scotts’ windows did not operate properly and have all been replaced by Pulte. The weight of the evidence demonstrated that when properly installed, the model of window used in Seville can be appropriate for homes of this type and price, but many of the windows were not properly installed. Some of the windows only had a small fraction of the fasteners that should have been used to install the windows. This resulted in inability to open and close the windows, substandard operation, and their early deterioration. 16 .... 17 18 19 The Leyba home suffered from windows and a sliding door that stick and will not close completely. Pulte has replaced one window that had a broken frame. 20 .... 21 22 23 24 25 26 The Browns’ windows suffer from the same installation defects described above. Out of seventeen windows in the house, three are functional. The Browns[’] children cannot operate the windows, and cannot open the sliding door to go out into the back yard. One large 5' x 8' window that was removed had only four nails holding it in, while testimony indicated it should have had approximately forty nails. 3 1 ILM responded to Pulte’s May 2009 tender by denying coverage. By April 1, 2011, 2 Pulte had resolved most of the homeowners’ claims through arbitration or settlement, 3 and these homeowners dismissed their claims against Pulte, including Scott, Leyba, 4 and Brown, whose claims were the subject of the arbitration award. In May 2011, 5 Pulte filed a third-party complaint against ILM, claiming that ILM improperly refused 6 to indemnify and defend Pulte under the insurance policies ILM had issued to WBS. 7 C. The Homeowners’ Fifth Amended Complaint 8 The homeowners who remained as plaintiffs in the lawsuit amended their {4} 9 complaint for the fifth time in September 2011 to add plaintiffs and further 10 allegations about the windows. The fifth amended complaint alleged that Pulte 11 12 13 14 15 16 17 18 19 20 us[ed] substandard and inadequate windows that are approved for use in horse trailers and mobile homes and are not for use in residential construction, causing leaks, improper insulation and an inability to fasten them to the wooden frame surrounding them because they have a flange that is designed for horse trailers and mobile homes; . . . us[ed] windows that are oversized for their structural integrity, causing warping and an inability to shut and operate the windows; . . . fail[ed] to use sufficient fasteners to hold the windows in place, causing them to warp, twist and not operate; [and] us[ed] substandard and inadequate windows that leak[.] 21 The plaintiffs who were added in the fifth amended complaint included Catherine 22 Macrall (Macrall), Todd and Monique Sokol (Sokol), and Jonathan and Isabella 23 Williamson (Williamson). 4 1 D. Pulte’s Second Defense Tender 2 In March 2012, Pulte tendered its second demand for a defense to ILM, which {5} 3 included a copy of the fifth amended complaint and lists of alleged defects 4 concerning the homes owned by Macrall, Sokol, and Williamson. Macrall’s defect list 5 stated that “[a]ll windows and sliding glass are hard to open and close. The sliding 6 glass door leaks; lots of dirt all the time; wind comes through whistling” and “[t]here 7 are cracks [in the stucco] above [the] sliding glass door” and “cracks [in the stucco] 8 by [the] front windows.” ILM continued to deny that it had any duty to defend Pulte 9 in the lawsuit. 10 E. ILM’s Motion for Summary Judgment 11 In June 2013, ILM moved for summary judgment, asking the district court to {6} 12 rule that it had no duty to defend Pulte. The district court granted summary judgment 13 in favor of ILM without a hearing, concluding only that “there [was] no genuine issue 14 of material fact [and] Pulte . . . is not afforded coverage under the [ILM] policy with 15 [WBS] regarding the windows and sliding doors provided to Pulte by WBS.” 16 F. Pulte’s Appeal 17 Pulte appeals, asserting that its defense tenders triggered ILM’s duty to defend. {7} 18 Specifically, Pulte first contends that ILM had a duty to defend Pulte because at the 19 time it tendered its defenses to ILM, “potential claims existed in the underlying action 5 1 that the windows caused damage to other property in the underlying plaintiffs’ homes 2 or caused the underlying plaintiffs’ loss of use of their property.” Second, Pulte 3 contends that ILM had a duty to defend Pulte because Pulte stood in WBS’s shoes for 4 coverage due to WBS’s agreement to defend and indemnify Pulte pursuant to the 5 “insured contract[,]” as the ILM-WBS insurance policy defines that term. 6 DISCUSSION 7 A. Standard and Scope of Review 8 In reviewing a grant of summary judgment, “we ordinarily review the whole {8} 9 record in the light most favorable to the party opposing summary judgment to 10 determine if there is any evidence that places a genuine issue of material fact in 11 dispute.” City of Albuquerque v. BPLW Architects & Eng’rs, Inc., 2009-NMCA-081, 12 ¶ 7, 146 N.M. 717, 213 P.3d 1146. “However, if no material issues of fact are in 13 dispute and an appeal presents only a question of law, we apply de novo review and 14 are not required to view the appeal in the light most favorable to the party opposing 15 summary judgment.” Id. Pulte does not contend on appeal that there was any disputed 16 factual issue that precluded summary judgment. Instead, Pulte asserts that “under the 17 facts presented,” the homeowners’ claims against Pulte were potentially “covered 18 under ILM’s policies in accordance with New Mexico law” and that the district court 19 “applied the wrong standard” and misinterpreted the policy language. Thus, we 6 1 understand Pulte’s argument to be that at the time it tendered its defenses to ILM, 2 sufficient facts had been presented that, as a matter of law, triggered ILM’s duty to 3 defend Pulte in the lawsuit. Therefore, we need not review the record to determine if 4 any evidence viewed in the light most favorable to Pulte places a material fact at 5 issue. Id. We need only conduct a de novo review of the district court’s interpretation 6 of the policy and its application of the law to the facts presented in Pulte’s defense 7 tenders. Id. 8 {9} An insurer’s obligation “is a matter of contract law and must be determined by 9 the terms of the insurance policy.” Miller v. Triad Adoption & Counseling Servs., 10 Inc., 2003-NMCA-055, ¶ 8, 133 N.M. 544, 65 P.3d 1099. We construe unambiguous 11 policy terms “in their usual and ordinary sense” and “will not strain the words to 12 encompass meanings they do not clearly express.” Id. (internal quotation marks and 13 citation omitted). Only when a policy term is ambiguous—in other words, when it is 14 “reasonably and fairly susceptible of different constructions”—do we construe that 15 provision “against the insurance company as the drafter of the policy.” Id. (internal 16 quotation marks and citation omitted). “In analyzing coverage under a commercial 17 general liability insurance policy, courts will first examine the insuring clauses to 18 determine whether a claim falls therein. Exclusions will only be reviewed if it [is] 19 determined that the risk initially falls within the insuring agreements.” 9A Lee R. 7 1 Russ et al., Couch on Insurance § 129:1, at 129-7 (3d ed. 2005) (footnote omitted). 2 B. Duty to Defend 3 In New Mexico, an insurer’s duty to defend is triggered when it has received {10} 4 “actual notice” of a claim against the insured, “unless the insured affirmatively 5 declines a defense.” Garcia v. Underwriters at Lloyd’s, London, 2008-NMSC-018, 6 ¶ 1, 143 N.M. 732, 182 P.3d 113. The duty to defend arises and is determined “from 7 the allegations on the face of the complaint or from the known but unpleaded factual 8 basis of the claim that brings it arguably within the scope of coverage.” Am. Gen. 9 Fire & Cas. Co. v. Progressive Cas. Co., 1990-NMSC-094, ¶ 11, 110 N.M. 741, 799 10 P.2d 1113 (emphasis added); see Miller, 2003-NMCA-055, ¶ 9 (“If the allegations 11 of the complaint or the alleged facts tend to show that an occurrence comes within the 12 coverage of the policy, the insurer has a duty to defend regardless of the ultimate 13 liability of the insured.” (Emphasis added.)). 14 {11} Furthermore, an insurance company must “conduct such an investigation into 15 the facts and circumstances underlying the complaint against its insured as is 16 reasonable given the factual information provided by the insured or provided by the 17 circumstances surrounding the claim in order to determine whether it has a duty to 18 defend.” G & G Servs., Inc. v. Agora Syndicate, Inc., 2000-NMCA-003, ¶ 23, 128 19 N.M. 434, 993 P.2d 751. “Facts that are known but unpleaded may bring a claim 8 1 within the policy coverage at a later stage in the litigation.” Sw. Steel Coil, Inc. v. 2 Redwood Fire & Cas. Ins. Co., 2006-NMCA-151, ¶ 14, 140 N.M. 720, 148 P.3d 806. 3 C. The Scope of the Claims on Appeal 4 As an initial matter, Pulte states that it has entered into settlement agreements {12} 5 that limit Pulte’s recovery from ILM in this case to defense and indemnity costs 6 concerning only the claims made by Sokol, Macrall, and Williamson, which did not 7 arise until the fifth amended complaint was filed in September 2011. Pulte asserts that 8 we must still consider the claims contained in the May 2009 tender in order to 9 determine whether ILM’s duty to defend was triggered as early as May 2009. It 10 makes this argument even though Sokol, Macrall, and Williamson did not appear as 11 plaintiffs in this lawsuit until September 2011 and all of those earlier claims were 12 ultimately resolved. ILM did not address this issue in its answer brief. 13 {13} Although not fully explained in Pulte’s brief in chief, it appears that the reason 14 Pulte asks us to consider whether ILM’s duty to defend was triggered as early as May 15 2009 is because Pulte did not notify ILM of the claims specifically involving Sokol, 16 Macrall, and Williamson until Pulte tendered its second demand for a defense to ILM 17 in March 2012, another six months after Sokol, Macrall, and Williamson became 18 plaintiffs in the lawsuit. It reasoned that if ILM had been defending the lawsuit from 19 the time it received Pulte’s first defense tender in May 2009, Pulte would not have 9 1 needed to re-tender its defense when Sokol, Macrall, and Williamson became 2 plaintiffs, and ILM would have had a duty to defend Pulte against the claims 3 involving Sokol, Macrall, and Williamson as early as September 28, 2011, when the 4 fifth amended complaint was filed. See Guest v. Allstate Ins. Co., 2010-NMSC-047, 5 ¶ 33, 149 N.M. 74, 244 P.3d 342 (recognizing that “an insurer’s duty to defend . . . 6 lasts until the conclusion of the underlying lawsuit, or until it has been shown that 7 there is no potential for coverage”; “[w]hen multiple alternative causes of action are 8 stated, the duty continues until every covered claim is eliminated”; “[i]n other words, 9 the duty to defend continues through the appellate process until it can be concluded 10 as a matter of law that there is no basis on which the insurer may be obligated to 11 indemnify the insured” (internal quotation marks and citations omitted)). If, on the 12 other hand, we consider only whether the March 28, 2012 defense tender triggered 13 ILM’s duty to defend Pulte, then Pulte, if successful on that issue, would not recover 14 the defense costs involving Sokol, Macrall, and Williamson that it incurred between 15 September 28, 2011, when the fifth amended complaint was filed, and March 28, 16 2012, when Pulte tendered its second demand for a defense. For these reasons, we 17 agree that we must consider whether ILM’s duty to defend was triggered at the time 18 Pulte’s first defense was tendered in May 2009. 10 1 D. Pertinent Policy Terms 2 The following terms of the ILM-WBS insurance policy are pertinent to this {14} 3 appeal. 4 SECTION I - COVERAGES 5 .... 6 1. 7 8 9 Insuring Agreement. a. 10 .... 11 b. [ILM] will pay those sums that the insured becomes legally obligated to pay as damages because of . . . “property damage” to which this insurance applies. 12 13 (1) 14 15 This insurance applies to . . . “property damage” only if: The . . . “property damage” is caused by an “occurrence[.]” .... 2. Exclusions. 16 This insurance does not apply to: 17 .... 18 b. 19 20 21 22 Contractual Liability “[P]roperty damage” for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement. This exclusion does not apply to liability for damages: 11 1 2 (1) That the insured would have in the absence of the contract or agreement; or 3 4 5 6 (2) Assumed in a contract or agreement that is an “insured contract,” provided the . . . “property damage” occurs subsequent to the execution of the contract or agreement. 7 .... 8 l. Damage to Your Work 9 10 11 “Property damage” to “your work” arising out of it or any part of it[.] .... 12 SECTION V - DEFINITIONS 13 .... 14 9. “Insured contract” means: 15 .... 16 17 18 19 f. 20 .... 21 22 23 13. 24 .... 25 16. That part of any other contract or agreement pertaining to your business . . . under which you assume the tort liability of another party to pay for . . . “property damage” to a third person[.] “Occurrence” means an accident, including continuous or repeated exposure to substantially the same general harmful conditions. “Products-completed operations hazard”: 12 1 2 a. Includes all . . . “property damage” . . . arising out of . . . “your work” except: 3 .... 4 (2) 5 .... 6 17. Work that has not yet been completed or abandoned. “Property damage” means: 7 a. Physical injury to tangible property[;] . . . or 8 9 b. Loss of use of tangible property that is not physically injured. 10 .... 11 22. 12 “Your work”: a. Means: 13 (1) Work or operations performed by you . . .; and 14 15 (2) Materials . . . furnished in connection with such work or operations. 16 {15} The term “insured” applies to both WBS as the named insured and Pulte as an 17 additional insured, while the terms “you” and “your” apply only to WBS. Thus, Pulte 18 is an “insured” under the policy, but the “your work” exclusion refers only to work 19 performed by WBS. 20 {16} The terms of the endorsements that define the scope of Pulte’s coverage as an 21 additional insured are also relevant. When Pulte was initially designated an additional 13 1 insured, the endorsement stated that Pulte is 2 3 4 5 A. an additional insured[], . . . but only with respect to “liability imputed” to [Pulte] “resulting from” the negligent acts or omissions of [WBS], occurring during [WBS’s] ongoing operations at the designated project. 6 (Emphasis added.) However, effective May 25, 2005, another endorsement 7 “amended” the scope of Pulte’s coverage to insure Pulte “only to the extent that the 8 liability for . . . ‘property damage’ is caused by ‘[WBS’s] work’ . . . and included in 9 the ‘products-completed operations hazard.’ ” As this definition specifically states, 10 coverage includes property damage arising out of WBS’s completed work. 11 E. The May 2009 Tender 12 Although Pulte’s May 2009 defense tender did not include a copy of the {17} 13 complaint, we conclude that ILM’s duty to reasonably investigate the claim includes 14 procuring a copy of the complaint. See G & G Servs., Inc., 2000-NMCA-003, ¶ 23 15 (stating that an insurance company must “conduct such an investigation into the facts 16 and circumstances underlying the complaint against its insured as is reasonable given 17 the factual information provided by the insured”). Thus, we consider whether the 18 allegations in the version of the complaint pending in May 2009, along with the facts 19 contained in the arbitration award provided with the defense tender, triggered ILM’s 20 duty to defend Pulte. Am. Gen. Fire & Cas. Co., 1990-NMSC-094, ¶ 11 (“The duty 21 of an insurer to defend arises from the allegations on the face of the complaint or 14 1 from the known but unpleaded factual basis of the claim that brings it arguably within 2 the scope of coverage.” (Emphasis added.)). 3 {18} Contrary to ILM’s assertions, the arbitration award is relevant to ILM’s duty 4 to defend Pulte because the claims of Scott, Leyba, and Brown that were the subject 5 of the arbitration award were part of the same complaint underlying this appeal, 6 which was later amended by adding Sokol, Macrall, and Williamson as plaintiffs. As 7 we previously recognized, if the claims of Scott, Leyba, or Brown triggered ILM’s 8 duty to defend Pulte, ILM would have had to defend Pulte until the end of the lawsuit 9 or until all covered claims in the lawsuit were eliminated. See Guest, 2010-NMSC10 047, ¶ 33 (recognizing that “[w]hen multiple alternative causes of action are stated, 11 the duty [to defend] continues until every covered claim is eliminated” (internal 12 quotation marks and citation omitted)). 13 {19} We begin by analyzing the pertinent terms of the insuring agreement to 14 determine whether the facts presented in the May 2009 tender “tend[ed] to show” that 15 the claims fell within the scope of coverage. Miller, 2003-NMCA-055, ¶ 9; see Am. 16 Gen. Fire & Cas. Co., 1990-NMSC-094, ¶ 11; see also 9A Russ et al., supra, § 129:1, 17 at 129-7. 18 1. 19 The Conditions Reported in the May 2009 Tender Constituted “Property Damage” 20 The first question is whether the facts presented in the May 2009 tender alleged {20} 15 1 “[p]roperty damage[,]” as the insuring agreement defines that term. The policy 2 defines “[p]roperty damage” as “[p]hysical injury to tangible property” or “[l]oss of 3 use of tangible property that is not physically injured.” “Tangible property can be real 4 or personal, but it must be corporeal.” 9 Steven Plitt et al., Couch on Insurance § 5 126:35, at 126-120 (3d ed. 2008). “[C]orporeal” means “[h]aving a physical, material 6 existence[.]” Black’s Law Dictionary 419 (10th ed. 2014). We conclude that the facts 7 presented in the May 2009 tender constituted allegations of physical injury to tangible 8 property under the policy for three reasons. 9 {21} First, the tangible property in this case included the windows and sliding glass 10 doors because they are corporeal—in other words, they physically and materially 11 exist. See id. Second, physical injury arguably occurred to the windows and sliding 12 glass doors because the arbitration award referred to their “deterioration” and stated 13 that they needed to be “replaced” as opposed to merely re-installed. Third, we agree 14 with the arbitrator that the fact that some of the homeowners had to temporarily move 15 out of their homes while their windows were replaced constituted “[l]oss of use of 16 tangible property that is not physically injured[,]” because their homes are tangible 17 property, “[h]aving a physical, material existence[,]” id., even if no other part of the 18 home was physically injured by the windows and doors. However, “[t]he mere fact 19 that there is property damage does not, in and of itself, establish a duty to defend. 16 1 There must also be an ‘occurrence’ causing that damage, and the claim must not fit 2 within an exclusion.” 14 Lee R. Russ et al., Couch on Insurance, § 201:9, at 201-24 3 (3d ed. 2005). 4 2. The “Property Damage” Was the Result of an “Occurrence” 5 The next question is whether the facts presented in the May 2009 tender tended {22} 6 to show that the damaged windows and doors were the result of an “occurrence” as 7 the insuring agreement defines that term. As we previously observed, the policy 8 defines “[o]ccurrence” as “an accident, including continuous or repeated exposure to 9 substantially the same general harmful conditions.” Because the policy does not 10 define the term “accident[,]” that term “must be interpreted in its usual, ordinary and 11 popular sense.” Vihstadt v. Travelers Ins. Co., 1985-NMSC-104, ¶ 6, 103 N.M. 465, 12 709 P.2d 187 (internal quotation marks and citation omitted). ILM argues that, 13 because the homeowners’ claims involved defective windows and doors and/or 14 defective installation of the windows and doors, no accident occurred because faulty 15 workmanship “does not involve the fortuity required to constitute an accident[,]” 16 quoting 9A Russ et al., supra, § 129:4, at 129-13. We disagree. 17 {23} Fifty years ago, our Supreme Court construed the ordinary meaning of the term 18 “accident” in the context whether an accident insurance policy provided coverage 19 where the insured driver died in a car wreck caused by his driving over the speed 17 1 limit. See Scott v. New Empire Ins. Co., 1965-NMSC-034, ¶¶ 4-14, 75 N.M. 81, 400 2 P.2d 953. The insurance company argued that the car wreck was not an accident, and 3 therefore not covered by the policy, “because the deceased was speeding over a 4 relatively unknown, dangerous road at night and should have foreseen the 5 consequences of his intentional acts.” Id. ¶ 5. Our Supreme Court disagreed, 6 concluding that the ordinary meaning of “accident” encompassed unintended 7 consequences resulting from conduct that was “heedless, perhaps, but certainly not 8 voluntarily self-inflicted[.]” Id. ¶ 14; see King v. Travelers Ins. Co., 1973-NMSC9 013, ¶¶ 7-13, 84 N.M. 550, 505 P.2d 1226 (concluding that property damage resulting 10 from “defective installation” of a water line was an “accident” under the insurance 11 policy because it resulted from negligence); Travelers Indem. Co. v. Miller Bldg. 12 Corp., 97 Fed. Appx. 431, 436 (4th Cir. 2004) (“To adopt the narrow view that the 13 term “accident” in liability policies of insurance . . . necessarily excludes negligence 14 [including negligent workmanship] would mean that in most, if not all, cases the 15 insurer would be free of coverage and the policy would be rendered meaningless.” 16 (internal quotation marks and citation omitted); Iowa Mut. Ins. Co. v. Fred M. 17 Simmons, Inc., 138 S.E.2d 512, 25 (N.C. 1964) (same). 18 {24} Furthermore, the most recent supplement to the same insurance law treatise 19 relied upon by ILM has observed that some jurisdictions have recently disapproved 18 1 of the view that faulty workmanship cannot constitute an accident. See 9A Russ et al., 2 supra, § 129:3, at 32-33 (Supp. 2014). These jurisdictions have instead adopted the 3 view that 4 5 6 7 8 9 10 11 [a]n ‘occurrence,’ as the term is used in a standard commercial general liability . . . policy, does not require damage to the property or work of someone other than the insured, and thus an insured’s faulty workmanship can amount to an occurrence when the only damage alleged is to work of the insured; standing alone, [the] word ‘occurrence’ is not used usually and commonly to convey information about the nature or extent of injuries worked by such a happening, much less the identity of the person whose interests are injured[.] 12 Id. n.7 (citing Taylor Morrison Servs., Inc. v. HDI-Gerling Am. Ins. Co., 746 S.E.2d 13 587 (Ga. 2013)); 14 15 16 17 18 19 20 21 [t]o result in an ‘occurrence’ under [a] commercial general liability . . . policy providing coverage if . . . property damage was caused by an ‘occurrence,’ it was not necessary for [the] insured homebuilder’s allegedly faulty workmanship to cause damage to real or personal property that was not part of the construction project; [the] policy defined ‘occurrence’ simply as ‘an accident, including continuous or repeated exposure to . . . the same general harmful conditions,’ and this definition did not refer to the nature or location of the property damaged. 22 Id. (citing Owners Ins. Co. v. Jim Carr Homebuilder, LLC, 157 So. 3d 148 (Ala. 23 2014)); and 24 25 26 27 [s]ubcontractor’s faulty workmanship could constitute an ‘occurrence’ within [the] meaning of contractor’s commercial general liability . . . policy if the faulty work was ‘unexpected’ and not intended by the insured, and the property damage was not anticipated or intentional, so 19 1 2 3 that neither the cause nor the harm was anticipated, intended, or expected as [the] policy did not define ‘occurrence’ in terms of the ownership or character of the property damaged by the act or event[.] 4 Id. n.10 (citing K & L Homes, Inc. v. Am. Fam. Mut. Ins. Co., 829 N.W.2d 724 (ND. 5 2013)); see Greystone Constr., Inc. v. Nat’l Fire & Marine Ins. Co., 661 F.3d 1272, 6 1285 (10th Cir. 2011) (“[F]ortuity is not the sole prerequisite to finding an accident 7 under a [commercial general liability] policy.”). 8 {25} Given our mandate to interpret the plain language of the policy without 9 straining the language to inject meaning that is not clearly expressed, we find these 10 recent cases cited by the treatise the more reasoned approach to construing the 11 meaning of “occurrence” as the policy defines that term. See Miller, 2003-NMCA12 055, ¶ 8 (recognizing that we must construe unambiguous insurance policy terms “in 13 their usual and ordinary sense” and must not “strain the words to encompass 14 meanings they do not clearly express.” (internal quotation marks and citation 15 omitted)). Thus, because the definition of “occurrence” in this case does not expressly 16 state that faulty workmanship can never constitute an accident and does not limit the 17 term’s effect to a particular class of tangible property, we conclude that the alleged 18 property damage in this case was caused by an alleged “occurrence” as the policy 19 defines that term.1 We now turn to the policy’s exclusions to consider whether any 1 20 We note that if the term “accident” was ambiguous with respect to whether it 21 was intended to encompass faulty workmanship, we would construe the policy in 20 1 apply to preclude coverage for the occurrences described in the May 2009 tender. See 2 9A Russ et al., supra, § 129:1, at 129-7. 3 3. The “Your Work” Exclusion Precluded Coverage 4 ILM asserts that, even if the May 2009 tender described an occurrence, the {26} 5 “your work” exclusion applies because the only property damage alleged in the May 6 2009 tender was to WBS’s work itself—the windows and sliding glass doors—and 7 not to other property. We agree. “[W]here all of the damage that is being claimed is 8 damage to the work of the insured[,] . . . the “your work” exclusion will apply to 9 preclude coverage.” 9A Russ et al., supra, § 129:17, at 129-39. 10 {27} Pulte concedes this principle in its brief in chief when it states that “the ‘your 11 work’ exclusion may prevent indemnity coverage for damage to the insured’s work 12 or product,” but “it would not exclude damage to other property caused by the 13 insured’s work.” Pulte also recognizes that “[c]ourts in several jurisdictions have 14 found leaking windows and sliding glass doors to be an ‘occurrence’ when the leaks 15 cause other damage.” (Emphasis added). See Travelers Indem. Co., 97 Fed. Appx. 16 at 437 (noting that the “claim of damage to guest-room carpet caused by [the 17 defendants’] improper installation of windows and sliding glass doors falls within the 18 favor of providing coverage to the insured. Miller, 2003-NMCA-055, ¶ 8 19 (recognizing that we must construe ambiguous provision “against the insurance 20 company as the drafter of the policy”). 21 1 scope of the policy” (emphasis added)); Lee Builders, Inc. v. Farm Bureau Mut. Ins. 2 Co., 137 P.3d 486, 493, 495 (Kan. 2006) (noting that faulty materials and 3 workmanship caused the home to be continuously exposed to moisture, which “in 4 turn caused damage” to “surrounding structural components” (emphasis added)); 5 Potomac Ins. of Ill. v. Huang, 2002 WL 418008, ** 1, 15, mem. op., No. 00-40136 JPO, Mar. 1, 2002 (D. Kansas) (non-precedential) (concluding that the “your work” 7 exclusion precluded recovery for property damage to the defective windows, but did 8 not preclude recovery “for property damage to a third party’s property—that is, the 9 interior of the Huangs’ home—arising from [the] windows[,]” where “the water that 10 had penetrated into the house in and around those windows had physically damaged 11 the Huangs’ home and its contents” (emphasis added)).2 However, Pulte does not 12 point to any facts alleged to have existed in May 2009 that tended to show that the 13 defective or defectively installed windows and sliding glass doors caused damage to 14 other property, other than the fact that the windows “leak[ed].” Therefore, we 15 conclude that the facts presented in the May 2009 tender did not trigger ILM’s duty 16 to defend because the “your work” exclusion precluded coverage under those facts. 17 18 19 20 21 2 Pulte also cites Travelers Indemnity Co. of America v. Moore & Associates, 216 S.W.3d 302, 310-11 (Tenn. 2007), but that case is inapposite here because it involved work done by the named insured’s subcontractor, which rendered the “your work” exclusion inapplicable because of the policy’s subcontractor exception to the “your work” exclusion. 22 1 4. 2 The “Insured Contract” Exception to the “Contractual Liability” Exclusion Did Not Trigger ILM’s Duty to Defend in May 2009 3 Pulte asserts that, even if the “your work” exclusion precluded coverage, the {28} 4 “insured contract” exception to the “contractual liability” exclusion was the source 5 of ILM’s duty to defend Pulte when it tendered its first defense in May 2009. As we 6 previously noted, the policy’s exclusion for contractual liability states that “[t]his 7 insurance does not apply to[] . . . ‘property damage’ for which [WBS] is obligated to 8 pay damages by reason of the assumption of liability in a contract or agreement” 9 except where such “liability for damages” was “[a]ssumed in a contract or agreement 10 that is an ‘insured contract[.]’ ” An “[i]nsured contract” is “[t]hat part of any . . . 11 contract . . . pertaining to [WBS’s] business . . . under which [WBS] assume[s] the 12 tort liability of another party to pay for . . . ‘property damage’ to a third person[.]” 13 Pulte claims that its contract with WBS was an insured contract because it required 14 WBS to “indemnify . . . Pulte . . . against[] all liability . . . or demands for damages 15 to . . . property arising out of, resulting from, or relating to [WBS’s] performance of 16 the work under this [a]greement” and to “defend any and all [such c]laims which may 17 be brought or threatened against Pulte.” As a result, Pulte argues, the “contractual 18 liability” exclusion does not apply, and ILM must assume WBS’s obligation to 19 defend Pulte, citing Krieger v. Wilson Corp., 2006-NMCA-034, ¶ 45, 139 N.M. 274, 20 131 P.3d 661 (holding that a potential indemnitee under an insured contract may 23 1 bring a direct action against the insurance company that issued the commercial 2 general liability policy). 3 {29} We conclude that, even if the insured contract exception renders the contractual 4 liability exclusion inapplicable in this case, it does not render other separate and 5 independent policy exclusions inapplicable, such as the “your work” exclusion, which 6 we have held applies in this case to preclude coverage with regard to the May 2009 7 tender. See, e.g., Fed. Ins. Co. v. Tri-State Ins. Co., 157 F.3d 800, 805 (10th Cir. 8 1998) (concluding that the contractual exclusion and its exceptions do not override 9 another exclusion—the operations exclusion—because “the exclusions are separate 10 and independent” and nothing in the policy indicates that one exception to one 11 exclusion “somehow trumps” the other exclusions); see also Federated Mut. Ins. Co. 12 v. Ever-Ready Oil Co., No. 09-CV-857 JEC/RHS, 2012 WL 11945481, at * 8 13 (D.N.M. Mar. 9, 2012) (non-precedential) (concluding the same and citing Fed. Ins. 14 Co., 157 F.3d at 805). Pulte failed to provided any contrary authority for this Court 15 to consider. See In re Adoption of Doe, 1984-NMSC-024, ¶ 2, 100 N.M. 764, 676 16 P.2d 1329 (“We assume where arguments in briefs are unsupported by cited authority, 17 counsel after diligent search, was unable to find any supporting authority.”). 18 F. The March 2012 Tender 19 Unlike the May 2009 defense tender, the March 2012 tender contained {30} 24 1 allegations tending to show that the windows and sliding glass doors caused damage 2 to some of the homeowners’ other property in this case, namely the stucco around 3 Macrall’s windows. Macrall’s defect list stated that “[a]ll windows and sliding glass 4 are hard to open and close[, t]he sliding glass door leaks[,]” and “[t]here are cracks 5 [in the stucco] above [the] sliding glass door” and “cracks [in the stucco] by the front 6 windows.” These allegations tend to show a claim for “property damage” caused by 7 an “occurrence”—the home’s stucco is tangible property that was arguably damaged 8 by WBS’s defective products and/or installation. And because the facts do not show, 9 and ILM does not contend, that the stucco around the windows was also WBS’s 10 work, the “your work” exclusion does not preclude coverage. 11 {31} We are not persuaded by ILM’s assertion that, even if the “your work” 12 exclusion does not preclude coverage, the “products-completed operation hazard” did 13 not apply to damages claimed to have occurred at the Macrall home because the 14 additional insured endorsement that added that coverage was issued on May 25, 2005, 15 after WBS completed its work on the Macrall home. We note that, before the May 25, 16 2005 endorsement, ILM had insured Pulte “only with respect to . . . negligent acts or 17 omissions of [WBS], occurring during [WBS’s] ongoing operations at the designated 18 project.” (Emphasis added.) However, after the May 25, 2005 endorsement, ILM 19 insured Pulte “only to the extent that the liability for . . . ‘property damage’ is caused 25 1 by ‘[WBS’s] work’ . . . and included in the ‘products-completed operations hazard.’ ” 2 The “products-completed operations hazard” included all property damage “arising 3 out of . . . ‘[WBS’s] work’ except[] [w]ork that has not yet been completed[.]” 4 (Emphasis added.) In other words, after May 25, 2005, the policy covered Pulte only 5 with regard to work that WBS had already completed, and it no longer covered 6 WBS’s ongoing operations. Therefore, ILM is incorrect in its assertion that the May 7 25, 2005 endorsement only covered work performed by WBS after May 25, 2005, 8 because the endorsements read together plainly contemplate that WBS had completed 9 its work for Pulte by May 25, 2005. 10 {32} The operative question with regard to whether the May 25, 2005 endorsement 11 covers Macrall’s claims is whether the damage to Macrall’s stucco occurred within 12 the effective dates of the policy. See 9A Russ et al., supra, § 129:23, at 129-46. 13 (observing that products-completed operations hazard provisions “cannot be read to 14 provide coverage for an injury that occurs outside the effective dates of the policy” 15 (emphasis added) (footnote omitted)). Although Pulte may have been removed as an 16 additional insured under the policy on June 1, 2006, ILM does not contend, and the 17 March 2012 tender does not indicate, that the damage to Macrall’s stucco occurred 18 after June 1, 2006. 19 {33} Therefore, we conclude that Macrall’s claims in the March 28, 2012 tender 26 1 were sufficient to allege a claim covered by the policy, thus triggering ILM’s duty to 2 defend Pulte as of the date of that tender. This duty to defend shall extend to all 3 claims pending in this case as of March 28, 2012 and shall last until any of the 4 following events occurs: the lawsuit ends, every potentially covered claim is 5 eliminated from the lawsuit, or it can be concluded as a matter of law that there is no 6 basis upon which ILM may be obligated to defend Pulte. See Guest, 2010-NMSC7 047, ¶ 33 (recognizing that “an insurer’s duty to defend . . . lasts until the conclusion 8 of the underlying lawsuit, or until it has been shown that there is no potential for 9 coverage”; “[w]hen multiple alternative causes of action are stated, the duty continues 10 until every covered claim is eliminated”; “[i]n other words, the duty to defend 11 continues through the appellate process until it can be concluded as a matter of law 12 that there is no basis on which the insurer may be obligated to indemnify the insured” 13 (internal quotation marks and citations omitted)). 14 CONCLUSION 15 {34} We reverse the district court’s grant of summary judgment in favor of ILM and 16 remand this case to the district court for further proceedings consistent with this 17 opinion. 18 19 20 {35} IT IS SO ORDERED. __________________________________ TIMOTHY L. GARCIA, Judge 27 1 WE CONCUR: 2 ___________________________________ 3 MICHAEL E. VIGIL, Chief Judge 4 ___________________________________ 5 CYNTHIA A. FRY, Judge 28
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