Architex Ass'n, Inc. v. Scottsdale Ins. Co.
| Docket Number: | 2008-CA-01353-SCT | |
| Supreme Court: | Opinion Link Opinion Date: 02-11-2010 Opinion Author: Randolph, J. Holding: Reversed and remanded |
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| Additional Case Information: |
Topic: Insurance - Defective subcontractor construction - "Occurrence" under commercial general liability policy Judge(s) Concurring: Waller, C.J., Carlson and Graves, P.JJ., Dickinson, Lamar, Kitchens, Chandler and Pierce, JJ. Procedural History: Summary Judgment Nature of the Case: CIVIL - INSURANCE |
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| Trial Court: |
Date of Trial Judgment: 05-14-2008 Appealed from: RANKIN COUNTY CIRCUIT COURT Judge: Kent McDaniel Disposition: The trial court granted summary judgment in favor of Scottsdale. Case Number: 2002-219 |
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| Party Name: | Attorney Name: | Brief(s) Available: | ||
| Appellant: | Architex Association, Inc. ("Architex") |
DORSEY R. CARSON, JR., CHERI TURNAGE GATLIN, JOHN MARTIN LASSITER, BRADLEY BARRON VANCE, ERIC FOSTER HATTEN |
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| Appellee: | Scottsdale Insurance Company ("Scottsdale") | JAMES W. SHELSON, JAMES W. CRAIG, JUSTIN L. MATHENY | ||
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| Topic: | Insurance - Defective subcontractor construction - "Occurrence" under commercial general liability policy |
| Summary of the Facts: | In 2000, Architex Association, Inc. entered into a contract with Vikram Parshotam and CIS Pearl, Inc. to construct a Country Inn and Suites hotel. A performance bond with The Hanover Insurance Company, as surety, and Architex, as principal, was issued for $1.89 million pertaining to work to be performed on the Inn. Architex used multiple subcontractors to build the Inn. On June 21, 2002, a “Statutory Notice of Construction Lien” was filed by Architex “for construction balance due on Country Inn & Suites . . . of $256,075.” Architex had yet to file suit. On July 31, 2002, CIS filed suit against Architex and Hanover. The suit alleged that Architex had breached its contract; “was negligent in the construction of the [Inn] and such negligence is the sole proximate cause or a proximate contributing cause of injuries to [CIS]”; and that the construction lien claimed by Architex constituted slander of title. As to Hanover, CIS asserted a “performance bond claim,” stating that Hanover “has not corrected Architex’s non-conforming, incomplete and defective work on the [Inn].” Architex considered the suit as a mere fee dispute, and did not notify Scottsdale of the suit or otherwise file a claim. It was not until September 2004 that counsel for CIS communicated to Architex an allegation that testing had revealed serious rebar deficiencies in the foundation of the Inn. On October 5, 2004, Architex first notified Scottsdale of that claim. The notice of claim alleged that the “date of occurrence” was September 30, 2004. On October 8, 2004, Scottsdale sent a letter to Hamby confirming receipt of the notice of claim. The letter added that Scottsdale had yet to receive a copy of CIS’s complaint, noted policy exclusions and definitions, and concluded that Scottsdale “is reserving the right to assert all defenses to coverage under the policy. . . . [Scottsdale] is not waiving any rights nor admitting any obligation under the policy.” On April 21, 2005, at the latest, Scottsdale received a copy of the CIS complaint, which had been filed on July 31, 2002. On June 29, 2006, Architex filed a “Third Party Complaint” against Scottsdale for failure “to provide Architex with defense and indemnity.” Scottdale filed its answer and defenses seeking dismissal of Architex’s “Third Party Complaint” with prejudice. Scottsdale formally denied Architex’s demand for defense and indemnity. Before the controversy between CIS and Architex, Scottsdale had issued three consecutive one-year “Commercial Lines” policies to Architex. Each policy included a CGL part. The policies contained substantially similar language and collectively covered the period from June 29, 1999, to June 29, 2002. An “Extension of Supplemental Declarations” of the CGL part reveals that in exchange for CGL coverage, Architex paid premiums of $6,330 in 1999 and 2000, and $7,250 in 2001. Of these premiums, $3,705 in 1999 and 2000, and $4,233 in 2001, were for “Class Description: Contractors - Subcont Work – In Conn W/ Constr - Bldgs.” Architex filed a motion for summary judgment, and Scottsdale responded with its own motion for summary judgment. The circuit court granted summary judgment in favor of Scottsdale. The court entered a final judgment dismissing the third amended third party complaint. Architex appeals. |
| Summary of Opinion Analysis: | The Court will consider whether the circuit court erred in concluding, as a matter of law, that the intentional act of hiring subcontractors by the insured general contractor precludes the possibility of coverage. There is a clear jurisdictional split regarding whether defective subcontractor construction constitutes an “occurrence” under a CGL policy. The appropriate analysis should not be driven by policy justifications, but rather should be confined to the policy language. The policy either affords coverage or not, based upon application of the policy language to the facts presented. The second consideration is that neither faulty or improper construction, nor defective workmanship (or gaining knowledge of same) constitutes an “occurrence,” as defined in the policy. These CGL policies are designed to provide liability protection for the general contractor and their subcontractors for accidental, inadvertent acts which breach accepted duties and proximately cause damage to a person or property. Architex argues that “[t]he relevant act is not simply subcontracting. Rather, the ‘act’ . . . Is improperly placing rebar and knocking off a false chimney (which led to water damage to the [Inn]). These acts were accidental, not intentional.” The policies at issue define “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The only act or conduct considered by the circuit court was the hiring of subcontractors, without consideration of whether the underlying acts or conduct of the insured or the subcontractors proximately causing “property damage” were negligent or intentional or were otherwise excluded by policy language. While the alleged “property damage” may have been “set in motion” by Architex’s intentional hiring of the subcontractors, the “chain of events” may not have followed a course consciously devised and controlled by Architex, without the unexpected intervention of any third person or extrinsic force. If an “occurrence” is a condition precedent to coverage, but “personal injury” or “property damage,” if proximately caused by a negligent act or conduct of a subcontractor, is not covered, then there is no logical explanation for why the policy contains the referenced exclusions and exceptions to exclusions (e.g., the “subcontractor exception”). It appears that part of the confusion between insurers and insureds, and in conflicting opinions of courts, is caused by branding faulty workmanship, defective work, and other similar phrases as “occurrences” or not. Faulty workmanship, defective work, et al., may be accidental, intentional, or neither. A return to basics leads the Court to conclude that the underlying facts will determine whether the complaint of “property damage” (defective or faulty workmanship) was proximately caused by breach of a recognizable duty and whether that breach was accidental or intentional; or, whether the “property damage” was caused by neither. In two of the three aforementioned scenarios, no coverage would exist. Only when “property damage” is proximately caused by an accident (an inadvertent act) does an “occurrence,” as defined by the policy, trigger coverage. The record in this case is insufficiently developed to answer that question with certainty. Even if there has been “property damage” caused by an “occurrence,” coverage is not automatic. It also must be ascertained, under the facts specific to each case, if any other exclusions and/or exceptions to exclusions apply. The subject policy unambiguously extends coverage to Architex for unexpected or unintended “property damage” resulting from negligent acts or conduct of a subcontractor, if not excluded by other applicable terms and conditions of the policy not at issue in this appeal. By failing to consider the policy as a whole, the circuit court erred in its “occurrence” analysis. Under Scottsdale’s CGL policy, the term “occurrence” cannot be construed in such a manner as to preclude coverage for unexpected or unintended “property damage” resulting from work “performed on [Architex’s] behalf by a subcontractor.” |
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