Summary
affirming summary judgment entered in favor of insurance company on claims against general contractor of defective subcontractor work upon finding inadequate factual record regarding the actual cause of damages
Summary of this case from Nat'l Sur. Corp. v. Westlake Invs., LLCOpinion
No. 5-848 / 04-1890
Filed February 1, 2006
Appeal from the Iowa District Court for Polk County, Joel D. Novak, Judge.
Jerry's Homes, Inc. appeals the district court's order granting summary judgment. AFFIRMED.
Kathryn Barnhill of Barnhill Associates P.C., West Des Moines, for appellant.
Jason O'Rourke of Lane Waterman LLP, Rock Island, for appellee.
Heard by Huitink, P.J., and Mahan and Hecht, JJ.
Jerry's Homes, Inc. (Jerry's) appeals the district court's order granting summary judgment in favor of Continental Western Insurance Company's petition for declaratory judgment. Jerry's argues (1) there are disputed material facts that could trigger insurance coverage and (2) the district court misapplied Iowa law when it concluded that defective workmanship cannot be an accident or occurrence for the purposes of insurance coverage. We affirm.
I. Background Facts and Proceedings
Jerry's was the general contractor for Bent Tree Villas between 1997 and 2000. Independent subcontractors did all building, excavating, designing, and engineering. Sometime later, the concrete streets, curbs, driveways, and sidewalks in the development began cracking. Bent Tree Villas Owners Association (Bent Tree) brought suit against Jerry's. The petition alleged breach of warranty, negligence, breach of fiduciary duty, and breach of contract. According to Bent Tree, Jerry's was negligent in:
Jerry's then brought suit against its subcontractors.
(a) Failing to provide concrete for road surfaces of adequate and uniform thickness.
(b) Failing to provide adequate subgrade.
(c) Failing to provide adequate fill to the areas intended for road surfaces.
(d) Failing to provide adequate surface drainage.
(e) Failure to provide the proper subsoil for roadway, and concrete areas.
(f) Failure to provide a subgrade with appropriate moisture levels and drainage.
(g) Failure to provide adequate subdrains, or subsoil water removal.
(h) Failure to provide adequate surface drainage.
(i) Inadequate or improperly placed down spouts.
(j) Allowing heavy construction equipment travel or operate on the concrete surfaces.
(k) Improper use of snow removal equipment during construction.
Both Bent Tree and Jerry's engaged engineers to evaluate the damage to the cement. Though none reached a definitive conclusion as to the cause of the cracking, some blame was attributed to excess moisture in the soil. The engineers speculated the moisture could have a variety of origins, including inferior grading of the subsoil, faulty irrigation equipment or even over-watering by homeowners.
Jerry's tendered its defense to Continental Western Insurance Company (Continental). Jerry's sought coverage under the commercial general liability (CGL) insurance policies Continental issued to Jerry's from 1997 to 2003. Jerry's CGL policy reads, in pertinent part:
Section I — Coverages
Coverage A. Bodily Injury and Property Damage Liability
1. Insuring Agreement
a. We will 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. We will have the right and duty to defend any "suit" seeking those damages. We may at our discretion investigate any "occurrence" and settle any claim or "suit" that may result.
. . . .
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". . . .
. . . .
2. Exclusions
This insurance does not apply to:
. . . .
j. Damage to Property
"Property damage" to:
. . . .
(6) That particular part of any property that must be restored, repaired or replaced because "your work" was incorrectly performed on it.
. . . .
Paragraph (6) of this exclusion does not apply to "property damage" included in the "products-completed operations hazard."
. . . .
l. Damage to Your Work
"Property damage" to "your work" arising out of it or any part of it and included in the "products-completed operations hazard".
This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.
. . . .
Section V — Definitions
. . . .
12. "Occurrence" means an accident, including continuous or repeated exposure to substantially the same general harmful conditions.
. . . .
14.a. "Products-completed operations hazard" includes all "bodily injury" and "property damage" occurring away from premises you own or rent and arising out of "your product" or "your work" except:
(1) Products that are still in your physical possession; or
(2) Work that has not yet been completed or abandoned.
b. "Your work" will be deemed completed at the earliest of the following times:
(1) When all of the work called for in your contract has been completed.
(2) When all of the work to be done at the site has been completed if your contract calls for work at more than one site.
(3) When that part of the work done at a job site has been put to its intended use by any person or organization other than another contractor or subcontractor working on the same project.
. . .
19. "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.
Though it reserved the right to deny coverage, Continental initially agreed to provide Jerry's a defense. Subsequently, Continental petitioned for declaratory judgment arguing it had no duty to defend or indemnify Jerry's. Later, Continental petitioned for summary judgment. Continental claims that Bent Tree's complaints are for defective workmanship. It argues that defective workmanship is not an occurrence and therefore is not covered under Jerry's CGL policies.
The district court granted Continental's motion for summary judgment. The court determined there was no occurrence triggering coverage because Bent Tree's lawsuit related to defective workmanship. Further, following Norwalk Ready Mixed Concrete, Inc. v. Traveler's Ins., 246 F.3d 1132, 1137 (8th Cir. 2001), it concluded that defective workmanship is not an occurrence regardless of who performs the work. Finally, the court concluded there was no coverage under the policies' product-completed operation hazard protection (PCOH). Because there was no occurrence, the court reasoned the PCOH could not apply. Jerry's appeals.
II. Standard of Review
We review summary judgments for errors at law. Iowa R. App. P. 6.4. We will affirm the judgment only if (1) a review of the entire record fails to show any issue of material fact and (2) the moving party is entitled to judgment as a matter of law. Mason v. Vision Iowa Bd., 700 N.W.2d 349, 353 (Iowa 2005). There is no genuine issue of material fact when a reasonable judge or jury could conclude there is no evidence entitling the nonmoving party to relief. Id. We view the record in a light most favorable to the nonmoving party. Id. The nonmoving party must put forth specific facts showing the existence of a genuine issue for trial. Hlubek v. Pelecky, 701 N.W.2d 93, 95 (Iowa 2005). "We also indulge in every legitimate inference that the evidence will bear in an effort to ascertain the existence of a fact question." Mason, 700 N.W.2d at 353. However, mere "speculation is not sufficient to generate a genuine issue of fact." Hlubeck, 701 N.W.2d at 96.
III. Merits
Bent Tree's suit alleges "[p]ortions of the townhome project including, but not limited to, streets, curbs, driveways, garage floors, sidewalks, landscaping, drainage, subsurface preparation, are not fit for the purpose for which they were built." It further alleges the defective workmanship is the proximate cause of the damage.
Continental argues it is entitled to summary judgment because Bent Tree's suit only alleges defective work. Defective work itself, regardless of who performs the work, is not an occurrence that is covered under a CGL policy. Norwalk Ready Mixed Concrete, Inc., 246 F.3d at 1137; Pursell Constr., Inc. v. Hawkeye-Security Ins. Co., 596 N.W.2d 67, 71 (Iowa 1999). Defective work is not covered under a CGL policy if the only damage is the work product itself. Pursell Constr., Inc., 596 N.W.2d at 70-71. Because it would have no duty to indemnify for defective work, Continental claims it has no duty to defend the suit against Jerry's.
Our supreme court has stated it agrees with the majority rule that "defective workmanship, standing alone, that is, resulting in damages only to the work product itself, is not an occurrence." Id. To rule otherwise would make a CGL policy more like a performance bond, and the insurer more like the guarantor of the insured's work. Id.
An insurance company's duty to defend arises whenever there is a potential or possibility to indemnify. First Nat'l Bank of Missouri Valley v. Fidelity Deposit Co. of Maryland, 545 N.W.2d 332, 335 (Iowa Ct.App. 1996). With regard to the duty to defend, we have said:
An insurer's duty to defend is separate from its duty to indemnify; the duty to defend is broader than the duty to indemnify. The duty to defend arises "whenever there is potential or possible liability to indemnify the insured based on the facts appearing at the outset of the case." In other words, the duty to defend rests solely on whether the petition contains any allegations that arguably or potentially bring the action within the policy coverage. If any claim alleged against the insured can rationally be said to fall within such coverage, the insurer must defend the entire action. In case of doubt as to whether the petition alleges a claim that is covered by the policy, the doubt is resolved in favor of the insured.
Employers Mut. Cas. Co. v. Cedar Rapids Television Co., 552 N.W.2d 639, 641 (Iowa 1996) (quoting A.Y. McDonald Indus., Inc. v. Insurance Co. of N. Am., 475 N.W.2d 607, 627 (Iowa 1991) (en banc) (citations omitted) (emphasis added)).
When reviewing for possible liability, we are to look first to the facts alleged in the petition in the suit against the insured. Id. However, notice pleading might require us to look beyond the petition to other admissible and relevant facts in the record. Id.; McAndrews v. Farm Bureau Mutual Ins. Co., 349 N.W.2d 117, 119 (Iowa 1984). "[A]n insurer is not required to provide a defense when no facts presently available to it indicate coverage of the claim merely because such facts might later be added by amendment or introduced as evidence at trial." McAndrews, 349 N.W.2d at 119.
In its petition, Bent Tree alleges that, among other things, the drainage and subsurface preparation of the project are not fit for the purpose they were built. The petition further alleges Jerry's failed to provide adequate surface drainage and adequate subsoil water removal. Finally Bent Tree alleges damages, which include correction of excessive surface and subsurface moisture, and replacement of various concrete surfaces.
Jerry's argues Bent Tree's complaints are the result of excess moisture in the soil. According to Jerry's, this excess moisture could have a variety of causes. These causes are not limited to defective work.
A review of the engineering reports indicate to us, however, that such a showing would consist of "facts [that] might later be added by amendment or introduced as evidence at trial." McAndrews, 349 N.W.2d at 119. In other words, there are no facts presently available that indicate Continental must cover the claim. The reports themselves do not give any conclusions as to the source of Bent Tree's damages. Instead, they only make guesses as to possible contributing sources. Jerry's offers mere speculation. That the speculation comes in the form of an engineer's report does not make it more factual. For that reason, we affirm the district court on this issue.
Finally, because we do not find any facts that presently indicate Continental must cover the claim, we also affirm the district court's decision with regard to the PCOH provision of the contract. We find the analysis in Pursell concerning PCOH provisions to be persuasive. Id. at 69.