TOM S. LEE, District Judge.
Plaintiff Lafayette Insurance Company filed the present action seeking a declaratory judgment that its commercial general liability insurance policy issued to defendant Absolute Foundation Solutions (Absolute) provides no coverage for damages to the home of Edward and Heather Peerboom, which the Peerbooms have claimed was caused by Absolute's negligence in performing certain work on their home. The case is presently before the court on Lafayette's motion for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. The Peerbooms and Absolute have separately responded to the motion and the court, having considered the memoranda of authorities, together with attachments, submitted by the parties, concludes the motion is well taken and should be granted.
For purposes of the present motion, the following facts are not in dispute:
Edward and Heather Peerboom's home in Hattiesburg, Mississippi flooded five times during an approximate eight-year period, from January 1998 to August 2005. In August 2009, after they were informed by FEMA that it would no longer provide them flood insurance if the home were not elevated, the Peerbooms hired Absolute to raise the structure twenty-four inches above the flood zone so it could be reshored and the flood insurance on the house could be continued. In general terms, the project involved excavating beneath the home's slab foundation, placing hydraulic jacks at various locations below the slab, and using the jacks to evenly raise the structure, a few inches at a time. By midday on August 28, 2009, Absolute had raised the structure approximately twenty-one inches without incident. Absolute's crew then left for lunch, and returned to discover that the house had fallen, resulting in substantial damage to the entire structure.
On February 25, 2010, the Peerbooms filed suit against Absolute and Caballero in the Circuit Court of Lamar County, Mississippi, asserting claims of negligence, breach of contract and fraud, and seeking compensatory damages for the total destruction of their home and their resulting emotional distress, and demanding punitive damages on account of Cabellero's alleged fraud.
Under Mississippi law, which applies in this diversity action, the determination whether a liability carrier has a duty to defend depends on the policy language and the allegations of the complaint. QBE Ins. Corp. v. Brown & Mitchell, Inc., 591 F.3d 439, 443 (5th Cir.2009) (citing U.S. Fidelity & Guar. Co. v. Omnibank, 812 So.2d 196, 200 (Miss.2002)). Under this so-called "eight-corners" test, the allegations in the complaint are analyzed against the language in the policy to determine coverage and the duty to defend. Id. If the complaint alleges facts which are arguably within the policy's coverage, a duty to defend arises. Id. See Sennett v. U.S. Fidelity & Guar. Co., 757 So.2d 206, 212 (Miss.2000) (stating, "[a] liability insurance company has an absolute duty to defend a complaint which contains allegations covered by the language of the policy, but it has absolutely no duty to defend those claims which fall outside the coverage of the policy").
In their complaint against Absolute, the Peerbooms allege that they entered into a contract with Absolute "to raise [their] structure up to 24 inches above its previous level while maintaining the integrity of the structure;" that on August 28, 2009, while "Absolute was performing the job on
Three requirements must be met in order to trigger a duty to defend, and potentially indemnify, which are: (1) the Peerbooms must allege they sustained a loss because of "property damage"; (2) the alleged damage must be alleged to have been caused by an "occurrence"; and (3) there must be no valid exclusion that applies. See Delta & Pine Land Co. v. Nationwide Agribusiness Ins. Co., 530 F.3d 395, 399-400 (5th Cir.2008). It is undisputed that the Peerbooms allege they sustained a loss caused by "property damage." The issues are whether the alleged "property damage" was caused by an "occurrence" and if so, whether any exclusion applies.
Lafayette's policy defines "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." While the policy defines "occurrence" as an "accident," the policy does not define "accident." However, in a series of decisions, the Mississippi Supreme Court has provided guidance as to the meaning of the term. The court, for example, has explained that an "insured's intentional actions [do] not constitute `accidents,' and the damages resulting therefrom [do] not amount to `occurrences,'" even if the insured acts in a negligent manner. Architex Association, Inc. v. Scottsdale Insurance Co., 27 So.3d 1148, 1159 (Miss.2010). That is, "even if an insured acts in a negligent manner, that action must still be accidental and unintended to implicate policy language." Id. at 1158 (quoting United States Fidelity & Guar. Co. v. Omnibank, 812 So.2d 196, 197 (Miss.2002)). Moreover, since "[a]n accident by its very nature produces unexpected and unintended results[,] [i]t follows that bodily injury or property damage, expected or intended from the standpoint of the insured, cannot be the result of an accident." Omnibank, 812 So.2d at 200. Thus, an act is not an "accident," and thus not an "occurrence" if "(1) the act is committed consciously and deliberately, without the unexpected intervention of any third force; and (2) the likely (and actual) effect of the act was well within the actor's foresight and anticipation." Allstate Ins. Co. v. Moulton, 464 So.2d 507, 509 (Miss.1985). See also Omnibank, 812 So.2d at 201 (stating that "a claim resulting from intentional conduct which causes foreseeable harm is not covered, even where the actual injury or damages are greater than expected or intended").
Recently, in Architex Association, Inc. v. Scottsdale Insurance Co., the Mississippi Supreme Court considered the meaning of "occurrence" in the context of an insured's claim for coverage for property damage due to a construction defect. 27 So.3d 1148. In that case, Architex, the contractor on a hotel construction project, filed suit against its CGL carrier, Scottsdale Insurance Co., after Scottsdale failed to defend or indemnify Architex in the project owner's suit against Architex to recover damages based on allegations that the building was a total loss due to a subcontractor's failure to place rebar in
The court began by acknowledging "a clear jurisdictional split regarding whether defective subcontractor construction constitutes an `occurrence' under a CGL policy," with "`one line of cases [holding] that faulty or improper construction does not constitute an accident [and that] the damage is [instead] the natural and ordinary consequence of the insured's act,'" and "`[t]he other line of cases [holding] that improper or faulty construction does constitute an accident as long as the resulting damage is an event that occurs without the insured's expectation or foresight.'" Id. at 1156 (quoting Lee Builders, Inc. v. Farm Bureau Mut. Ins. Co., 281 Kan. 844, 137 P.3d 486, 491 (2006)).
The court in Architex considered 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." Id. at 1159-1161. The court stated that faulty or improper construction, or defective workmanship (or gaining knowledge of same) is not in itself an "occurrence," but rather is "typically the result of either accidental or intentional acts," id. at 1157 (emphasis added), and it noted that 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," id. at 1156 (emphasis added). The court concluded that whether a contractor's acts are intentional, or instead accidental/inadvertent, will depend on the facts of the particular case. Making this point, the court wrote:
Id. at 1161. See also Carl E. Woodward LLC v. Acceptance Indem. Co., No. 1:09cv781-LG-RHW, 2011 WL 98404, *6-7 (S.D.Miss. Jan. 12, 2011) (stating that "pursuant to the Architex decision, faulty workmanship and the hiring of a subcontractor are not as a matter of law excluded from coverage, and this Court must look to the facts and evidence presented in this case to determine whether coverage exists"); National Builders and Contractors Ins. Co. v. Slocum Const., LLC, Civ. Action No. 2:09cv217KS-MTP, 2010 WL 2545450, *8 (S.D.Miss. June 18, 2010) (recognizing that under Architex, "construction defects may, in fact, constitute an `accident' or `occurrence' under an ISO CGL policy, based upon the underlying cause of the defects").
Not only does the Peerbooms' complaint not identify what caused the house to fall, but to date, none of the parties has offered an explanation or theory, or, so far as the court is aware, even claims to have an opinion about what likely went wrong.
In determining whether coverage exists, or the potential for coverage exists so that Lafayette has a duty to defend, and perhaps to indemnify, depending on the outcome of the underlying case, it is the court's charge to evaluate whether the allegations in the underlying complaint, or the "true facts" made known to the insurer, fall within the coverage of the policy. QBE Ins. Corp., 591 F.3d at 444. Here, the Peerbooms' complaint leaves open the possibility that the "property damage" at issue was proximately caused by an accident (an inadvertent act), and that their claimed "property damage" was thus the result of an "occurrence."
"Your work" is defined, in pertinent part, as "work or operations performed by you or on your behalf."
These exclusions, usually labeled j(5) and j(6) in standard CGL policies, are "business risk" exclusions, "common features in commercial general liability insurance policies that are designed to exclude coverage for defective work performed by the insured." Mid-Continent Cas. Co. v. JHP Dev., Inc., 557 F.3d 207, 211 (5th Cir.2009). The "business risk" exclusions operate together to exclude coverage for an insured's faulty workmanship, the rationale for the exclusions being that "faulty workmanship is not an insurable `fortuitous event,' but a `business risk' to be borne by the insured and not the insurer." Acadia Ins. Co. v. Peerless Ins. Co., 679 F.Supp.2d 229, 234 (D.Mass.2010) (citing Couch on Insurance 3rd, § 129:11). Thus, "[a] policy containing this type of ["business risk"] exclusion ... treats differently the risk that an insured's substandard services or supplies will cause damage to his own work product and the risk that his slipshodness will injure someone or something else." Federated Mut. Ins. Co. v. Grapevine Excavation Inc., 197 F.3d 720, 725 n. 22 (5th Cir. 1999) (citing Hartford Casualty Co. v. Cruse, 938 F.2d 601, 603 (5th Cir.1991)); see also Wilshire Ins. Co. v. RJT Const., LLC, 581 F.3d 222, 226 (5th Cir.2009) ("[a] CGL policy generally protects the insured when his work damages someone else's property. The `your work' ("business risk") exclusion prevents a CGL policy from morphing into a performance bond covering an insured's own work.") (citing Mid-Continent Cas. Co., 557 F.3d at 212).
The subject exclusions apply only to damage caused while the work is ongoing, id. at 213, a requirement that is clearly met here, since the claimed damage occurred during the house-jacking operation. By its terms, exclusion j(5) applies only to "property damage" to "[t]hat particular part of real property on which [the insured] [is] performing operations, if the `property damage' arises out of those operations. And, the Fifth Circuit has held that "the plain meaning of exclusion j(6) is that property damage only to parts of the property that were themselves the subjects of the defective work is excluded." Id. at 214.
The court in ACUITY v. Burd & Smith Construction, Inc. addressed the nature of a CGL policy, and of business risk exclusions, stating, "[A] CGL policy is not a performance bond and is not intended to protect a contractor's business risk to replace
Id. (additional citations omitted). As one court has observed, "[a]lthough it may be possible to define the scope of the instant exclusion in the abstract .... buildings can be divided into so many parts that attempting to determine which part or parts are the subject of the insured's operations can produce several reasonable conclusions." Travelers Cas. and Surety Co. v. Dormitory Authority State of N.Y., 732 F.Supp.2d 347, 366 (S.D.N.Y.2010) (quoting Columbia Mut. Ins. Co. v. Schauf, 967 S.W.2d 74, 80 (Mo.1998)). In the case at bar, a determination of whether exclusion j(5) or j(6) applies to the Peerbooms' claimed damage depends on identifying "the particular part" of the Peerbooms' property on which Absolute was working, or "performing operations," at the time of the alleged "occurrence."
As in the case at bar, the "decisive issue" in Hartford Casualty Co. v. Cruse, relied on by defendants, was "definition of [the insured's] work product." 938 F.2d 601, 603 (5th Cir.1991). In Cruse, homeowners had sued the insured, alleging it defectively performed foundation leveling services on their home, which resulted in diminution in value of the home and damages to various other parts of the house (e.g. "doors out of plumb, surfaces such as window sills and counter tops abnormally out of level, separation of interior walls from the floor, and cracked sheetrock"). The policy at issue in Cruse excluded "property damage to work performed by... the named insured arising out of the work or any portion thereof...." Id. at 603. The court held that the exclusion "only applie[d] to the cost of repair to the foundation itself, and [did] not apply to the diminution in the value of the Cruses' home that remained after correction of J & J's faulty work, and to repair costs for other property ... to the extent that these particular items of damage require repair other than to the foundation itself." Id. at 604. The court stated:
938 F.2d at 603-04.
The facts presented in Wilshire Insurance Co. v. RJT Construction, LLC, also relied on by defendants, were similar to those in Cruse. RJT Construction, the named insured under a CGL policy, was hired to "raise[], level[], and stabiliz[e] the foundation of the residence that had been induced to move as a result of the accidental discharge of water from a plumbing system." 581 F.3d at 224. Some five years after RJT completed its work, cracks appeared in the walls and ceiling of the home, which the owner attributed to defective foundation repairs by RJT. At issue in Wilshire was the "your work" exclusion, a "business risk" exclusion of coverage for "`[p]roperty damage' to `your work' arising out of it or any part of it and included in the `products-completed operations hazard.'" The court held that "[t]he exclusion precludes coverage for the cost of repairing RJT's own work, the foundation.... The exclusion, however, only precludes coverage for liability for repairing or replacing the insured's own defective work; it does not exclude coverage for damage to other property resulting from the defective work." Id. at 226. The court observed:
The facts in the present case are materially distinguishable from those of Cruse and Wilshire, and in the court's opinion, dictate a different result. In Cruse and Wilshire, the insureds were hired to perform foundation leveling or repair services and in each case, the insured performed work on the foundation only, not the remaining parts of the house. The Cruse court noted, in fact, that this is what distinguished Cruse from other cases in which an insured's work product was the entire structure or building project, rather than simply a portion thereof. Cruse, 938 F.2d at 603-604. See Essex Ins. Co. v. Patrick, No. Civ A. SA05CA337-OG, Civ. A. SA05CA629-OG, 2006 WL 3779812 (N.D.Tex. Oct. 16, 2006) (noting distinction in Cruse, and finding exclusion applicable to all claimed damage where insureds were responsible for entire building project, since "[t]here is nothing to suggest that damages occurred to any property that was not part of the work undertaken by the insureds"). Here, Absolute was hired by the Peerbooms not to repair or level the foundation, but to raise the elevation of the entire home. Numerous cases have found the business risk exclusions applicable in analogous circumstances.
For example, and in contrast to Cruse and Wilshire, the insured in Grinnell Mutual Reinsurance Co. v. Lynne, 686 N.W.2d 118 (N.D.2004), Lynne, was hired by one Larson to construct a new foundation for a farmhouse. This required Lynne to lift the house from its existing foundation and support the house with iron timbers while constructing a new foundation under the house. While Lynne was in the process of raising the house, the iron timbers "rolled over." Id. at 121. The house fell off the support jacks and into the basement approximately three feet. Id. The insurer argued that exclusions (j)(5) and (j)(6) applied to exclude coverage under its CGL policy. The insured argued that the "particular part" of the property on which he was working was not the house, but rather the foundation of the house, and that any damage to the house should be covered. Id. at 124. The court, however, held that exclusion (j)(5) of the policy operated to preclude coverage for the insured's claim for defense and indemnity against Larson's claim for damage to his house, stating:
Id. at 125. In concluding that the business risk exclusion precluded coverage for damages to the house, the court noted that the purpose of such exclusions "is to prevent policyholders from converting liability insurance into protection from foreseeable business risks" and that "[a] commercial liability insurance policy is not meant to act as a warranty of the insured's work." Id. at 124.
As in Grinnell, the court in Barber v. Berthiaume, No. CV054009532S, 2009 WL 3740736 (Conn.Super. Oct. 19, 2009), found the business risk exclusion applicable where a house toppled and sustained damage while the insured contractor was in the process of raising the house so that he could construct new piers under the house. Citing Grinnell, the court found the damage to the house was excluded because "the house in this case was being raised as part of the contract Berthiaume was obligated to perform" and "the house would not have toppled if it was not raised by Berthiaume." Id. at *1.
Id. at *4.
In Erie Insurance Exchange v. Pugh, No. 98 CA 53, 1999 WL 812292 (Ohio App. 2 Dist. Oct. 8, 1999), the insured contractor was hired to construct an addition and basement renovation of a residence. The insured's employee was working on the basement foundation when a weakened control support gave way and the main residence collapsed into the basement. Id. at *1. The collapse of the residence was found to be the "direct result of undermining all footers on the foundation walls without proper shoring of the residence and the footers." Id. The court held the exclusion applied to the damage to the residence, since "`that particular part of real property upon which operations are being performed' involved the foundation which supported the entire residence, and since such operations set off the reaction which caused all of the subsequent damage." Id. at *2. In so holding, the court observed that "the isolation of the foundation as the only place where faulty operations were being performed when the house fell down, and the assessment of damages accordingly, could lead to completely illogical results." Id.
From the foregoing, it is manifest that the "particular part" of the property on which Absolute was hired to perform work and on which it was working was the Peerbooms' entire house. The risk that the house would fall and sustain damage in the process of Absolute's house-raising operation and sustain damage as a result was not merely a fortuitous event but a business risk which falls squarely within exclusions j(5) and j(6).
Accordingly, it is ordered that Lafayette's motion for summary judgment is granted.
A separate judgment will be entered in accordance with Rule 58 of the Federal Rules of Civil Procedure.
A. Coverage under Part A-Bodily Injury and Property Damage Liability
Absolute has not responded to Lafayette's motion as it pertains to coverage for the underlying breach of contract claim, and has expressly confessed Lafayette's arguments that the underlying action does not allege "bodily injury" or "Personal and Advertising Injury," as defined by the CGL policy, and that coverage does not lie for the Peerbooms' fraud claim. And in the court's view, the Peerbooms have implicitly confessed the motion on these issues by making no response to Lafayette's arguments on these points. The parties' dispute thus centers on whether any of the "property damage" claimed by the Peerbooms was caused by an "occurrence," and if so, whether coverage is excluded under the business risk exclusions.
Pointing to Webster's Dictionary's definition of "occupy" to mean "to take or hold possession or control of" or "to reside in as an owner or tenant," Lafayette contends for application of exclusion (j)(1), which precludes coverage for "property damage" to "[p]roperty you own, rent, or occupy," claiming that on the date in question, Absolute had control of the Peerboom home. See SnyderGeneral Corp. v. Century Indem. Co., 113 F.3d 536, 539 (5th Cir. 1997) (observing that under Texas law, the care, custody and control exclusion only precludes insurance coverage in cases in which the insured totally and physically manipulates property). Because the court concludes that exclusions j(5) and j(6) preclude the court need not determine whether exclusion j(1) is also applicable.
