Posted on April 02, 2015
One of the first questions that always arises when the owner of a building that has been improperly constructed is faced with such a defect: Will my insurance cover this? The recent decision from Delaware Superior Court of New Castle County in Westfield Insurance Co. Inc. v. Miranda & Hardt Contracting and Building Services LLC, N14C-06-214, tells us that the answer will often be no.
In Miranda & Hardt, homeowners, the Pfautzes, purchased a home in 2006 constructed by builder Miranda & HardtContracting and Building Services LLC (“Miranda & Hardt”). Approximately six years later, the Pfautzes discovered various defects in the home’s construction, and claimed that Miranda & Hardt had deviated from the building plans, used inadequate building materials, improperly installed building materials, and violated applicable building codes. The Pfautzes sued Miranda & Hardt for negligence and fraud.
Miranda & Hardt requested defense and indemnification from their insurance carrier, Westfield Insurance Company (“Westfield”), pursuant to their policy. Westfield denied the request, and filed a complaint requesting that the Superior Court determine whether it had a duty to defend or indemnify Miranda & Hardt.
The Court’s decision in the case hinged on its interpretation of the language in Miranda & Hardt’s general liability insurance policy – specifically, the terms “property damage,” and “occurrence.” The policy stated that coverage would apply to “property damage” caused by an “occurrence.” According to the policy, “property damage” meant:
(a) [p]hysical 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) [l]oss 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.
The policy defined “occurrence” as an “accident, including continuous or repeated exposure to substantially the same general harmful conditions.”
Applying these terms, the Court ultimately concluded that Westfield had properly denied coverage to Miranda & Hardt, opining, “An allegation of defective workmanship does not constitute an ‘occurrence’ for which the policy grants coverage or triggers plaintiff’s duty to defend or indemnify defendant in the underlying lawsuit.” The Court further clarified that “an occurrence requires an accidental or unexpected event,” and poor construction did not qualify as such an event.
The legal analysis and decision in Miranda & Hardt, is similar to another favorable decision for Westfield reached by Ohio’s Ninth District Court of Appeals in Westfield Ins. Co. v. Coastal Group, Inc. (9th Dist. 2006), 2006-Ohio-153. In Coastal Group, Stella Moga contracted with Coastal Group, Inc. (“Coastal”) to perform construction work on certain buildings owned by Moga. At some point, a dispute arose between Moga and Coastal as to certain defects and delays in Coastal’s work, the exact nature of which is not discussed by the opinion. Moga filed a claim against Coastal based on Coastal’s defective workmanship and subsequent delay in rectifying the deficiencies, which Coastal submitted to its insurer, Westfield.
Westfield filed a complaint requesting a declaratory judgment and the trial court found that Moga’s claims did not constitute an occurrence as defined in the Westfield policy. On appeal, the Ninth District stated it had to determine whether the claims made by Moga constituted “property damages” arising from an “occurrence” as defined by the policy issued by Westfield. The policy defined “property damage” and “occurrence” almost exactly the same as the policy in Miranda & Hardt.
Just as in Miranda & Hardt, the Ninth District held that the claims made by Moga did not constitute an “occurrence.” The Court concluded that Moga’s claim was for the economic losses sustained due to Coastal’s delay in remedying deficiencies in its work, but that delay is a risk inherent in construction contracts, not an “accident” and therefore, not an “occurrence.”
Citing the First District Court of Appeals’ rationale in Heile v. Herrmann (1999), 136 Ohio App.3d 351, 736 N.E.2d 566, the Court opined that insurance coverage does apply to claims for the occurrence of mere “business risks,” which are a normal consequence of doing business that can and should be controlled by business management. The Heile Court pointed out, “policies such as the one here are not intended to insure***risks that are the normal, frequent, or predictable consequence of doing business[.]”
The provisions and language of insurance policies, especially in the context of construction claims, can be incredibly complicated and difficult to follow. Insurance companies often use such confusion to deny coverage to those who might be entitled to it. In such situations, dealing with insurance companies is something that can and should, be handled by experienced legal counsel. For questions regarding insurance coverage in the construction context of construction claims, or any other aspect of Ohio construction law, please contact Todd Harpst or Nick Horrigan, at Harpst Ross, Ltd. – Business Lawyers for the Construction Industry®, at (330) 983-9971 or email@example.com or firstname.lastname@example.org.
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