306 S.W.3d 69 (Ky. 2010), 2008-SC-000293-DG, Cincinnati Ins. Co. v. Motorists Mut. Ins. Co.

Docket Nº2008-SC-000293-DG.
Citation306 S.W.3d 69
Opinion JudgeMINTON, Chief Justice.
Party NameCINCINNATI INSURANCE COMPANY, Appellant, v. MOTORISTS MUTUAL INSURANCE COMPANY, Appellee.
AttorneyBrandon Wade Smith, Michael D. Risley, Stites & Harbison, PLLC, Louisville, KY, Counsel for Appellant. David Sean Ragland, Paul Joseph Bishop, William P. Swain, Phillips, Parker, Oberson & Arnett, PLC, Louisville, KY, Counsel for Appellee.
Judge PanelAll sitting. All concur.
Case DateMarch 18, 2010
CourtUnited States State Supreme Court (Kentucky)

Page 69

306 S.W.3d 69 (Ky. 2010)

CINCINNATI INSURANCE COMPANY, Appellant,

v.

MOTORISTS MUTUAL INSURANCE COMPANY, Appellee.

No. 2008-SC-000293-DG.

Supreme Court of Kentucky.

March 18, 2010

Page 70

[Copyrighted Material Omitted]

Page 71

Brandon Wade Smith, Michael D. Risley, Stites & Harbison, PLLC, Louisville, KY, Counsel for Appellant.

David Sean Ragland, Paul Joseph Bishop, William P. Swain, Phillips, Parker, Oberson & Arnett, PLC, Louisville, KY, Counsel for Appellee.

OPINION

MINTON, Chief Justice.

I. INTRODUCTION.

This case requires us to decide whether a claim of defective construction against a homebuilder is, standing alone, a claim for property damage caused by an " occurrence" under a commercial general liability (CGL) insurance policy. Like the majority of courts that have considered the question, we hold that the answer is no.

II. FACTUAL AND PROCEDURAL HISTORY.

Lawrence and Jennifer Mintman contracted with Elite Homes, Inc., for the construction of a residence. Elite substantially completed construction of the Mintmans' home, and the Mintmans moved into it and paid Elite in full.

About five years later, the Mintmans sued Elite; Joseph Pusateri, Elite's President; and Motorists Mutual Insurance Company, which insured Elite under a CGL policy during the period the home was under construction. The thrust of the Mintmans' complaint was that their home was so poorly built that it was beyond repair and needed to be razed and that Motorists had not properly handled the matter once it had been notified of Elite's faulty construction.

Motorists provided a defense for Elite and settled the Mintmans' claims against itself, Elite, and Pusateri. Under the terms of that settlement, the Mintmans and Elite assigned to Motorists all rights and claims they may have had against Cincinnati Insurance Company, which was a successor to Motorists, as Elite's CGL insurer. So Motorists then filed a third-party complaint against Cincinnati.1 The

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gist of that third-party complaint was Motorists' contention that Cincinnati had wrongfully breached its duty to defend and indemnify Elite from the Mintmans' claims.

Eventually, Motorists and Cincinnati filed cross-motions for summary judgment with respect to whether Elite's CGL policy with Cincinnati provided coverage for the Mintmans' claims. The trial court granted summary judgment to Cincinnati, holding that " the Mintmans' claims of intangible economic loss are not such as to be an event that qualifies as an ‘ occurrence’ causing ‘ property damage’ under the clear and unambiguous language of [Cincinnati's] CGL policy."

Although it conceded that " Cincinnati's argument is compelling," the Court of Appeals vacated the trial court's grant of summary judgment. Purportedly guided by our recent opinion in Bituminous Casualty Corporation v. Kenway Contracting, Inc., 2 the Court of Appeals concluded that " since [CGL] policies are designed to cover broad risks, Motorists has the better argument. The damage to the Mintmans' house was clearly property damage and was caused by an ‘ occurrence’ since the damage was undoubtedly accidental in the sense that it was not intentional."

We granted Cincinnati's motion for discretionary review in order to consider, apparently as a matter of first impression in Kentucky, whether faulty construction-related workmanship, standing alone, qualifies as an " occurrence" under a CGL policy. After carefully reviewing the record and applicable law, we conclude that the trial court's conclusion that these claims are not an " occurrence" is correct. For that reason, we reverse the Court of Appeals.

III. ANALYSIS.

A. The Policy Terms.

The overarching question raised on appeal is whether the Mintmans' claims for faulty construction, which are now being advanced by Motorists, fall within the terms of the policy issued by Cincinnati to Elite. In order to answer that broad question, we must closely examine the relevant policy terms.

Section I(A)1 of the policy provides, in relevant part, as follows: 3

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.

....

b. This insurance applies to " bodily injury" and " property damage" only if:

(1) The " bodily injury" or " property damage" is caused by an " occurrence" ....

Section V of the policy defines an occurrence as " an accident, including continuous or repeated exposure to substantially the same general harmful conditions." The term accident is not defined in the policy. After carefully construing the policy and Page 73

the relevant law, however, we conclude that this claim of faulty workmanship is not an " occurrence." 4 B. The Standard of Review.

It is well settled that the proper interpretation of insurance contracts generally is a matter of law to be decided by a court; and, thus, an appellate court uses a de novo, not a deferential, standard of review. 5 Similarly, when we review a trial court's decision to grant summary judgment, as in this case, we must determine whether the trial court correctly found that there were no genuine issues of material fact; as findings of fact are not at issue, the trial court's decision is entitled to no deference. 6 Since there do not appear to be any genuine issues of material fact in this case, summary judgment was appropriate.

C. The Doctrine of Fortuity.

Although this precise issue of whether faulty construction workmanship may be an " occurrence" under a CGL policy appears to be a matter of first impression in Kentucky, many other courts have already addressed it; and they have come to differing conclusions.7 After careful analysis, we agree with the Supreme Court of Nebraska's characterization of this as a " difficult question...." 8 The majority viewpoint, however, appears to be that claims of faulty workmanship, standing alone, are not " occurrences" under CGL policies.9 Because we believe the majority viewpoint is correct, we adopt it.

Since the term accident is not defined in the policy, we must afford it its ordinary meaning, if that meaning is not ambiguous. 10 We do not find the terms " accident" or " occurrence" to be ambiguous,

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11 at least under these facts.12 Thus, since the term " accident" has also not acquired a technical meaning in the realm of insurance law, we must accord the term " accident" its plain meaning.13

Inherent in the plain meaning of " accident" is the doctrine of fortuity. Indeed, " [t]he fortuity principle is central to the notion of what constitutes insurance...." 14 Although we have used the term " fortuity" in the past, we have not fully explored its breadth and scope. In short, fortuity consists of two central aspects: intent, which we have discussed in earlier opinions, and control, which we have not previously discussed.

We recently recognized that the concept of fortuity is " inherent in all liability policies[,]" and explained that a loss was fortuitous if it was " not intended...." 15 And we were correct in so doing because the issue of intent is one important aspect of the fortuity doctrine. As a leading insurance treatise notes, " [t]ortuity primarily concerns intent." 16 So " a loss or harm is not fortuitous if the loss or harm is caused intentionally by [the insured]." 17

As Motorists asserts, it is highly unlikely that Elite subjectively intended to build a substandard house for the Mintmans. After all, as the Supreme Court of Pennsylvania observed, " the situation is rare indeed in which a contractor intends that the work product suffer injury." 18 So

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adoption of Motorists' viewpoint would mean that insurance policies would become performance bonds or guarantees because any claim of poor workmanship would fall within the policy's definition of an accidental occurrence so long as there was not proof that the policyholder intentionally engaged in faulty workmanship. This is a point made by other courts.19 Instead, we agree with the Supreme Court of South Carolina that refusing to find that faulty workmanship, standing alone, constitutes an " occurrence" under a CGL policy " ensures that ultimate liability falls to the one who performed the negligent work ... instead of the insurance carrier. It will also encourage contractors to choose their subcontractors more carefully instead of having to seek indemnification from the subcontractors after their work fails to meet the requirements of the contract." 20

Motorists' viewpoint reflects the minority viewpoint of other courts who have considered this issue.21 And we agree with

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the Supreme Court of Pennsylvania that Motorists' position " is an overly broad interpretation of accident" that fails to take into account the full nature of the concept of fortuity.22 In other words, although we may have done so in factually distinguishable cases in the past, we rightly should not end our analysis in this case by merely concluding that coverage exists simply because it is virtually certain that Elite would not have intentionally built a shoddy home for the Mintmans.

For an event to be truly fortuitous, it must, of course, be accidental because the policy only covers occurrences that are accidents. Of course, one cannot intend to commit an accident because an accident is " an event that takes place without one's foresight or expectation...." 23 Or, as our late colleague William E. McAnulty, Jr., wrote as a judge of the Kentucky Court of Appeals, an accident in the insurance law context is " something that does not result from a plan, design, or ... intent on the part of the insured." 24 So focusing solely upon whether Motorists intended to build a faulty house is insufficient. Rather, a court must also focus upon whether the building of the Mintmans' house was a " ‘ chance event’ beyond the control of the insured [Elite]." 25 Or, in other words, a court...

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9 practice notes
  • Raising the roof: what's hot in construction defect litigation.
    • United States
    • Defense Counsel Journal Vol. 79 Nbr. 4, October - October 2012
    • October 1, 2012
    ...defective construction was an "occurrence" and therefore covered. Kentucky: Cincinnati Ins. Co. v. Motorists Mutual Ins. Co., 306 S.W.3d 69 (Ky. 2010). Occurrence? No. Although an insured would almost never have intended to perform substandard work, the concept of fortuity has a s......
  • Williams Mullen Construction Industry Newsletter - Spring/Summer 2014
    • United States
    • JD Supra United States
    • June 18, 2014
    ...Colo. Rev. Stat. § 13-20-808(3) (2010); S.C. Code Ann. § 38-61-70(B)(2) (2011)). (10) (Cincinnati Ins. Co. v. Motorists Mut. Ins. Co., 306 S.W.3d 69 (Ky. 2010)) (11) (Nabholz Construction Corp. v. St. Paul Fire & Marine Ins. Co., 354 F. Supp. 2d 917, 922 (E.D. Ark. 2005); see also Kvaer......
  • 'The Evolving Definition Of Occurrence'
    • United States
    • Mondaq United States
    • August 29, 2014
    ...Westfield Insurance v. Custom Agri Systems, 979 N.E.2d 269, 273-74 (Ohio 2012); Cincinnati Insurance v. Motorists Mutual Insurance, 306 S.W.3d 69, 73-74 (Ky. 2010); Essex Insurance v. Holder, 372 Ark. 535, 539-40 (2008); L-J v. Bituminous Fire & Marine Insurance, 621 S.E.2d 33, 35-37 (S......
  • Ohio High Court Enters Debate on Faulty Work Insurance
    • United States
    • JD Supra United States
    • December 5, 2018
    ...639, 643 (Ky. 2018)(affirming that the court’s test for what constituted an “accident” in Cincinnati Ins. Co. v. Motorists Mut. Ins. Co., 306 S.W.3d 69 (Ky. 2010) was the proper test to apply and not the test previously set forth in Bituminous Cas. Corp. v. Kenway Contracting Inc., 240 S.W.......
  • Request a trial to view additional results
8 firm's commentaries
  • Williams Mullen Construction Industry Newsletter - Spring/Summer 2014
    • United States
    • JD Supra United States
    • June 18, 2014
    ...Colo. Rev. Stat. § 13-20-808(3) (2010); S.C. Code Ann. § 38-61-70(B)(2) (2011)). (10) (Cincinnati Ins. Co. v. Motorists Mut. Ins. Co., 306 S.W.3d 69 (Ky. 2010)) (11) (Nabholz Construction Corp. v. St. Paul Fire & Marine Ins. Co., 354 F. Supp. 2d 917, 922 (E.D. Ark. 2005); see also Kvaer......
  • 'The Evolving Definition Of Occurrence'
    • United States
    • Mondaq United States
    • August 29, 2014
    ...Westfield Insurance v. Custom Agri Systems, 979 N.E.2d 269, 273-74 (Ohio 2012); Cincinnati Insurance v. Motorists Mutual Insurance, 306 S.W.3d 69, 73-74 (Ky. 2010); Essex Insurance v. Holder, 372 Ark. 535, 539-40 (2008); L-J v. Bituminous Fire & Marine Insurance, 621 S.E.2d 33, 35-37 (S......
  • Ohio High Court Enters Debate on Faulty Work Insurance
    • United States
    • JD Supra United States
    • December 5, 2018
    ...639, 643 (Ky. 2018)(affirming that the court’s test for what constituted an “accident” in Cincinnati Ins. Co. v. Motorists Mut. Ins. Co., 306 S.W.3d 69 (Ky. 2010) was the proper test to apply and not the test previously set forth in Bituminous Cas. Corp. v. Kenway Contracting Inc., 240 S.W.......
  • Hawaii District Court Finds Faulty Workmanship Not An Occurrence Under CGL Policy In Construction Defect Case
    • United States
    • Mondaq United States
    • July 23, 2013
    ...("[W]e ... conclude that faulty workmanship itself is not an occurrence[.]"); Cincinnati Ins. Co. v. Motorists Mut. Ins. Co., 306 S.W.3d 69, 76 (Ky. 2010) ("Simply put, faulty workmanship is not an accident [.]" (internal quotations and footnote omitted)); Concord Gen. M......
  • Request a trial to view additional results
1 books & journal articles
  • Raising the roof: what's hot in construction defect litigation.
    • United States
    • Defense Counsel Journal Vol. 79 Nbr. 4, October - October 2012
    • October 1, 2012
    ...defective construction was an "occurrence" and therefore covered. Kentucky: Cincinnati Ins. Co. v. Motorists Mutual Ins. Co., 306 S.W.3d 69 (Ky. 2010). Occurrence? No. Although an insured would almost never have intended to perform substandard work, the concept of fortuity has a s......

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