K&L Homes, Inc. v. Am. Family Mut. Ins. Co., No. 20120060.

• Court: United States State Supreme Court of North Dakota
• Writing for the Court: MARING
• Citation: 829 N.W.2d 724,2013 ND 57
• Docket Number: No. 20120060.
• Decision Date: 05 April 2013
• Parties: K & L HOMES, INC., Plaintiff and Appellant v. AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Defendant and Appellee.

829 N.W.2d 724
2013 ND 57

K & L HOMES, INC., Plaintiff and Appellant
v.
AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Defendant and Appellee.

No. 20120060.

Supreme Court of North Dakota.

April 5, 2013.

[829 N.W.2d 726]

Troy A. Wolf, Moorhead, MN, for plaintiff and appellant.

Scott D. Jensen, Grand Forks, N.D., for defendant and appellee.

MARING, Justice.

[¶ 1] K & L Homes, Inc. (“K & L”) appeals the trial court's summary judgment declaring no coverage existed under K & L's commercial general liability (“CGL”) policy with American Family Mutual Insurance Company (“American Family”) for damages awarded against K & L in an underlying action. We conclude there can be an “occurrence” under the CGL policy under the facts of this case. Therefore, we reverse the summary judgment and remand for further proceedings consistent with this opinion.

I

[¶ 2] K & L commenced this action for declaratory judgment, breach of contract, and bad faith against American Family, seeking a judicial determination that coverage exists under K & L's CGL policy with American Family for the adverse judgment rendered against K & L in an underlying action. See Leno v. K & L Homes, Inc., 2011 ND 171, 803 N.W.2d 543.

[¶ 3] In the underlying action, the Lenos sought to recover damages for a newly-constructed house they purchased from K & L, the homebuilder. The Lenos had alleged that not long after purchasing the house from K & L, they noticed cracks, unevenness, and shifting. In their action against K & L, the Lenos initially claimed K & L was negligent, had breached the parties' contract, and had breached implied warranties. However, they subsequently abandoned their negligence claim against K & L and proceeded at trial only on the breach of contract and breach of implied warranties claims. The jury found K & L breached their contract or implied warranty with the Lenos and awarded the Lenos

[829 N.W.2d 727]

damages. A final judgment was entered against K & L for $254,629.25, and, on appeal, we affirmed. See Leno, 2011 ND 171, ¶¶ 1, 27, 803 N.W.2d 543.

[¶ 4] In the underlying action, the Lenos alleged the house suffered damage because of substantial shifting caused by improper footings and inadequately compacted soil under the footings and foundation. In constructing the house, K & L hired Dakota Ready Mix to perform work on the house's footings and foundation. At the relevant time, K & L was insured under the CGL policy issued by American Family. American Family provided K & L with a defense in the underlying action through trial under a reservation of rights. After the adverse judgment, American Family denied coverage under the CGL policy for the damages recovered by the Lenos. K & L commenced this action seeking a determination of the policy's coverage.

[¶ 5] K & L moved for partial summary judgment on its claims for declaratory judgment and breach of contract, and American Family filed a cross-motion for summary judgment. The trial court denied K & L's motion and granted American Family's motion, concluding the deficient work of the excavation subcontractor was not an accident and did not constitute an “occurrence” under the CGL policy. The court concluded the entire house was K & L's work product and the damage to the house caused by the excavation subcontractor's faulty workmanship was not within the initial grant of coverage under the CGL policy. K & L appeals.

II

[¶ 6] K & L contends the trial court erred in granting American Family summary judgment and concluding the CGL policy did not provide K & L coverage for the adverse judgment in the underlying action.

[¶ 7] Our standard for reviewing summary judgment is well-established:

“Summary judgment is a procedural device for the prompt resolution of a controversy on the merits without a trial if there are no genuine issues of material fact or inferences that can reasonably be drawn from undisputed facts, or if the only issues to be resolved are questions of law. A party moving for summary judgment has the burden of showing there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. In determining whether summary judgment was appropriately granted, we must view the evidence in the light most favorable to the party opposing the motion, and that party will be given the benefit of all favorable inferences which can reasonably be drawn from the record. On appeal, this Court decides whether the information available to the district court precluded the existence of a genuine issue of material fact and entitled the moving party to judgment as a matter of law. Whether the district court properly granted summary judgment is a question of law which we review de novo on the entire record.”

Tibert v. Nodak Mut. Ins., 2012 ND 81, ¶ 8, 816 N.W.2d 31 (quoting Myaer v. Nodak Mut. Ins., 2012 ND 21, ¶ 9, 812 N.W.2d 345).

[¶ 8] Interpretation of an insurance contract presents a question of law, fully reviewable on appeal. Tibert, 2012 ND 81, ¶ 9, 816 N.W.2d 31;Wisness v. Nodak Mut. Ins., 2011 ND 197, ¶ 5, 806 N.W.2d 146. This Court independently examines and construes the insurance contract to decide whether there is coverage. Grinnell Mut. Reinsurance v. Thies, 2008 ND 164, ¶ 7, 755 N.W.2d 852.

[829 N.W.2d 728]

“Our goal when interpreting insurance policies, as when construing other contracts, is to give effect to the mutual intention of the parties as it existed at the time of contracting. We look first to the language of the insurance contract, and if the policy language is clear on its face, there is no room for construction. If coverage hinges on an undefined term, we apply the plain, ordinary meaning of the term in interpreting the contract. While we regard insurance policies as adhesion contracts and resolve ambiguities in favor of the insured, we will not rewrite a contract to impose liability on an insurer if the policy unambiguously precludes coverage. We will not strain the definition of an undefined term to provide coverage for the insured. We construe insurance contracts as a whole to give meaning and effect to each clause, if possible. The whole of a contract is to be taken together to give effect to every part, and each clause is to help interpret the others.”

State v. N.D. State Univ., 2005 ND 75, ¶ 12, 694 N.W.2d 225 (emphasis added) (quoting Ziegelmann v. TMG Life Ins., 2000 ND 55, ¶ 6, 607 N.W.2d 898 (citations omitted)). “Exclusions from coverage in an insurance contract must be clear and explicit and are strictly construed against the insurer.” Tibert, at ¶ 9;see also Schleuter v. Northern Plains Ins., 2009 ND 171, ¶ 8, 772 N.W.2d 879. Although a policy's exclusionary clauses are strictly construed, this Court will not rewrite a contract to impose liability on the insurer when the policy unambiguously precludes coverage. Tibert, at ¶ 9;Schleuter, at ¶ 8.

[¶ 9] We have explained that in interpreting an insurance policy, we will first examine the coverages provided by the policy before examining a policy's exclusions. Wisness, 2011 ND 197, ¶ 16, 806 N.W.2d 146 (quoting Robert D. Goodman, John C. Dockery & Matthew S. Hackell, 1 New Appleman Law of Liability Insurance § 1.04[1] (2d ed.2011)). “If and only if a coverage provision applies to the harm at issue will the court then examine the policy's exclusions and limitations of coverage.” An exclusionary provision, or the absence of one, cannot be read to provide coverage that does not otherwise exist.” Wisness, at ¶ 16. Likewise, although an exception to an exclusion from coverage results in coverage, Fisher v. American Family Mut. Ins., 1998 ND 109, ¶ 6, 579 N.W.2d 599, an exception to an exclusion is incapable of initially providing coverage; rather, an exception may become applicable if, and only if, there is an initial grant of coverage under the policy and the relevant exclusion containing the exception operates to preclude coverage. American Family Mut. Ins. v. Am. Girl, Inc., 268 Wis.2d 16, 673 N.W.2d 65, 73 (2004) (holding “[t]he applicability of an exception will not create coverage if the insuring agreement precludes it or if a separate exclusion applies”); Sheehan Const. v. Continental Cas. Co., 935 N.E.2d 160, 162 (Ind.2010) (holding “it is the initial broad grant of coverage, not the exception to the exclusion, that ultimately creates (or does not create) the coverage sought”).

III

[¶ 10] Under the CGL policy's insuring agreement, American Family is required to “pay those sums that the insured [K & L] becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.” The policy provides that the 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.’ ” Thus, for coverage to apply under the CGL policy there

[829 N.W.2d 729]

must be “property damage” caused by an “occurrence.”

[¶ 11] Under the policy, “property damage” includes “[p]hysical injury to tangible property, including all resulting loss of use of that property” and “[l]oss of use of tangible property that is not physically injured.” The policy defines “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. We have, however, defined “accident” for purposes of a CGL policy as “happening by chance, unexpectedly taking place, not according to the usual course of things.” Wall v. Pennsylvania Life Ins., 274 N.W.2d 208, 216 (N.D.1979).

[¶ 12] The CGL policy at issue contains several exclusions to coverage, including a “your work” exclusion with a “subcontractor exception”:

This insurance does not apply to:

....

1. 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...