Acuity v. Burd & Smith Const., Inc., 20060001.

Citation2006 ND 187,721 N.W.2d 33
Decision Date24 August 2006
Docket NumberNo. 20060001.,20060001.
PartiesACUITY, a Mutual Insurance Company, Plaintiff and Appellant v. BURD & SMITH CONSTRUCTION, INC., Defendant and Midwest Family Mutual Insurance Company, Chad and Rebecca Caillier, Intervenors and Appellees and Peter L. Johnson and Suzanne M. Larkin, Intervenors.
CourtUnited States State Supreme Court of North Dakota
721 N.W.2d 33
2006 ND 187
ACUITY, a Mutual Insurance Company, Plaintiff and Appellant
v.
BURD & SMITH CONSTRUCTION, INC., Defendant and
Midwest Family Mutual Insurance Company, Chad and Rebecca Caillier, Intervenors and Appellees and
Peter L. Johnson and Suzanne M. Larkin, Intervenors.
No. 20060001.
Supreme Court of North Dakota.
August 24, 2006.

Page 34

Troy A. Wolf, Oppegard, Wolf & Quinton, Moorhead, MN, for plaintiff and appellant.

Daniel J. Frisk (appeared), Bredahl, Fisher, Frisk & Grande, Fargo, ND, and Sean J. Mickelson (argued), Terhaar, Archibald

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Pfefferle Griebel, LLP, Minneapolis, MN, for intervenors and appellees.

CROTHERS, Justice.


[¶ 1] ACUITY appeals from a summary judgment declaring it was obligated under a commercial general liability insurance ("CGL") policy to indemnify its insured, Burd & Smith Construction, Inc., for Burd & Smith's responsibility for damages to an apartment building owned by Chad and Rebecca Caillier. We conclude the CGL policy does not provide coverage to repair or replace a defective roof on the apartment building, but does provide coverage for other property damage to the apartment building. We modify the judgment accordingly, and as modified, we affirm.

I

[¶ 2] The Cailliers sued Burd & Smith and Mark Ehley, alleging the Cailliers contracted with Burd & Smith as a general contractor and Ehley as a subcontractor or employee of Burd & Smith to replace a roof on an apartment building owned by the Cailliers. The City of Fargo issued a building permit to Burd & Smith, as the contractor, to "[r]eplace the roof of the existing apartment complex." The permit said the "contractor [would] be replacing tar and gravel with [a] new rubber roof." The Cailliers alleged Burd & Smith and Ehley failed to exercise reasonable care in replacing the roof, including failing to secure the premises against foreseeable water damage, and breached their contract for replacement of the roof. The Cailliers essentially claimed that while replacing the roof, Ehley failed to protect the apartment building from rainstorms, which caused extensive water damage to the interior of the building. Additionally, two building tenants claimed they sustained property loss as a result of water damage and also sued Burd & Smith and Ehley.

[¶ 3] Burd & Smith was insured under a CGL policy issued by ACUITY during the time covered by allegations in the Cailliers' complaint. ACUITY provided Burd & Smith with a defense in the Cailliers' action under a reservation of rights and answered the Cailliers' complaint, denying that Burd & Smith had contracted with the Cailliers and that Burd & Smith had any involvement with Ehley's work on the apartment building. Ehley did not answer or appear in the Cailliers' action. The two tenants' claims were settled before trial. The district court entered a directed verdict finding Ehley had breached his contract with the Cailliers, and the Cailliers' negligence claim was not submitted to a jury. A jury found Ehley was not acting as Burd & Smith's employee or agent when he entered into the contract with the Cailliers; however, the jury found Burd & Smith had ratified Ehley's contract with the Cailliers and awarded them $370,000 in damages. The district court thereafter concluded the jury's finding that Burd & Smith had ratified Ehley's contract with the Cailliers was manifestly contrary to the greater weight of the evidence and granted Burd & Smith's motion for a new trial.

[¶ 4] ACUITY then commenced this action against Burd & Smith seeking a declaration that the CGL policy did not provide coverage for the Cailliers' damages in the underlying action. Burd & Smith did not answer or appear in ACUITY's declaratory judgment action; however, the Cailliers and their insurer, Midwest Family Mutual Insurance Company, intervened. ACUITY moved for summary judgment. While ACUITY's motion for summary judgment was pending, the Cailliers and Burd & Smith entered into an agreement under Miller v. Shugart, 316

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N.W.2d 729 (Minn.1982), in which Burd & Smith consented to a judgment of $412,788.45 against it on the condition any recovery would be collected only from the proceeds of the CGL policy. See also Sellie v. North Dakota Ins. Guar. Ass'n, 494 N.W.2d 151 (N.D.1992). The agreement said that as a result of water intrusion into the apartment building, the Cailliers sustained $412,788.45 in "property damage, lost rental income and additional expenses related to providing alternate living arrangements for several tenants in the [b]uilding."

[¶ 5] The district court denied ACUITY's motion for summary judgment and granted the Cailliers summary judgment, concluding ACUITY was obligated to indemnify Burd & Smith for Burd & Smith's responsibility for damages to the apartment building. The court ruled there was coverage under the insuring provisions of the CGL policy because the Cailliers' claim against Burd & Smith in the underlying action constituted an "occurrence." The court decided that the "contractual liability" exclusion did not exclude coverage because Burd & Smith's liability was not an assumed contract under the language of that exclusion. The court also decided two "damage to property" exclusions were ambiguous and construed them against ACUITY and in favor of Burd & Smith to not exclude coverage for Burd & Smith's responsibility for damages to the apartment building.

II

[¶ 6] We review this appeal in the posture of summary judgment, which is a procedural device for promptly resolving a controversy on the merits without a trial if either party is entitled to judgment as a matter of law, and if no dispute exists as to either the material facts or the inferences to be drawn from undisputed facts, or if resolving disputed facts would not alter the result. Grinnell Mut. Reinsurance Co. v. Lynne, 2004 ND 166, ¶ 9, 686 N.W.2d 118. Whether a district court properly granted summary judgment is a question of law that we review de novo on the record. Ernst v. Acuity, 2005 ND 179, ¶ 7, 704 N.W.2d 869.

[¶ 7] The issues raised in this appeal involve the interpretation of ACUITY's CGL policy with Burd & Smith, which is a question of law fully reviewable on appeal. See Fisher v. American Family Mut. Ins. Co., 1998 ND 109, ¶ 5, 579 N.W.2d 599. We independently examine and construe an insurance contract to determine whether there is coverage. Id. In State v. North Dakota State Univ., 2005 ND 75, ¶ 12, 694 N.W.2d 225 (quoting Ziegelmann v. TMG Life Ins. Co., 2000 ND 55, ¶ 6, 607 N.W.2d 898), we summarized our standards for construing an insurance contract:

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

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effect to every part, and each clause is to help interpret the others.

III

[¶ 8] The CGL policy requires ACUITY to pay "those sums that [Burd & Smith] 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 "[t]o bodily injury or property damage only if: (a) The bodily injury or property damage is caused by an occurrence that takes place in the coverage territory." The policy defines "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."

[¶ 9] The coverage provided by ACUITY's CGL policy is subject to several exclusions which, as relevant to the issues raised in this appeal, provide:

This Insurance does not apply to:

. . . .

b. Contractual Liability

Bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement. This exclusion does not apply to liability for damages:

(1) That the insured would have in the absence of the contract or agreement; or

(2) Assumed in a contract or agreement that is an insured contract, provided the bodily injury or property damage occurs subsequent to the execution of the contract or agreement.

. . . .

k. Damage to Property

Property damage to:

. . . .

(5) That particular part of real property on which you or any contractor or subcontractor working directly or indirectly on your behalf is performing operations, if the property damage arises out of those operations; or

(6) That particular part of any property that must be restored, repaired or replaced because your work was incorrectly performed on it.

A

[¶ 10] Relying on Grinnell, 2004 ND 166, ¶¶ 16-18, 686 N.W.2d 118, ACUITY argues the Cailliers' claims against Burd & Smith are grounded in breach of contract and are not within the scope of coverage provided under the CGL policy. ACUITY argues the Cailliers' claims for damages are based on allegations of defective workmanship, which does not constitute an accidental "occurrence" under the coverage provisions of the CGL policy.

[¶ 11] ACUITY's reliance on Grinnell is misplaced because there we were interpreting exclusions from liability and not the scope of coverage of a CGL policy. Nevertheless, in both Grinnell, 2004 ND 166, ¶ 18, 686 N.W.2d 118, and Ernst, 2005 ND 179, ¶ 14, 704 N.W.2d 869, we...

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