Architex Ass'n, Inc. v. Scottsdale Ins. Co.

Decision Date11 February 2010
Docket NumberNo. 2008-CA-01353-SCT.,2008-CA-01353-SCT.
Citation27 So.3d 1148
CourtMississippi Supreme Court
PartiesARCHITEX ASSOCIATION, INC. ("Architex") v. SCOTTSDALE INSURANCE COMPANY ("Scottsdale").

Dorsey R. Carson, Jr., Cheri Turnage Gatlin, John Martin Lassiter, Bradley Barron Vance, Eric Foster Hatten, Jackson, attorneys for appellant.

James W. Shelson, James W. Craig, Justin L. Matheny, Jackson, attorneys for appellee.

Before WALLER, C.J., RANDOLPH and CHANDLER, JJ.

RANDOLPH, Justice, for the Court.

¶ 1. The parties and amici1 assert the matter before this Court is a case of first impression. This Court is called upon to determine whether Architex Association, Inc.'s ("Architex") intentional hiring or utilization of subcontractors to perform work on one of its projects negates coverage included in the Commercial General Liability ("CGL") coverage part of three separate "Commercial Lines" policies issued by Scottsdale Insurance Company ("Scottsdale") to Architex. Scottsdale prevailed on its "Motion for Summary Judgment" after the Circuit Court of Rankin County, Mississippi, held that no coverage exists. Architex, a general contractor, appeals that ruling.

FACTS

¶ 2. On April 14, 2000, Architex entered into a contract with Vikram Parshotam and CIS Pearl, Inc. ("CIS") to construct a Country Inn and Suites hotel ("Inn"). On July 25, 2000, a performance bond with The Hanover Insurance Company ("Hanover"), as surety, and Architex, as principal, was issued for $1.89 million pertaining to work to be performed on the Inn. Architex used multiple subcontractors to build the Inn.

¶ 3. On June 21, 2002, a "Statutory Notice of Construction Lien" was filed by Architex "for construction balance due on Country Inn & Suites ... of $256,075." Architex had yet to file suit. On July 31, 2002, CIS filed suit against Architex and Hanover. The suit alleged that Architex had breached its contract; "was negligent in the construction of the [Inn] and such negligence is the sole proximate cause or a proximate contributing cause of injuries to [CIS]"; and that the construction lien claimed by Architex constituted slander of title. Regarding breach of contract, CIS's complaint provided that Architex:

abandon[ed] the [Inn], refus[ed] to complete the work, perform[ed] work which was contrary to the contract plans and specifications and contrary to applicable codes and building standards, and ... fail[ed] to correct or remedy defective work. Architex has also failed to reimburse [CIS] for monies expended for the [Inn] which were to be paid by Architex.

As to Hanover, CIS asserted a "performance bond claim," stating that Hanover "has not corrected Architex's non-conforming, incomplete and defective work on the [Inn]." Architex considered the suit as a mere fee dispute, and did not notify Scottsdale of the suit or otherwise file a claim.

¶ 4. It was not until September 2004 that counsel for CIS communicated to Architex an allegation that testing had revealed serious rebar deficiencies in the foundation of the Inn, inter alia. On October 5, 2004, Architex first notified Scottsdale of that claim. The notice of claim alleged that the "date of occurrence" was September 30, 2004, and described the purported "occurrence," as follows:

[CIS] filed accusations of faulty work against [Architex] claiming that no rebar was placed in foundation and building is total loss. [Architex] denies this allegation and building is sound.... This accusation was just made by [CIS]. [Architex] has been involved in legal action against [CIS] for failure to pay monies owed on this building.... Please contact [Architex's] attorney to coordinate defense. [Inn] was built during policy term.

Victor Hamby, the chief financial officer of Architex, testified that notice of the rebar claim "trigger[ed] an [`]occurrence['] under the policy."

¶ 5. On October 8, 2004, Scottsdale sent a letter to Hamby confirming receipt of the notice of claim. The letter added that Scottsdale had yet to receive a copy of CIS's complaint, noted policy exclusions and definitions, and concluded that Scottsdale "is reserving the right to assert all defenses to coverage under the policy.... [Scottsdale] is not waiving any rights nor admitting any obligation under the policy." On April 21, 2005, at the latest, Scottsdale received a copy of the CIS complaint, which had been filed on July 31, 2002.

¶ 6. On June 29, 2006, Architex filed a "Third Party Complaint" against Scottsdale for failure "to provide Architex with defense and indemnity."2 On July 25, 2006, Scottdale filed its answer and defenses seeking dismissal of Architex's "Third Party Complaint" with prejudice.3 On September 6, 2006, Scottsdale formally denied Architex's demand for defense and indemnity, stating, inter alia, that "there has not been any `occurrence' which would trigger" coverage.

¶ 7. Before the controversy erupted between CIS and Architex, Scottsdale had issued three consecutive one-year "Commercial Lines" policies to Architex. Each policy included a CGL part. The policies contained substantially similar language and collectively covered the period from June 29, 1999, to June 29, 2002. An "Extension of Supplemental Declarations" of the CGL part reveals that in exchange for CGL coverage, Architex paid premiums of $6,330 in 1999 and 2000, and $7,250 in 2001.4 Of these premiums, $3,705 in 1999 and 2000, and $4,233 in 2001, were for "Class Description: Contractors-Subcont Work-In Conn W/ Constr-Bldgs."5 The policies, as amended, provided, in pertinent part, that:

SECTION I—COVERAGES

COVERAGE A[-] BODILY INJURY AND PROPERTY DAMAGE LIABILITY
1. INSURING AGREEMENT

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. We will have the right and duty to defend the insured against any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply. We may, at our discretion, investigate any "occurrence" and settle any claim or "suit" that may result. But:

(1) The amount we will pay for damages is limited as described in Section III—Limits Of Insurance....

...

b. This insurance applies to "bodily injury" and "property damage"[6] only if:

(1) The "bodily injury" or "property damage" is caused by an "occurrence"7 that takes place in the "coverage territory"; and

(2) The "bodily injury" or "property damage" occurs during the policy period....

...

2. EXCLUSIONS

This insurance does not apply to[:]

a. Expected or Intended Injury "Bodily injury" or "property damage" expected or intended from the standpoint of the insured.

...

j. Damage to Property

"Property damage" to:

...

(5) That particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are 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"[8] was incorrectly performed on it.

...

Paragraph (6) of this exclusion does not apply to "property damage" included in the "products-completed operations hazard."[9]

...

l. 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 out of which the damage arises was performed on your behalf by a subcontractor.

m. Damage to Impaired Property Or Property Not Physically Injured

"Property damage" to "impaired property" or property that has not been physically injured, arising out of:

(1) A defect, deficiency, inadequacy or dangerous condition in "your product" or "your work"; or

(2) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms.

This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to "your product" or "your work" after it has been put to its intended use.

n. Recall Of Products, Work Or Impaired Property

Damages claimed for any loss, cost or expense incurred by you or others for the loss of use, withdrawal, recall, inspection, repair, replacement, adjustment, removal or disposal of:

(1) "Your product";

(2) "Your work"; or

(3) "Impaired property";

if such product, work, or property is withdrawn or recalled from the market or from use by any person or organization because of a known or suspected defect, deficiency, inadequacy or dangerous condition in it.

(Emphasis added.)

¶ 8. On March 28, 2008, Architex filed a "Motion for Summary Judgment," asserting that:

[CIS] claims property damage resulting from acts which were not intended by the insured, Architex. Therefore, there is an occurrence and Scottsdale's policy is triggered. At a minimum, some or all of [CIS's] allegations are arguably covered by the policy. Scottsdale therefore owes Architex a duty to defend as a matter of law.

Scottsdale responded with its own "Motion for Summary Judgment." Regarding non-bad-faith claims, Scottsdale maintained that it "does not have a duty to defend because ... [t]he allegations contained in [CIS's] complaint, as well as those which have claimed to have been asserted outside of the complaint, do not constitute an `occurrence' under the policy or are otherwise excluded from coverage." (Emphasis added.)

¶ 9. Following a hearing, the circuit court10 issued a "Bench Opinion Regarding Cross Motions for Summary Judgment." The circuit court held that "the type of damage, coverage for that damage, whether it was caused by a subcontractor, and all similar issues are moot on account of the meaning of other language in the policy." Specifically:

this [c]ourt is convinced that this particular case is quite simple and that the controlling law on this...

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