Bituminous Cas. Corp. v. Bartlett

• Decision Date: 23 January 1976
• Docket Number: No. 45449,45449
• Citation: 240 N.W.2d 310,307 Minn. 72
• Parties: BITUMINOUS CASUALTY CORPORATION, Appellant, v. Lance BARTLETT, Respondent.
• Court: Minnesota Supreme Court

Page 310

240 N.W.2d 310

307 Minn. 72

BITUMINOUS CASUALTY CORPORATION, Appellant, v. Lance BARTLETT, Respondent.

No. 45449.

Supreme Court of Minnesota.

Jan. 23, 1976.

Syllabus by the Court

1. While the obligation of a liability insurer to defend its insured is contractual in nature and is generally determined by the allegations of the complaint against the insured and the indemnity coverage afforded by the policy, the complaint is not controlling when actual facts clearly establish the existence or nonexistence of such an obligation.

2. If any part of a cause of action against an insured arguably falls within the scope of coverage, the insurer must defend.

3. Any ambiguity as to coverage at the pretrial stage is to be resolved in favor of the insured.

4. Under the circumstances in this case, alleged defects in the insured's masonry work were highly expectable from the standpoint of the insured and therefore did not arise from an 'occurrence' as defined in a liability insurance policy.

5. Under the circumstances of this case, the absence of an 'occurrence' clearly precludes coverage and the insurer is not obligated to defend.

Maun, Hazel, Green, Hayes, Simon & Aretz and Geoffrey P. Jarpe, St. Paul, for appellant.

Kempf, Miller & Ticen and Thomas A. Miller, Bloomington, for respondent.

Heard before PETERSON, KELLY, and MacLAUGHLIN, JJ., and considered and decided by the court en banc.

KELLY, Justice.

Plaintiff insurer appeals from a judgment of the district court declaring that it must defend its insured on a counterclaim interposed against him in his lien foreclosure action. We reverse.

The facts are not in dispute. Plaintiff, Bituminous Casualty Corporation, issued a comprehensive general liability insurance policy to defendant, Lance Bartlett, a brick and masonry construction contractor. ¹ That policy was in full force and effect at all relevant times.

Bartlett contracted to perform brick and masonry work on a new office building owned by Paul Johnson, doing business as A & C Johnson Co. After defendant had completed his work but had not been fully compensated, he filed a mechanic's lien statement and commenced an action to foreclose his lien against Johnson. Johnson interposed a counterclaim which contained the following clause:

'That the plaintiff negligently, carelessly and in an unworkman-like manner performed the masonry and cement work on the premises located at 8000 Humboldt Ave. So.; that said negligent and unworkman-like work has depreciated the building, all to this answering defendant's damage in the sum of One hundred Thousand and no/100 Dollars ($100,000.00).'

A deposition of Paul Johnson, which has been made a part of the record in this action, reveals two complaints which form the basis of the counterclaim: (1) Some of the bricks in the exterior walls of the building were chipped. Johnson testified that there were about 20 chipped bricks per square (100 square feet); that the chips were 'big'; and that he had complained about them to Bartlett during the course of construction. (2) Certain of the exterior walls of the building were not built entirely straight and perpendicular, or 'plumb,' to the ground. Johnson testified that this alleged defect was also brought to Bartlett's attention during construction. Bartlett informed Johnson then and maintains now that it was necessary to run the walls out of plumb because precast concrete columns, which were placed by another contractor and for which he was not responsible, pushed a steel beam out of place. Both the chipped bricks and the out-of-plumb walls were contrary to standards of workmanship in the contract between Bartlett and Johnson. In dismissing the insurer's declaratory judgment action, the district court declared that the insurer was obligated to defend its insured on the counterclaim.

The insurer raises two issues on appeal: (1) Whether the facts set forth above constitute an insured 'occurrence' within the scope of the liability insurance policy (2) whether those facts preclude coverage in view of several exclusions in the policy.

Defendant asserts, inter alia, that the insurer must defend its insured against any suit or claim when the allegations of such suit or claim are arguably within the policy coverage. This assertion is based on the following language in the policy involved:

'* * * and the company shall have the right and duty to defend Any suit against the insured seeking damages on account of such bodily injury or property damage, even if Any of the allegations of the suit are groundless, false or fraudulent * * *.' (Italics supplied.)

We review some basic law concerning the nature of the insurer's obligation to defend its insured. The obligation to defend is contractual in nature and is generally determined by the allegations of the complaint against the insured and the indemnity coverage afforded by the policy. Republic Vanguard Ins. Co. v. Buehl, 295 Minn. 327, 332, 204 N.W.2d 426, 429 (1973). However, the complaint is not controlling when actual facts clearly establish the existence or nonexistence of an obligation to defend. Crum v. Anchor Cas. Co., 264 Minn. 378, 119 N.W.2d 703 (1963); Bobich v. Oja, 258 Minn. 287, 104 N.W.2d 19 (1960); Weis v. State Farm Mutual Auto. Ins. Co., 242 Minn. 141, 64 N.W.2d 366 (1954). ² If any part of the cause of action against the insured arguably falls within the scope of coverage, the insurer must defend. Christian v. Royal Ins. Co., 185 Minn. 180, 240 N.W. 365 (1932). ³ Any ambiguity as to coverage at the pretrial stage is to be resolved in favor of the insured. As we said in Crum:

'Whether an insurer is under an obligation to defend is not always free from doubt until the case is actually tried. Such doubts should be resolved in favor of the insured.' 264 Minn. 390, 119 N.W.2d 711.

From the above authorities, it is apparent that an insurer seeking to avoid having to defend an insured carries the burden of demonstrating that all parts of the cause of action against the insured fall clearly outside the scope of coverage. If any part is arguably within the scope of coverage, the insurer should defend, reserving its right to contest coverage based on facts developed at trial on the merits. See, F. D. Chapman Const. Co. v. Glens Falls Ins. Co., 297 Minn. 406, 211 N.W.2d 871 (1973).

The insurer contends that there was no 'occurrence' and therefore a condition precedent to its duty to defend was unfulfilled. The insurance policy obligates the insurer to defend 'any suit against the insured seeking damages on account of such * * * property damage, even if any of the allegations of the suit are groundless, false or fraudulent.' The property damage referred to is defined as 'injury to or destruction of tangible property' which is 'caused by an occurrence.' Occurrence, in turn, is defined as--

'* * * an Accident, including injurious exposure to conditions, Which results, during the policy period, In bodily injury or property damage neither expected nor intended from the standpoint of the insured.' (Italics supplied.)

For the purposes of this case, then, an occurrence requires: (1) An accident; (2) resulting in property damage; (3) neither expected nor intended by the insured contractor.

In Minnesota, the term 'accident' as used in liability insurance has been defined in the landmark case ⁴ of Hauenstein v. St. Paul-Mercury Indemnity Co., 242 Minn. 354, 358, 65 N.W.2d 122, 126 (1954) '* * * Accident, as a source and cause of damage to property, within the terms of an accident policy, is an unexpected, unforeseen, or undesigned happening or consequence from either a known or unknown cause.' ⁵

The 1966 revision of standard policy forms produced the definition of 'occurrence' in the policy at bar. That definition refines the concept of accident by requiring that the damage resulting from accident be neither expected nor intended from the standpoint of the insured. To date, no Minnesota decision ⁶ and few foreign decisions ⁷ have considered that definition in property damage situations. Two commentators have argued that the term should be interpreted broadly and that only highly expectable damage should be excluded from coverage. Hall, Contractors' Liability Insurance for Property Damage Incidental to Normal Operations--The Standard Coverage Problem. 16 U. of Kan.L.Rev. 181, 203 (arguing that policy framers did not intend a more restrictive interpretation); Keeton, Insurance Law, § 5.4(c), p. 300 (arguing that any other interpretation would conflict with coverage in automobile negligence cases).

These arguments are consistent with the relevant principles underlying this type of insurance coverage. A construction contractor's liability policy is designed to protect him from fortuitous losses occurring in connection with his work. If property damage occurs because of mistake or carelessness on the part of the contractor or his employees, he reasonably expects that damage to be covered. On the other hand, the insurer is in the business of distributing losses due to such property damage among a large number of policyholders. It is able to properly set premiums and supply coverage only if those losses are uncertain from the standpoint of any single policyholder. ⁸ If the single insured is allowed through intentional...