Blaylock and Brown Const., Inc. v. AIU Ins. Co.

• Decision Date: 11 May 1990
• Docket Number: No. 11,11
• Parties: BLAYLOCK AND BROWN CONSTRUCTION, INC. and Norman Brown, III, Plaintiffs-Appellants, v. AIU INSURANCE COMPANY, Defendant-Appellee. 796 S.W.2d 146
• Court: Tennessee Court of Appeals

Page 146

796 S.W.2d 146

BLAYLOCK AND BROWN CONSTRUCTION, INC. and Norman Brown, III Plaintiffs-Appellants, v. AIU INSURANCE COMPANY, Defendant-Appellee.

No. 11.

796 S.W.2d 146

Court of Appeals of Tennessee Western Section, at Jackson.

May 11, 1990.

Application for Permission to Appeal

Denied by Supreme Court

July 23, 1990.

Henry H. Hancock, Rebecca P. Tuttle, Memphis, for plaintiffs-appellants.

Gary K. Smith, Roane Waring, III, Memphis, for defendant-appellee.

CRAWFORD, Judge.

This case involves coverage under a comprehensive general liability insurance policy. Plaintiff Blaylock and Brown Construction, Inc., is a general contractor engaged primarily in construction of custom homes in the Memphis area, and plaintiff, Norman Brown, III, is its president. Defendant AIU Insurance Company is the insurer under the comprehensive general liability policy.

In March of 1982, Blaylock and Brown entered into a contract with Jack G. Leach for the construction of a home on Lot 2, Eastwood Hills Subdivision, also known as 6425 Cottingham, Memphis, Tennessee. The home of approximately 4,500 square feet was to be constructed pursuant to plans and specifications described in the construction contract and Blaylock and Brown warranted "that all work will be of good quality, free from fault and defects and shall be performed in accordance with usual and acceptable building and construction practices prevailing in Memphis, Shelby County, Tennessee, for the construction of custom-built homes of the type and quality of the residence being constructed under this agreement." Construction was completed in approximately eight months and Leach occupied the home in the latter part of December, 1982. Shortly after Leach moved into the residence it was discovered that there was a structural defect in the construction of the house which resulted in substantial damage to the building. Primarily, the structural defect was related to inadequate support of the concrete floor slab resulting in subsidence or settlement, which in turn caused considerable damage to the main part of the home.

At all times pertinent to this case, Blaylock and Brown and Norman Brown, III, were insured by a comprehensive general liability policy (hereinafter CGL policy) issued by AIU Insurance Company. The policy, as relevant to the controversy before us, provides as follows:

COMPREHENSIVE GENERAL LIABILITY

1. COVERAGE A--BODILY INJURY LIABILITY COVERAGE B--PROPERTY DAMAGE LIABILITY

The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of

A. bodily injury or

B. property damage

to which this insurance applies, caused by an occurrence, 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, and may make such investigation and settlement of any claim or suit as it deems expedient,....

* * * * * *

Exclusions

This insurance does not apply:

* * * * * *

(o) to property damage to work performed by or on behalf of the named insured arising out of the work or any portion thereof, or out of materials, parts or equipment furnished in connection therewith; ....

The policy also contained a broad form comprehensive liability endorsement which, as stated on the endorsement, "modifies such insurance as is afforded by the provisions of the policy relating to the ... COMPREHENSIVE GENERAL LIABILITY INSURANCE." Exclusion (o) of the Comprehensive General Liability policy is supplanted by the following language in the endorsement:

(c) with respect to the completed operations hazard and with respect to any classification stated in the policy or in the company's manual as "including completed operations", to property damage to work performed by the named insured arising out of such work or any portion thereof, or out of such materials, parts or equipment furnished in connection therewith.

* * * * * *

Pertinent definitions as set out in the policy are as follows:

"completed operations hazard" includes bodily injury and property damage arising out of operations or reliance upon a representation or warranty made at any time with respect thereto, but only if the bodily injury or property damage occurs after such operations have been completed or abandoned and occurs away from premises owned by or rented to the named insured. "Operations" include materials, parts or equipment furnished in connection therewith. Operations shall be deemed completed at the earliest of the following times:

(1) when all operations to be performed by or on behalf of the named insured under the contract have been completed.

(2) when all operations to be performed by or on behalf of named insured at the site of the operations have been completed, or

(3) when the portion of the work out of which the injury or damage arises has been put to its intended use by any person or organization other than another contractor or subcontractor engaged in performing operations for a principal as a part of the same project.

Operations which may require further service or maintenance work, or correction, repair or replacement because of any defect or deficiency, but which are otherwise complete, shall be deemed completed.

* * * * * *

"occurrence" means an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured:

* * * * * *

"property damage" means (1) physical injury to or destruction of tangible property which occurs during the policy period, including the loss of the use thereof at any time resulting therefrom, or (2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period.

* * * * * *

Leach filed suit against the plaintiffs herein seeking damages resulting from the defects in his home and AIU initially provided a defense to the lawsuit under a reservation of rights. On October 21, 1985, AIU advised plaintiffs that there was no coverage under the policy for the Leach claim and that the defense would be discontinued. Subsequently, settlement of the Leach suit was effected by plaintiff Norman Brown purchasing the house for $450,000 in order to ascertain the cause of the problem, to correct it, and then resell the home. It was determined that the cause of the problem was a fracture in a drain pipe caused by incorrect posthole placement for floor supports, which was part of the work performed by Mr. Willie Jones, who Brown contends is a concrete subcontractor and who AIU contends is an employee of Blaylock and Brown Construction, Inc.

After AIU discontinued the defense of the Leach lawsuit, plaintiffs Blaylock and Brown Construction, Inc., and Norman Brown, III, filed this declaratory judgment suit against defendant AIU Insurance Company, seeking a declaration that AIU's policy provided coverage for the defense of the Leach lawsuit and for the damages sought thereby.

AIU's answer joins issue on the material allegations of the complaint, and generally denies that plaintiffs have coverage for the Leach claim under the terms and provisions of the AIU insurance policy.

After the Leach lawsuit was settled, plaintiffs were allowed by order of court to file an amended complaint which generally restates the allegations of the original complaint and further alleges that the Leach lawsuit was settled and that plaintiffs have incurred losses, attorney fees, and other expenses. The complaint seeks damages in the amount of $250,000 in addition to penalties for bad faith pursuant to T.C.A. Sec. 56-7-105. Defendant's answer to the amended complaint denies the material allegations therein and joins issue thereon and again denies that AIU's policy provides coverage for plaintiffs as alleged.

At the conclusion of the non-jury trial, the court took the matter under advisement and subsequently entered an order of judgment which provides as follows:

This cause came on to be heard on the 31st day of October, 1988, before the Honorable Charles O. McPherson, Judge of Division 2 of the Circuit Court of Tennessee, for the Thirtieth Judicial District at Memphis, upon the Complaint of the Plaintiffs, Answer of the Defendant, witnesses for the respective parties and the entire record in the cause from all of which it appears to the Court that the Defendant did not owe the Plaintiffs either a defense to the original action filed against them or any coverage for the claimed damage under the policy and that, therefore, the Plaintiffs' Complaint should be dismissed with prejudice upon the merits and judgment entered accordingly in favor of the Defendant, and,

IT IS THEREFORE ORDERED, ADJUDGED AND DECREED:

1. That the Plaintiffs' Complaint should be and hereby is dismissed with prejudice upon the merits and judgment entered in favor of the Defendant.

2. That the costs of the cause are assessed against the Plaintiffs.

Plaintiffs have appealed and the dispositive issue on appeal is whether the trial court erred in holding that the AIU policy did not provide plaintiffs coverage for defense and indemnity in connection with the Leach claims.

Insurance contracts like other contracts should be construed so as to give effect to the intention and express language of the parties. Interstate Life & Acc. Ins. Co. v. Gammons, 56 Tenn.App. 441, 408 S.W.2d 397 (1966). In construing and applying insurance policies, the apparent object and intent of the parties must be kept in mind. Dempster Bros., Inc. v. U.S. Fidelity & Guaranty Co., 54 Tenn.App. 65, 388 S.W.2d 153 (1964). Language in a contract which happens to be technical or complex to the layman, does not render it ambiguous, Bartlett v. Philip-Carey Manufacturing Co., 216 Tenn. 323, 330, 392 S.W.2d 325, 328 (1965), and...