Century I Joint Venture v. U.S. Fidelity & Guar. Co.

• Decision Date: 01 September 1984
• Docket Number: No. 1367,1367
• Citation: 63 Md.App. 545,493 A.2d 370
• Parties: CENTURY I JOINT VENTURE, et al. v. UNITED STATES FIDELITY & GUARANTY COMPANY, et al. ,
• Court: Court of Special Appeals of Maryland

Page 545

63 Md.App. 545

493 A.2d 370

CENTURY I JOINT VENTURE, et al. v. UNITED STATES FIDELITY & GUARANTY COMPANY, et al.

No. 1367, Sept. Term, 1984.

Court of Special Appeals of Maryland.

June 7, 1985.

Victor H. Laws, III, Salisbury (Jean S. Laws and Laws & Laws, P.A., Salisbury, on brief), for appellants.

E. Dale Adkins, III, Baltimore (John R. Sutherland, E. Philip Franke, III, and Anderson, Coe & King, Baltimore, on brief), for appellee Avery W. Hall Ins. Agency, Inc.

Alan Hilliard Legum, Annapolis, for appellee, U.S. Fidelity & Guar. Co.

Argued before BISHOP, ALPERT and BLOOM, JJ.

BLOOM, Judge.

The developers of a condominium project sought a declaratory judgment that their insurer was obligated to defend and indemnify them in an action for faulty design and construction that was brought by the purchasers of the individual condominium units. Alternately, the developers sought a declaratory judgment that their insurance broker was negligent or breached its contract with them by failing to procure proper and adequate insurance. The Circuit Court for Worcester County first sustained the broker's demurrer to appellants' petition, without leave to amend, then granted a motion for summary judgment on behalf of the insurance company, whereupon the developers filed a timely appeal to this court.

Background

Appellant Century I Joint Venture (Joint Venture) is a development company that was formed in 1972 for the purpose of constructing a twenty-seven story high-rise condominium in Ocean City, Maryland. While Joint Venture handled the financing and marketing aspects of the project, it employed a general contractor to erect the building and two architectural firms to design the structure and oversee the actual construction. Shortly before the completion of the project in July of 1974, Joint Venture created appellant Century I Leasehold Corporation (Leasehold Corporation) as a marketing device through which it could transfer leasehold interests to the purchasers of the individual condominium units.

In October of 1980 the owners of the condominium units, acting through the Century I Condominium Corporation, an incorporated condominium association, brought suit against Joint Venture, Leasehold Corporation, the general contractor, the two architectural firms, and a mechanical engineer, asserting various claims relating to "faulty design and improper construction." The declaration included counts for negligence and breach of implied warranties under Md.Real Prop.Code Ann. § 10-203 against all the named defendants; it also asserted fraudulent misrepresentation and breach of fiduciary duty on the part of the appellants. ¹

Joint Venture and Leasehold Corporation notified their insurance broker, appellee Avery W. Hall Insurance Agency, Inc., of the impending lawsuit and stated that they expected their insurer, appellee United States Fidelity & Guaranty Company (USF & G), to provide them with a defense to the suit. The broker had previously procured two policies of liability insurance from USF & G for the appellants. The first policy was a comprehensive general liability (CGL) policy that provided coverage in the amount of $100,000 for 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 [insurer] 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....

(Emphasis in original). The second policy, entitled "Comprehensive Excess Indemnity Policy," provided liability coverage of up to $1,000,000 per occurrence,

for all sums which the Insured shall become obligated to pay as damages and expenses, (all as defined herein as included within the term "ultimate net loss ") by reason of liability imposed upon the Insured by law, or by contractual liability, because of

(1) personal injury or property damage caused by, or

(2) advertising liability arising out of an occurrence which takes place anywhere.

(Emphasis in original). In limiting the insured's coverage under this policy to the "ultimate net loss," the excess policy encompassed those damages and expenses that would not be covered by any underlying liability insurance.

By letter dated December 16, 1980, USF & G informed counsel for appellants that it disclaimed any obligation under either policy to indemnify appellants or to provide them with a defense.

Appellants thereupon brought this action against USF & G and Avery W. Hall Insurance Agency, Inc., requesting a declaration that USF & G was obligated to indemnify and defend them in the condominium association's suit or, alternatively, that the broker was negligent and had breached its contract with and had violated its fiduciary duty to the appellants by failing to procure appropriate and adequate liability insurance coverage for the Century I condominium project. Appellants also sought an award of damages for the expenses they had incurred thus far in defending themselves in the prior lawsuit.

The broker's demurrer to the petition was sustained without leave to amend, the court merely stating that "the action should be brought as a negligence case, American Home Assurance v. Osbourn [47 Md.App. 73, 422 A.2d 8 (1980) ] was a negligence case."

USF & G filed a motion for summary judgment, relying solely upon exclusions contained in both policies, which they appended to the motion. These exclusions provided: ²

This insurance does not apply:

* * *

* * *

(n) to property damage to the Named Insured's products arising out of such products or any part of such products;

* * *

* * *

(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.

(Emphasis in original).

Both policies defined "Named Insured's products" as

goods or products manufactured, sold, handled or distributed by the Named Insured or by others trading under his name, including any container thereof (other than a vehicle), but "Named Insured's products" shall not include a vending machine or any property other than such container, rented to or located for use of others but not sold.

(Emphasis in original).

After hearing testimony regarding the motion, the trial judge concluded:

I don't think the intention of the policy, such as this, or that the language of it, when you consider the exclusions was intended to allow a developer to defray the damages created from its own inferior product off on an insurance company. I believe in this particular case that the named insured was the developer, and the work product and work performed was the building of this building. To me the language is crystal clear.

Appellants contend on appeal that

1. Summary judgment for the insurer was erroneous because the policy exclusions relied on are inapplicable, ambiguous, or required a factual predicate which was lacking or disputed.

2. The circuit court erred in sustaining Hall's demurrer without leave to amend.

The court properly granted summary judgment on behalf of the insurance carrier, but it erred in sustaining the broker's demurrer without leave to amend. We will, therefore, affirm the judgment in favor of USF & G but reverse the judgment in favor of Avery W. Hall Insurance Agency, Inc.

I. Summary Judgment as to USF & G

Summary judgment is appropriate only when "there is no genuine dispute as to any material fact" and the moving party "is entitled to judgment as a matter of law." Md.Rule 2-501. The summary judgment procedure is not a substitute for a trial, but rather is a hearing to determine whether a trial is necessary. Wolfe v. Lamar & Wallace, Inc., 261 Md. 174, 274 A.2d 121 (1971); Hill v. Lewis, 21 Md.App. 121, 318 A.2d 850 (1974). All inferences which may be drawn from the pleadings, affidavits or from admissions must be resolved against the moving party. Merchants Mortgage Co. v. Lubow, 275 Md. 208, 339 A.2d 664 (1975). Thus, if an affidavit or other evidence reveals a genuine conflict, the motion should be denied. Wolfe v. Lamar & Wallace, Inc., supra.

In contesting the propriety of the circuit court's grant of summary judgment for the insured, appellants assert that exclusions (n) and (o ) are inapplicable because the Century I condominium building is neither their "work product" nor "work performed" by them.

These types of exclusions, commonly referred to as "business risks exclusions," are frequently used to limit an insurance company's liability policies. Courts have uniformly held that the purpose of exclusions such as these, for damages to the insured's work product or work project out of which an accident arises, is to remove any obligation of the insured to pay for the repair or replacement of the policyholder's own defective work or defective product. See, e.g., Volf v. Ocean Accident and Guarantee Corp., 50 Cal.2d 373, 325 P.2d 987 (1958) (en banc); Kendall Plumbing, Inc. v. St. Paul Mercury Insurance Co., 189 Kan. 528, 370 P.2d 396 (1962); Minnicks, Inc. v. Reliance Insurance Co., 47 Md.App. 329, 422 A.2d 1028 (1980); see also 12 G. Couch, Couch on Insurance p 44:464 (2d ed. 1964); 7A J. Appleman, Insurance Law and Practice § 4508 (rev. ed. 1972). Conversely, it is equally well established that such business risk exclusions permit coverage for damages to other property or for other accidental loss caused by the defective product or defective work. Vobill Homes, Inc. v. Hartford Accident and Indemnity Co., 179 So.2d 496 (La.App.1966); see Bundy Tubing Co. v. Royal Indemnity Co., 298 F.2d 151 (6th Cir.1962).

As one commentator explained:

The risk intended to be insured is the possibility that the goods, products or work of the insured, once relinquished or completed, will cause bodily injury...