Columbia Ins. Grp., Inc. v. Cenark Project Mgmt. Servs., Inc.

• Citation: 491 S.W.3d 135,2016 Ark. 185
• Decision Date: 28 April 2016
• Docket Number: No. CV–15–804,CV–15–804
• Parties: Columbia Insurance Group, Inc., and Columbia Mutual Insurance Co., Inc., Petitioners v. Cenark Project Management Services, Inc. ; Arkansas Infrastructure, Inc., David Barron; Michael Collings; Janice Collings, Kim Collings; Debra Collings; Kenneth Winberg; Marianne Winberg; Guy Collings; Catherine Collings; William Miles; Kay Miles; and K. George Collings, Respondents
• Court: Arkansas Supreme Court

2016 Ark. 185

491 S.W.3d 135

Columbia Insurance Group, Inc., and Columbia Mutual Insurance Co., Inc., Petitioners

v.Cenark Project Management Services, Inc. ; Arkansas Infrastructure, Inc., David Barron; Michael Collings; Janice Collings, Kim Collings; Debra Collings; Kenneth Winberg; Marianne Winberg; Guy Collings; Catherine Collings; William Miles; Kay Miles; and K. George Collings, Respondents

No. CV–15–804

Supreme Court of Arkansas.

Opinion Delivered: April 28, 2016

Waddell, Cole & Jones, PLLC, Jonesboro, by: Paul Waddell and Nathan A. Read, for petitioners.

Morgan Law Firm, P.A., Clinton, by: M. Edward Morgan, for respondents Arkansas Infrastructure, Inc., and David Barron.

Richard Mays Law Firm, PLLC, Heber Springs, by: Richard H. Mays, for Collings respondents.

The Overton Firm, LLC, Little Rock, by: J. Don Overton, Counsel for Amicus Curiae Home Builders Association of Greater Little Rock, Arkansas Home Builders Association, and National Association of Homer Builders.

COURTNEY HUDSON GOODSON

, Associate Justice

The present case involves two questions of law certified to us by the United States District Court for the Eastern District of Arkansas, Western Division, in accordance with Arkansas Supreme Court Rule 6–8

. The certified questions arise from a complaint for declaratory judgment filed in the federal court by petitioners Columbia Insurance Group, Inc., and Columbia Mutual Insurance Co. (Columbia) to determine its obligations under the Commercial General Liability Insurance Policy (CGL policy) issued to its insureds, respondents Arkansas Infrastructure, Inc. and David Barron (AII).¹ Specifically, Columbia sought a determination that it had no duty to defend or to indemnify AII with respect to claims brought against AII in state court by respondents Michael Collings, Janice Collings, Kim Collings, Debra Collings, Kenneth Winberg, Marianne Winberg, Guy Collings, Catherine Collings, William Miles, Kay Miles, and K. George Collings (Home Owners). On October 29, 2015, we accepted certification of the following questions of law:

(1) Whether faulty workmanship resulting in property damage to the work or work product of a third party (as opposed to the work or work product of the insured) constitutes an “occurrence?”

(2) If such faulty workmanship constitutes an “occurrence,” and an action is brought in contract for property damage to the work or work product of a third person, does any exclusion in the policy bar coverage for this property damage?

Columbia Ins. Grp., Inc. v. C enark Project Mgmt. Servs., Inc. , 2015 Ark. 396, 2015 WL 6560626

.

We reaffirm this court's previous position that a CGL policy does not extend basic coverage for a claim of breach of contract. Because there is no coverage, we consider the certified questions to be moot.²

The Home Owners in this case are related to one another by either blood or marriage. In contemplation of retirement, they acquired seven lots on which to construct six homes in the Platinum Peaks Estates Subdivision on Greers Ferry Lake in Van Buren County, Arkansas. The Home Owners retained CENARK Project Management Services, Inc. (CENARK), an engineering firm, to design the building pads for each of the residences that were to be built on the lots. The Home Owners subsequently entered into a contract with AII in 2005 to construct the pads. According to the contract, the project entailed “earthwork to produce home building sites, road access, rock buttress slope stabilizations, site drainage, site utilities, subsurface drains and storm drainage, gabion retaining walls, base, paving, [and] curbing.” The contract contained a provision stating that AII agreed to perform the work in accordance with the plans, specifications, and drawings developed by CENARK. By separate agreement with the Home Owners, CENARK agreed to oversee the work of AII in constructing the building pads.

In June 2012, the Home Owners filed a complaint against AII in the Circuit Court of Van Buren County for breach of contract,³ asserting that AII had failed to construct the pads in accordance with the engineering plans and specifications designed by CENARK.⁴ The Home Owners' complaint contained the following allegations:

Commencing on or about April, 2011, plaintiffs began to discover cracks and/or separation in the foundations, patios, and other structures in their homes that were constructed by them upon their respective lots. As the cracks and separation continued and worsened, plaintiffs conducted an investigation and excavation of areas around and under their foundations, and discovered in March 2012, that:

(i) the fill material under the foundations was not of the quality and quantity specified in the engineer's plans and specifications;

(ii) that certain critical drains had not been installed in the foundation pads by AII during construction as required by the engineer's plans and specifications;

(iii) that gabion walls and buttress walls were not constructed in accordance with the engineer's plans and specifications; and

(iv) that other aspects of the engineer's plans and specifications were not followed by AII during development and construction of the foundation pads.

The Home Owners also alleged that Barron had admitted that AII had failed to follow the plans, specifications, and drawings developed by CENARK during the performance of the contract. Further, they asserted that “[i]n the failure to follow the engineer's plans, specifications, and drawings in the construction of the foundation pad, drainage systems, buttresses and gabion walls, knowing that such components would be covered by foundation, fill dirt and soils, AII actively attempted to conceal its failure to follow such plans and specifications, and committed fraud upon the plaintiffs.” The Home Owners sought “damages in the loss of the contract price paid to AII and CENARK, plus additional damages for the cost of work required in the past and that will be required in the future to repair, replace or remediate the faulty work done by AII.”

It is undisputed that, at all relevant times, AII was insured by a CGL policy issued by Columbia. Columbia provided a defense to AII during discovery, but it subsequently filed the declaratory-judgment action in the federal court for a determination that it did not have liability under the policy. Columbia filed a motion for summary judgment asserting that the policy did not provide coverage for the Home Owners' claims. AII filed a motion for summary judgment on its counterclaim that Columbia had breached its duty to defend it in the underlying lawsuit.⁵ The Home Owners also filed a motion for summary judgment, contending that coverage existed under the “Products–Completed Operations Hazard” provision of the policy. The parties briefed the issues, and the federal court held a hearing on the various motions. On September 23, 2015, the federal court ruled that Columbia had an obligation to defend AII in the underlying lawsuit. Columbia Ins. Grp., Inc. v. C enark Project Mgmt. Servs., Inc., 135 F.Supp.3d 891 (E.D. Ark. Sept. 23, 2015)

. The court denied Columbia's and the Home Owners' motions for summary judgment and subsequently certified the aforementioned issues to this court.

At issue in this case is a CGL policy. These policies have been in existence in various forms since 1940. See Travelers Indemnity Co. of Am. v. Moore & Assocs., Inc., 216 S.W.3d 302 (Tenn.2007)

; Am. Family Mut. Ins. Co. v. Am. Girl, Inc., 268 Wis.2d 16, 673 N.W.2d 65 (2004). The most recent revision came in to use in 1986. Am. Family, supra. Most CGL policies are written on standardized forms developed by an association of domestic property and casualty insurers known as the “Insurance Services Office.” Travelers Indemnity, supra (citing Hartford Fire Ins. Co. v. California, 509 U.S. 764, 113 S.Ct. 2891, 125 L.Ed.2d 612 (1993) ).

The CGL policy in the instant case, like most CGL policies, contains several basic parts relating to insurance coverage. Lee Builders, Inc. v. Farm Bureau Mut. Ins. Co., 281 Kan. 844, 137 P.3d 486 (2006)

(citing Am. Family, supra ). The first basic component concerns the initial grant of general coverage. Id. The second part sets out various “exclusions” from the initial grant of coverage. Id. Finally, the third basic part involves “exceptions” to the exclusions, which reinstate coverage that was previously excluded from the general grant. Id.

CGL policies can contain exclusions for intended or expected losses, and for so-called “business risks,” that are also known as “your work,” “your work product,” and “your property” exclusions. Id.

A potential exception to a business-risk exclusion might be found in a provision regarding “products-completed operations hazard,” depending on the terms of the policy. See Am. Family, supra.

The Wisconsin Supreme Court in American Family

enunciated a three-step analysis for evaluating coverage in CGL policies. The court explained,

First, we examine the facts of the insured's claim to determine whether the policy's insuring agreement makes an initial grant of coverage. If it is clear that the policy was not intended to cover the claim asserted, the analysis ends there. If the claim triggers the initial grant of coverage in the insuring agreement, we next examine the various exclusions to see whether any of them preclude coverage of the present claim.... Exclusions sometimes have exceptions; if a particular exclusion applies, we then look to see whether any exception to that exclusion reinstates coverage.

Am. Family, 268 Wis.2d at 32–33, 673 N.W.2d 65

.

Under the initial grant of coverage in the CGL policy in question, Columbia is required to “pay those sums that the insured becomes legally obligated to pay as damages because of ... ‘property damage’ to which this insurance applies.” In relevant part, the policy provides that the insurance applies to “property damage” only if the “property damage” is caused by an “occurrence.” Thus, coverage is provided for “property damage”...