Columbia Mut. Ins. Co. v. Schauf

• Decision Date: 30 April 1998
• Docket Number: No. 80376,80376
• Citation: 967 S.W.2d 74
• Parties: COLUMBIA MUTUAL INSURANCE COMPANY, Respondent, v. Cliff F. SCHAUF, d/b/a Cliff's Home Repair, et al., Appellants, Leonard and Elizabeth Sodaro, Defendants.
• Court: Missouri Supreme Court

Page 74

967 S.W.2d 74

COLUMBIA MUTUAL INSURANCE COMPANY, Respondent, v. Cliff F. SCHAUF, d/b/a Cliff's Home Repair, et al., Appellants Leonard and Elizabeth Sodaro, Defendants.

No. 80376.

Supreme Court of Missouri En Banc.

April 30, 1998.

Jerry W. Brumfield, Michael A. Childs, Russell Tluscik, Kansas City, for Appellants.

William M. Modrcin, Peggy A. Waddell, Kansas City, for Respondent.

COVINGTON, Judge.

Columbia Mutual Insurance Company (Columbia Mutual) brought a declaratory judgment action against Cliff F. Schauf, d/b/a Cliff's Home Repair, (Schauf) seeking a declaration of the coverage provided by an insurance policy that Columbia Mutual issued to Schauf. The trial court held that the policy provides no coverage for damage Schauf caused to a house he was painting because the policy contains an exclusion for property damage to "[t]hat particular part of real property on which you or any contractor or subcontractor working directly or indirectly on your behalf is performing operations, if the 'property damage' arises out of those operations." After opinion by the Missouri Court of Appeals, Western District, this Court granted transfer to consider the scope of the exclusion in Columbia Mutual's policy. The judgment is reversed, and the cause is remanded.

In May of 1994, Leonard and Elizabeth Sodaro (the Sodaros) entered into a contract with Frank Amberson (Amberson) in which Amberson agreed to build a house for the Sodaros. Amberson then entered into a subcontract with Schauf in which Schauf agreed to paint, stain, or lacquer all interior and exterior surfaces of the Sodaros' house. On October 26, 1994, Schauf was spraying lacquer onto kitchen cabinets while his employees were spraying doors in a bedroom. After Schauf completed applying the lacquer to the kitchen cabinets, he began cleaning his spray equipment inside the house before he was to go home for the day. As Schauf started his pump generator to pump lacquer thinner through the lines of his sprayer, the pump generator started a fire, which caused extensive damage throughout the house and required the replacement of sheetrock, insulation, subflooring, molding, windows, a sliding door, and textured ceilings. Amberson and his insurer spent approximately $35,000 repairing the Sodaros' house. Amberson sought recovery of these expenses from Schauf.

At the time of the fire, Schauf was insured under a business owner's liability insurance policy issued by Columbia Mutual. On August 3, 1995, Columbia Mutual filed a declaratory judgment action against Schauf, Amberson, and the Sodaros seeking a determination of whether Schauf's insurance policy covers the damage Schauf caused to the Sodaros' house. The parties filed cross motions for summary judgment. Amberson and Schauf argued that the policy covers all the damage caused by the fire. Columbia Mutual asserted that the insurance policy provides no coverage for the damage because the policy contains an exclusion for property damage to "[t]hat particular part of real property on which you or any contractor or subcontractor working directly or indirectly on your behalf is performing operations, if the 'property damage' arises out of those operations." The trial court granted Columbia Mutual's motion for summary judgment and denied summary judgment for Schauf and Amberson. This appeal followed.

Summary judgment is proper when the moving party has demonstrated "that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Rule 74.04(c)(3). The sole issue in this case is one of law: whether the damage at the Sodaros' house is excluded from coverage by an exclusion in Columbia Mutual's policy, which provides in pertinent part:

B. Exclusions

1. Applicable to Business Liability Coverage-

This insurance does not apply to:

* * * *

k. "Property damage" to:

* * * *

(5) That particular part of real property on which you or any contractor or subcontractor working directly or indirectly on your behalf is performing operations if the "property damage" arises out of those operations;

The rules regarding the interpretation of insurance policies are well settled. The provisions of an insurance policy are read in the context of the policy as a whole. Shaffner v. Farmers Mut. Fire Ins. Co., 859 S.W.2d 902, 906 (Mo.App.1993). The language in a policy is given its ordinary meaning unless another meaning is plainly intended. See Farmland Indus., Inc. v. Republic Ins. Co., 941 S.W.2d 505, 508 (Mo. banc 1997).

The issue presented here is one of first impression in Missouri. To address the issue, it is necessary to understand the purpose of Columbia Mutual's policy in general and the instant exclusion in particular. The Columbia Mutual policy insures, among other things, certain property damage caused by accident to the property of others. The intent of policies such as the instant one is to protect against the unpredictable, potentially unlimited liability that can be caused by accidentally causing injury to other persons or their property. Weedo v. Stone-E-Brick, Inc., 81 N.J. 233, 405 A.2d 788, 791-92 (1979).

A commercial general liability policy such as Columbia Mutual's is not intended to protect business owners against every risk of operating a business. James T. Hendrick & James P. Wiezel, The New Commercial General Liability Forms--An Introduction and Critique, FICC Quarterly 319, 322 (Summer 1986). Some risks, termed "business risks," are considered the responsibility of the business owner, rather than the insurer; consequently, they are excluded from coverage. Id. Business risks are those risks that are the "normal, frequent, or predictable consequences of doing business, and which business management can and should control and manage." Id. Excluding such risks from coverage lowers insurance rates and provides an incentive for business owners to manage their businesses more effectively. Stewart Macaulay, Justice Traynor and the Law of Contracts, 13 Stan. L.Rev. 812, 825-26 (1961). "The [b]usiness [r]isk [e]xclusions are based on the apparently simple premise that general liability coverage is not intended as a guarantee of the quality of an insured's product or work." Reference Handbook on the Comprehensive General Liability Policy: Coverage Provisions, Exclusions, and Other Litigation Issues 79 (Peter J. Neesen ed., 1995). In an attempt to give effect to the intent underlying both the coverage and exclusion provisions of commercial liability policies, courts have interpreted such policies as insuring the risk of the insured causing damage to other persons and their property, but not insuring the risk of the insured causing damage to the insured's own work. Weedo, 405 A.2d at 791-92.

The exclusion at issue in this case, an exclusion for property damage to "[t]hat particular part of real property on which [the insured] ¹ is performing operations, if the 'property damage' arises out of those operations," is a business risk exclusion. Glens Falls Ins. v. Donmac Golf Shaping, 203 Ga.App. 508, 417 S.E.2d 197, 200 (1992). The instant exclusion denies coverage for more than just damage to the insured's work, however, by excluding from coverage damage to the particular part of property on which the insured is performing operations. See Vinsant Elec. Contractors v. Aetna Casualty & Surety Co., 530 S.W.2d 76, 77 (Tenn. 1975) (holding that predecessor "particular part" exclusion barred coverage for damage to a switchboard upon which insured was adding circuit breakers). An explanation of why this damage to the property of others is considered to be a business risk of the insured requires an examination of the exclusion's history.

The instant exclusion is derived from an older exclusion for property in the "care, custody or control" of the insured. See id. As applied to real property on which the insured is performing operations, the "care, custody or control" exclusion was intended to exclude from coverage the business risk of faulty workmanship. Royal Indem. Co. v. Smith, 121 Ga.App. 272, 173 S.E.2d 738, 740 (1970); Elcar Mobile Homes, Inc. v. D.K Baxter, Inc., 66 N.J.Super. 478, 169 A.2d 509, 512 (App.Div.1961). The possibility of damaging the property on which one is working is the type of routine, controllable, and limited risk that constitutes a business risk. See James T. Hendrick & James P. Wiezel, The New Commercial General Liability Forms--An Introduction and Critique, FICC Quarterly 319, 322 (Summer 1986)(defining business risks). To effectuate the exclusion's purpose, courts held that it applied to the exact property that was the subject of the insured's work when damaged, but not to property that was "incidental" to that work or to property that was the subject of the insured's work before the damage or that would be afterwards. See Kirchner v. Hartford Accident & Indem. Co., 440 S.W.2d 751, 755-58 (Mo.App.1969)("care, custody or control" exclusion did not apply to building damaged over weekend even though insured worked on building on Friday and would again on Monday); Royal, 173 S.E.2d at 740-41 (exclusion would apply to walls of tank being painted, but not to other property in the tank); Connie's Constr. Co. v. Fireman's Fund Ins. Co., 227 N.W.2d 207, 211-12 (Iowa 1975)(exclusion did not apply to completed work when steel being hoisted fell on it).

When a standard endorsement to the standard policy containing the "care, custody or control" exclusion was drafted, the "care, custody or control" exclusion was replaced by exclusions designed to be more narrow, thus allowing more coverage. Vinsant, 530 S.W.2d at 77-78. One of those provisions, the predecessor of the instant "particular part" exclusion, excluded from coverage property damage to "that particular part of any property ... [u]pon which operations are being performed by or on behalf of the insured at the time of the property damage arising out of such operations." Id. at 77....