D.R. Sherry Constr. v. Am. Family Mut. Ins. Co.

• Decision Date: 31 August 2010
• Docket Number: No. SC 90442.,SC 90442.
• Citation: 316 S.W.3d 899
• Parties: D.R. SHERRY CONSTRUCTION, LTD., Respondent,v.AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Appellant.
• Court: Missouri Supreme Court

316 S.W.3d 899

Supreme Court of Missouri En Banc.

D.R. SHERRY CONSTRUCTION, LTD., Respondent,v.AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Appellant.

No. SC 90442.

June 15, 2010.

Rehearing Denied Aug. 31, 2010.

COPYRIGHT MATERIAL OMITTED

Keigh A. Cary and John E. Franke of Franke, Schultz & Mullen P.C., Kansas City, for appellant.

Jonathan Sternberg of Jonathan Sternberg, Attorney, P.C., and Jason Davey of Costello Davey & Fera LLC, Kansas City, for respondent.

RICHARD B. TEITELMAN, Judge.

American Family Mutual Insurance Company appeals a judgment for D.R. Sherry Construction, LTD., on Sherry's claims for breach of contract and vexatious refusal to pay.The judgment is affirmed.

FACTS

Sherry is a general contractor engaged in the business of building homes.In March 2003, Sherry began constructing a home at 13395 Sycamore Drive in Platte County.In July 2003, Sherry finished construction of the home.On August 8, 2003, Sherry's president and sole shareholder, Darrin Sherry, completed a walk-through of the house with the future homeowners and found no evidence of any structural damage to the house.The homeowners expressed satisfaction with the house and closed on its purchase on August 15, 2003.During this time, Sherry was insured under a commercial general liability policy issued by American Family.

In April 2004, the homeowners notified Darrin Sherry that the foundation and drywall were cracking.Mr. Sherry inspected the house and confirmed existence of the cracks.In July 2004, the homeowners sent a letter notifying Sherry that there were numerous re-appearing and new cracks in the foundation of the house.The letter notified Sherry that the homeowners had hired a professional engineer to inspect the house and that he had determined that the structural problems with the house were happening because the house was out of level by as much as 8 inches.The letter led Mr. Sherry to conclude in July 2004 that there was a problem with the house.Mr. Sherry investigated the house further and determined that repeated exposure of the foundation to poor soil conditions caused structural damage to the home and resulted in the house being 8 inches out of level.The homeowners threatened to file suit and demanded that Sherry repurchase the house.In March 2005, Sherry entered into an agreement with the homeowners to repurchase the house for approximately $265,000.Sherry then made a claim on the American Family insurance policy.American Family declined coverage.

In November 2005, Sherry filed suit against American Family asserting claims of breach of contract and vexatious refusal to pay.Sherry alleged that it had been insured by American Family since 1991 but did not receive a complete copy of the policy until June 2005.Sherry alleged that it was insured under policy 24 X35041-17, which expired December 5, 2003.American Family asserted that Sherry cancelled the policy in September 2003.Although the full extent of the damage was not apparent until after the policy had expired, Sherry alleged that the house's foundational problems began during the policy period and caused progressive damage that was not apparent until after expiration of the coverage period.Consequently, Sherry maintained that there was an insurable “occurrence” during the policy period.

The trial court did not determine, as a matter of law, the scope of the coverage provided by the American Family policy.Instead, the trial court submitted the case to the jury to determine whether the American Family policy covered the damages claimed by Sherry and, if so, whether Sherry proved those damages.The trial court entered judgment on the jury's verdict in favor of Sherry.American Family raises six points on appeal.

ANALYSIS

I.Jury Instructions

American Family asserts that the jury instructions were improper because the court did not determine the scope of coverage provided by the insurance policy and, instead, submitted the issue of coverage to the jury.¹As with any other contract, the interpretation of an insurance contract is generally a question of law, particularly in reference to the question of coverage.H.K. Porter Co. v. Transit Cas. Co.,215 S.W.3d 134, 140-41(Mo.App.2006).The issue of coverage becomes a jury question only when the court determines that the contract is ambiguous and that there exists a genuine factual dispute regarding the intent of the parties.SeeGraham v. Goodman,850 S.W.2d 351, 354(Mo. banc 1993).

The trial court instructed the jury pursuant to MAI 26.06, which is the proper instruction when there is a genuine dispute as to what agreement was made and whether that agreement was breached.SeePorta-Fab Corp. v. Young Sales Corp.,943 S.W.2d 686, 689(Mo.App.1997).In pertinent part, the trial court instructed the jury as follows:

Your verdict must be for the plaintiff if you believe:

First, that there is damage to a residence located at 13395 Sycamore Dr. and the cause of the damage thereto is specifically covered in plaintiff's insurance contract with defendant, and

Second, plaintiff performed his agreement, and

Third, defendant failed to perform his agreement, and

Fourth, plaintiff was thereby damaged.

(Emphasis added.)

As American Family notes, the emphasized language requires the jury to determine whether Sherry's property damage claim falls within the scope of coverage provided by the insurance policy.Sherry does not dispute that the instructions require the jury to make a determination as to coverage and does not argue that the language of the policy is ambiguous.Instead, Sherry asserts that it never was provided a complete copy of the insurance policy and that documents sent by American Family to Sherry reflect substantial confusion as to the terms of coverage.As such, Sherry maintains that the very terms of coverage are uncertain and that this presents a factual question regarding the parties' intent that properly was resolved by the jury.

The record does not support Sherry's claim of ambiguity.In its petition, Sherry alleged that it was insured by American Family pursuant to policy 24 X35041-17.Likewise, when American Family filed its motion for summary judgment, Sherry asserted in its cross-motion for summary judgment that it was covered by policy 24 X35041-17 and attached a copy of the policy to its motion.The facts set forth in American Family's motion for summary judgment, including the factual allegation that policy 24 X35041-17 is the applicable policy, are taken as true unless contradicted by the Sherry's response to the motion.SeeITT Commercial Fin. Corp. v. Mid-Am. Marine Supply Corp.,854 S.W.2d 371, 376(Mo. banc 1993).Therefore, from the initial pleadings in the case and continuing through the summary judgment litigation, Sherry and American Family relied on the same policy, which, in pertinent part, provides the following terms of coverage:

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies....

b. This insurance applies to “bodily injury” and “property damage” only if:

(1) This “bodily injury” or' “property damage” is caused by an “occurrence” that takes place in the “coverage territory”; and

(2) The “bodily injury” or “property damage” occurs during the policy period.

The trial court did not determine, as a matter of law, whether the policy would provide coverage if Sherry proved its allegation of progressive damage.Instead, the instructions in this case required the jury to make the legal determination of whether “the cause of the damage ... is specifically covered in plaintiff's insurance contract with defendant.”The trial court commits error when the question of coverage improperly is submitted to the jury.Opies Milk Haulers v. Twin City Fire Ins.,755 S.W.2d 300, 302(Mo.App.1988);Busch & Latta Painting Corporation v. State Highway Commission of Missouri,597 S.W.2d 189, 198(Mo.App.1980).

Although the trial court erred in submitting the question of coverage to the jury, it does not necessarily follow that the error requires reversal.Reversal for instructional error is appropriate when the instruction misdirected, misled or confused the jury and resulted in prejudice.Edgerton v. Morrison,280 S.W.3d 62, 66(Mo. banc 2009).Prejudicial error is an error that materially affected the merits and outcome of the case.Hill v. Hyde,14 S.W.3d 294, 296(Mo.App.2000).As discussed below, American Family was not prejudiced because the policy covers Sherry's claim of progressive damage as a matter of law and there was substantial evidence to support Sherry's claim.

II.Progressive Damage

American Family claims that the trial court erred in overruling its motion for directed verdict at the close of all the evidence because Sherry failed to present evidence to support each element of its breach of contract claim.²To make a submissible case for its breach of contract claim, Sherry was required to present evidence from which the jury could have a reasonable basis for finding that (1) there was a contract between Sherry and American Family that included certain rights and obligations between the parties, (2) American Family breached its obligation under the contract, and (3) American Family's breach damaged Sherry.Teets v. Am. Family Mut. Ins. Co.,272 S.W.3d 455, 461(Mo.App.2008).In reviewing whether the plaintiff made a submissible case, an appellate court views the evidence in a light most favorable to the plaintiff and gives the plaintiff the benefit of all reasonable inferences while disregarding all contrary evidence and inferences.Id.Whether the plaintiff made a submissible case is a question of law subject to de novo review.Id.

Under the terms of the American Family policy, Sherry is entitled to coverage if Sherry is “legally obligated” to pay damages because of property damage caused by an “occurrence” that happened during the policy period.The central issue...