Deseret Federal Sav. & Loan Ass'n v. U.S. Fidelity & Guar. Co.

• Citation: 714 P.2d 1143
• Decision Date: 21 February 1986
• Docket Number: No. 19311,19311
• Parties: DESERET FEDERAL SAVINGS AND LOAN ASSOCIATION, Plaintiff and Appellant, v. UNITED STATES FIDELITY & GUARANTY COMPANY and United Pacific Insurance Company, Defendants and Respondents.
• Court: Supreme Court of Utah

Page 1143

714 P.2d 1143

DESERET FEDERAL SAVINGS AND LOAN ASSOCIATION, Plaintiff and Appellant, v. UNITED STATES FIDELITY & GUARANTY COMPANY and United Pacific Insurance Company, Defendants and Respondents.

No. 19311.

Supreme Court of Utah.

Feb. 21, 1986.

Edward M. Garrett, Michael A. Katz, Salt Lake City, for plaintiff and appellant.

Ford G. Scalley, Raymond M. Berry, Joy L. Sanders, Salt Lake City, for defendants and respondents.

HOWE, Justice:

The district court granted defendants' motions for summary judgment. Plaintiff appeals.

Plaintiff Deseret Federal Savings and Loan Association acquired real property in Salt Lake City for the construction of a branch bank. In June of 1977, it leased one of the buildings on the property to Catherine's Beauty Salon. The lease was for five years with an option to renew for three years and included covenants of quiet enjoyment and peaceful possession. Catherine's was aware of the plan to build a branch bank. In September, Deseret Federal requested cancellation of the lease, but Catherine's refused.

Deseret Federal hired Gramoll Construction Company to demolish adjacent buildings on the property. Demolition began in October and continued through December. During this period, there were brief interruptions in Catherine's electricity, heat, and water due to the interconnection of the utilities in Catherine's shop and the buildings being demolished. Gramoll had apprised Deseret Federal and Catherine's of the necessity of the interruptions and to the greatest extent possible had tried to minimize the impact on Catherine's business.

In January of 1978, Deseret Federal offered to buy back the lease. Catherine's refused, and Deseret Federal advised Catherine's that it would make no further "improvements" to the building. Between January and April, no construction or demolition work was performed. Catherine's, however, complained several times to Deseret Federal about leaks in the building's roof. Deseret Federal's refusal to repair the roof led Catherine's to write a letter demanding $10,000 for breach of covenant of quiet enjoyment.

On April 24, Gramoll Construction obtained an owner's protective liability policy from defendant United Pacific Insurance Company (UP) that named Deseret Federal as the insured. Deseret Federal also maintained similar separate insurance with defendant United States Fidelity & Guaranty Company (USF & G). In May, Gramoll signed a contract for construction of the branch bank building. In June, Catherine's filed suit against Gramoll and Deseret Federal ¹ for damage to its leasehold and business on grounds of negligence ² and breach of covenant of quiet enjoyment.

As construction went forward, Catherine's business dropped off, presumably because of noise and impaired access to the premises. In November, after paying rent for the month, Catherine's closed its business. When Catherine's employees returned to remove some equipment, they found that Deseret Federal had changed the locks and they could not enter.

In January of 1979, Catherine's amended its complaint to include constructive eviction as a ground for relief. Deseret Federal tendered the defense of the suit to both USF & G and UP. USF & G defended Deseret Federal, but UP refused, claiming that it could have no liability under the policy; UP did, however, defend on behalf of Gramoll Construction. ³ At trial, it was held that: (1) Gramoll did its work in a workmanlike manner; and (2) the actions of Deseret Federal amounted to a constructive eviction. Catherine's was awarded judgment against Deseret Federal for $23,000 for the value of the lease and $7,000 for damage to its business.

Deseret Federal satisfied the judgment and brought this suit against USF & G and UP for indemnification under the respective policies of insurance. On cross-motions for summary judgment, the district court found that there was no "tangible property damage" caused by an "occurrence" as required by the policy and granted summary judgment to defendants.

Plaintiff raises two issues on appeal: First, did the district court err in holding that defendants had no liability to indemnify under their respective insurance policies? Second, did UP breach its duty to defend?

I

The policies in question contain nearly identical clauses and definitions providing coverage for "property damage" caused by an "occurrence" during the policy period. "Property damage" is defined as "physical injury to or destruction of tangible property ... including the loss of use thereof, provided such loss of use is caused by an occurrence during the policy period." The key to determining coverage is whether there was an "occurrence" causing damage. "Occurrence" is defined as "an accident including injurious exposure to conditions which result, during the policy period, in bodily injury or property damage neither expected nor intended from the standpoint of the insured." (Emphasis added.)

Plaintiff argues that although the individual acts (demolition, construction, failure to repair, and lockout) may have been intentional, the results of those actions (constructive eviction and the accompanying judgment) were unintended. In support of this proposition, plaintiff cites a line of New York cases that follow the view expressed by Judge Cardozo in Messersmith v. American Fidelity Co., 232 N.Y. 161, 166, 133 N.E. 432, 433 (1921), that intended actions can have unintended results. See also Mingachos v. CBS, Inc., 196 Conn. 91, 491 A.2d 368 (1985); Riverside Insurance Co. v. Wiland, 16 Ohio App.3d 23, 474 N.E.2d 371 (1984); McGroarty v. Great American Insurance Co., 36 N.Y.2d 358, 368 N.Y.S.2d 485, 329 N.E.2d 172 (1975).

The damages for which Deseret Federal contends it is entitled to be indemnified under the policies of the insurers arise from a judgment for constructive eviction. Implicit in that judgment is a finding of intent on the part of Deseret Federal to evict Catherine's. Such intent is a necessary element of constructive eviction. "[T]o constitute an eviction, other than by physical ouster, there must be some act done by the lessors on the premises with the intent of depriving the lessee of the enjoyment and occupation...." Skally v. Shute, 132 Mass. 367, 369 (1882) (emphasis added). However, since it can be inferred that the landlord intends the natural and probable consequences of his acts, the intent may be implied. In Thirteenth and Washington Streets Corp. v. Neslen, 123 Utah 70, 77, 254 P.2d 847, 851 (1953), we stated that an intent to evict may be implied whenever the landlord's conduct substantially deprives the tenant of the use of the premises. The landlord does not have to have an actual subjective intention to compel the tenant to leave; it is enough that his acts or omissions make reasonably necessary the tenant's leaving. Scott v. Prazma, Wyo., 555 P.2d 571, 86 A.L.R.3d 338 (1976); Pierce v. Nash, 126 Cal.App.2d 606, 272 P.2d 938 (1954). Thus, despite Deseret Federal's protestations that it did not intend to interfere with Catherine's business...