Desert Mountain Properties Ltd. v. Liberty Mut. Fire
| Decision Date | 03 August 2010 |
| Docket Number | No. CV2003-009686,No. 1 CA-CV 08-0802,1 CA-CV 08-0802,CV2003-009686 |
| Parties | DESERT MOUNTAIN PROPERTIES LIMITED PARTNERSHIP,Plaintiff/Appellee/Cross-Appellant, v. LIBERTY MUTUAL FIRE INSURANCE COMPANY,Defendant/Appellant/Cross-Appellee. |
| Court | Arizona Court of Appeals |
David Bell & Associates, PLLC By David M. Bell, Howard L. Andari, Attorneys for Appellant/Cross-Appellee
Fennemore Craig, By J. Randall Jefferies, Louis D. Lopez, Attorneys for Appellee/Cross-Appellant
Appeal from the Superior Court in Maricopa County, The Honorable Robert E. Miles, Judge
AFFIRMED
JOHNSEN, Judge ¶ Soil settlement caused cracks and other damage to 50 new homes in north Scottsdale. Prompted by complaints from customers to whom it had sold the homes, the developer, Desert Mountain Properties Limited Partnership, paid an average of $200,000 per home to have the soil issues corrected and the damage repaired. Desert Mountain then sought reimbursement from its insurer. We hold in this appeal that commercial general liability policies issued by Liberty Mutual Fire Insurance Company covered the expenses Desert Mountain incurred in repairing property damage resulting from the soil settlement. We also affirm the jury's conclusion that Liberty Mutual was obligated to indemnify Desert Mountain for those expenses even though none of the homeowners had sued Desert Mountain over the damage to their homes.
FACTS AND PROCEDURAL HISTORY
¶ Desert Mountain contracted for the construction of hillside homes in two subdivisions, the Sonoran Cottages and the Sonoran Cottages Enclave.1 The general contractor, The Weitz Company, completed the homes in 1995. From the outset, some of the homes experienced settlement and drainage problems and patio cracks. In October 1999, Desert Mountain learned of a home inthe Enclave that had experienced such significant settlement that the patio had sunk two to three inches, retaining walls had rotated and cracks had appeared in the roof and interior walls. Desert Mountain hired a consultant, Joe Frank, to examine the property. After receiving other complaints of cracks in interior walls, patio slabs and retaining walls throughout 2000, the company asked Frank to expand his investigation to all 50 properties.
¶ Frank concluded there was "a very substantial soils issue involving the poor compaction of fill material" on which the homes had been built. Poor soil compaction had caused floor slabs to shift, resulting in cracks and other damage, and water infiltration had exacerbated the matter. Frank's investigation also revealed other construction defects, including defectively installed water and sewage lines that allowed additional moisture to enter the poorly compacted fill. Ultimately, all 50 homes required repairs of varying degree. Areas of poorly compacted soil needed to be treated with pressurized grouting. To identify those areas, workers needed to drill through concrete floor slabs to test subsurface soil densities. More holes then would be drilled, through which workers would pump pressurized grout (a mixture of cement and water) to stabilize the soil. After this work was completed, cracks in floors andwalls would be repaired, drainage systems would be repaired and patio slabs and tile floors would be replaced.
¶ On May 16, 2001, Desert Mountain sent a notice of claim to Liberty Mutual. It sought coverage of damages to the Cottages and Enclave homes pursuant to one-year commercial general liability ("CGL") policies issued on August 29, 1999 and November 11, 2000.2 In its letter, Desert Mountain explained it already had spent $640,000 in repairs and that more repairs needed to be made.
¶ In a response dated May 31, William Strickland, a Liberty Mutual claims specialist, asked for additional information and copies of homeowner complaints, repair work and cost documentation, claim notices submitted to Weitz or subcontractors and Frank's reports. On June 13, Desert Mountain wrote to say it had concluded it needed to proceed with repair work over the summer months, when many residents would be away (so relocation costs would be avoided) and contractors would be available. Liberty Mutual responded by letter on June 26. Itexplained that it could not begin a "coverage review" until it received more information and the documents it had requested. In the meantime, the insurer warned Desert Mountain that it was not authorizing the repair work that Desert Mountain proposed. It added, "We offer no recommendations at this time, and can neither authorize you to commence the work, nor suggest that you not commence the work." By the end of June 2001, Desert Mountain had provided Liberty Mutual with some of the documents the insurer had requested, but had not furnished any homeowner complaints or documents relating to the repairs it already had performed.
¶ Believing it had an obligation to repair the damages and desiring to maintain customer goodwill, Desert Mountain proceeded to make additional repairs during summer 2001 even though it had yet to receive a coverage response from Liberty Mutual. In October 2001, concerned that the statute of limitations was about to run on its claims against Weitz, Desert Mountain filed suit against the contractor, asserting it was responsible for the construction defects that had caused the damage necessitating the repairs. It was not until November 26, 2002, however, that Desert Mountain provided to Liberty Mutual the remainder of the documents the insurer had requested. After reviewing the information, Liberty Mutual in February 2003denied Desert Mountain's claim for coverage, citing the policies' voluntary payment and known loss provisions.
¶ Desert Mountain then sued Liberty Mutual, alleging breach of contract and breach of the duty of good faith. The superior court granted Liberty Mutual's motion for summary judgment on the bad faith claim. The court also held that, consistent with United States Fidelity & Guaranty Corp. v. Advance Roofing & Supply Co., 163 Ariz. 476, 482, 788 P.2d 1227, 1233 (App. 1989), Desert Mountain could not recover the cost of repairing the poorly compacted soil but could recover amounts it spent to repair property damage that resulted from the soil settlement. See Lennar Corp. v. Auto-Owners Ins. Co., 214 Ariz. 255, 262, ¶ 17, 151 P.3d 538, 245 (App. 2007) (distinguishing between "faulty workmanship standing alone," which is not covered because it is not an occurrence under the standard CGL policy, and "faulty workmanship that causes damage to property," which may implicate coverage.
¶ During a 12-day trial, Desert Mountain presented evidence of $7,311, 087 in damages, including repair costs, consulting fees and attorney's fees incurred in the Weitz lawsuit. After crediting amounts received in settlements with other insurers, Weitz and other contractors, Desert Mountain asked the jury to award it $1,500, 346 in damages. Liberty Mutual did not take issue at trial with the nature of therepairs Desert Mountain undertook, nor did it argue that the expenses Desert Mountain incurred were unreasonable; it argued only that its policies did not cover the expenses. The jury found in favor of Desert Mountain on its contract claim and awarded $500,000 in damages. The court granted Desert Mountain its attorney's fees and costs and denied Liberty Mutual's motion for judgment as a matter of law or new trial.
¶ Liberty Mutual timely appealed, and Desert Mountain timely cross-appealed. We have jurisdiction pursuant to A.R.S. § 12-2101(B) (2003).
DISCUSSION
¶ Liberty Mutual asserts the superior court erroneously instructed the jury and erred by denying its motion for judgment as a matter of law and for new trial.
¶ Whether a jury instruction correctly states the law is a matter of law that we review de novo. A Tumbling-T Ranches v. Flood Control Dist. of Maricopa County, 222 Ariz. 515, 533, ¶50, 217 P.3d 1220, 1238 (App. 2009). We consider all of the instructions together to determine whether they misled the jury. Levitt v. First Am. Title Ins. Co. of Ariz., 159 Ariz. 359, 364, 767 P.2d 707, 712 (App. 1988). We will reverse only if an erroneous instruction prejudiced the appellant's rights. Am. Pepper Supply Co. v. Fed. Ins. Co., 208 Ariz. 307, 309, 1 7, 93 P.3d 507, 509 (2004); see also Thompson v. Better-Bilt Aluminum Prods. Co., Inc., 187 Ariz. 121, 126, 927 P.2d 781, 786 (App. 1996).
¶ Judgment as a matter of law is appropriate when "a party has been fully heard on an issue and there is no legally sufficient evidentiary basis for a reasonable jury to find for that party on that issue." Ariz. R. Civ. P. 50(a)(1); see also Roberson v. Wal-Mart Stores, Inc., 202 Ariz. 286, 290, 1 14, 44 P.3d 164, 168 (App. 2002) () (quoting Orme Sch. v. Reeves, 166 Ariz. 301, 309, 802 P.2d 1000, 1008 (1990)). We review the superior court's denial of a motion for judgment as a matter of law de novo, viewing the evidence in the light most favorable to the non-moving party. Saucedo ex rel. Sinaloa v. Salvation Army, 200 Ariz. 179, 181-82, 1 9, 24 P.3d 1274, 1276-77 (App. 2001).
the Insured Is "Legally Obligated to Pay."
¶ Liberty Mutual promised in each of the two policies to "pay those sums that the insured becomes legally obligated topay as damages because of... 'property damage' to which this insurance applies." The policies did not define "legally obligated" or "damages." Liberty Mutual contends that because none of the homeowners sued Desert Mountain over the soil settlement problems, Desert Mountain was not "legally obligated" to make the repairs.3 Liberty Mutual argues that it "agreed to pay monetary damages for [Desert...
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