Donnelly Brothers v. State Auto Property, No. A08-0457.

• Decision Date: 26 January 2009
• Docket Number: No. A08-0457.
• Parties: DONNELLY BROTHERS CONSTRUCTION COMPANY, INC., Appellant, v. STATE AUTO PROPERTY AND CASUALTY INSURANCE COMPANY, Defendant and Third Party Plaintiff, Respondent, v. Western National Insurance Company, Third Party Defendant.
• Court: Minnesota Court of Appeals

759 N.W.2d 651

DONNELLY BROTHERS CONSTRUCTION COMPANY, INC., Appellant, v. STATE AUTO PROPERTY AND CASUALTY INSURANCE COMPANY, Defendant and Third Party Plaintiff, Respondent, v. Western National Insurance Company, Third Party Defendant.

No. A08-0457.

Court of Appeals of Minnesota.

January 26, 2009.

Timothy W. Waldeck, Waldeck & Lind, Minneapolis, MN, for appellant.

Frank J. Rajkowski, Rajkowski Hansmeier Ltd., St. Cloud, MN, for respondent.

Considered and decided by SCHELLHAS, Presiding Judge; MINGE, Judge; and JOHNSON, Judge.

OPINION

MINGE, Judge.

Appellant contractor initiated this declaratory judgment action against respondent, its insurer, to determine whether respondent had a duty to defend appellant for water-intrusion-damage claims arising out of stucco work in home construction. Appellant challenges summary judgment in favor of respondent, arguing that the district court: (1) erred in ruling that the record clearly established that the triggering event for the damage claims occurred prior to the policy period and that therefore respondent has no duty to defend; (2) improperly relied on the expert opinions presented by the respondent to the exclusion of appellant's expert; (3) erred in relying on an unpublished decision as precedential; (4) erred in failing to determine whether respondent's expert satisfied the Frye-Mack standard; (5) improperly denied appellant's attempt to include five additional claims against appellant; and (6) failed to require respondent to follow a consistent internal procedure in determining whether to defend. We reverse and remand.

FACTS

Appellant Donnelly Brothers Construction Company is engaged in the stucco business. Appellant either directly contracts with property owners or subcontracts with a general contractor to perform residential stucco work. Some of the homes on which appellant worked suffered damage due to water intrusion. During 2005 and 2006, a homeowner sued appellant directly in one case, and homebuilders joined appellant as a third-party defendant in other cases. The stucco work on these homes was performed at various times between 1994 and 2003. In each of the lawsuits, it is alleged that appellant's improper application of stucco was one of several construction and material defects that resulted in damaging water intrusion.

Five different insurers have provided appellant with occurrence-liability-insurance coverage since 1994. Appellant tendered the defense of the litigation to them. Respondent State Auto Property and Casualty Insurance Company was one of those insurers. Its policy included a duty to defend and indemnify for property damage that occurred during the policy period. Respondent's policy period commenced on July 16, 2004, and it denied coverage, claiming that the water intrusion in all of the homes had first occurred prior to its policy period. The policy periods of the other four insurers preceded respondent's, and they agreed to share in appellant's defense.

On August 25, 2006, appellant commenced this declaratory-judgment action seeking a determination that respondent has a duty to participate in the defense of appellant in four pending water-intrusion-damage lawsuits. At the hearing on the parties' cross-motions for summary judgment, respondent agreed to include two additional actions in this litigation because both cases were also pending, and its inspections of those properties had been completed. With these added matters, coverage for six claims was before the district court for summary judgment. In all six cases, the parties agreed that water-intrusion damage has been continual and ongoing, but disputed when the actual injury attributable to appellant occurred.

At the time of the summary judgment hearing, appellant identified five additional cases in which it was being sued for water-intrusion damages arising out of the construction of other homes. In each of these five cases, appellant claimed respondent had the same duty to defend. Appellant attempted to include those five cases, but respondent objected.

The district court ordered summary judgment in favor of respondent as to the six cases and did not add the five additional cases. Although appellant sought review of that decision, this court dismissed the appeal as premature because there was still a pending claim against a third-party defendant. On remand, the district court dismissed the third-party defendant, ordered final summary judgment for respondent, and judgment was entered. This appeal follows.

ISSUES

I. Did the district court err when it granted summary judgment in favor of respondent?

II. Did the district court err by not including the five additional cases?

III. Is respondent insurer required to handle respondent's claim pursuant to a uniform company-wide policy?

ANALYSIS

I.

The first issue is whether the district court erred in granting summary judgment to respondent with respect to the duty to defend. Appellant asserts that the district court improperly (1) ruled no occurrence triggering the duty to defend took place during the policy period; (2) relied on the opinion of respondent's expert rather than appellant's expert testimony; (3) relied on an unpublished decision of this court as precedential; and (4) failed to determine whether respondent's expert satisfied the Frye-Mack standard for admissibility.

On appeal from summary judgment, this court must determine whether there are any genuine issues of material fact and whether the district court erred in its application of the law. State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990). The evidence is viewed in the light most favorable to the party against whom judgment was granted. Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn.1993). But the party resisting summary judgment may not rest on mere averments; it must produce evidence of specific facts sufficient to raise a jury issue. Minn. R. Civ. P. 56.05; DLH, Inc. v. Russ, 566 N.W.2d 60, 71 (Minn.1997); Lundgren v. Eustermann, 370 N.W.2d 877, 881 (Minn.1985). Summary judgment is appropriate if the nonmoving party fails to present "sufficient evidence to permit reasonable persons to draw different conclusions." Schroeder v. St. Louis County, 708 N.W.2d 497, 507 (Minn.2006). If there are no genuine issues of material fact, we review de novo the district court's application of the law. Hubred v. Control Data Corp., 442 N.W.2d 308, 310 (Minn.1989).

A. Duty to Defend

Appellant asserts that because water-intrusion damage to each of the homes occurred within respondent's policy period, the district court erred in concluding that respondent does not have a duty to defend. An insurer's duty to defend arises when the insurance policy "arguably" provides coverage for claims made against the insured. Franklin v. W. Nat'l Mut. Ins. Co., 574 N.W.2d 405, 406-07 (Minn.1998). Insurance-coverage issues are questions of law, which we review de novo. State Farm Ins. Cos. v. Seefeld, 481 N.W.2d 62, 64 (Minn.1992).

1. The Insurance Policy

To determine whether respondent's duty to defend has been triggered, we first look to the language of the insurance policy. General principles of contract interpretation apply to insurance policies. Lobeck v. State Farm Mut. Auto. Ins. Co., 582 N.W.2d 246, 249 (Minn.1998). Unambiguous language must be given its plain and ordinary meaning, and ambiguities in a policy are construed in favor of the insured. Henning Nelson Constr. Co. v. Fireman's Fund Am. Life Ins. Co., 383 N.W.2d 645, 652 (Minn.1986). Policy provisions must be interpreted according to "what the insured would have reasonably understood them to mean." Erickson v. Christie, 622 N.W.2d 138, 140 (Minn.App. 2001).

Here, the relevant policy language states:

1. Insuring Agreement

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. We will have the right and duty to defend the insured against any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply....

....

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

(1) The "bodily injury" or "property damage" is caused by an occurrence that takes place in the "coverage territory";

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

An occurrence is defined in the policy as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." The policy's definition of the phrase "property damage" is "[P]hysical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it." There is no contention that the policy language is ambiguous or that property damage took place outside the coverage territory. Therefore, the issue before this court is whether the property damage occurred while the policy was in force.

2. The Caselaw

This court must determine whether an injury has arguably occurred during the policy period so as to trigger the insurer's duty to defend. But establishing that damage occurred during the policy period is only the beginning of the analysis because, as respondent correctly points out, an insurer may overcome a presumption of coverage and avoid the duty to defend by meeting the "burden of showing that all parts of the cause of action fall clearly outside the scope of coverage." Jostens, Inc. v. Mission Ins. Co., 387 N.W.2d 161, 165-66 (Minn.1986).

In Westfield Ins. Co. v. Kroiss, this court stated that whether property damage actually occurred during a policy period is a question of fact to be determined at trial. 694 N.W.2d 102, 106-07 (Minn.App. 2005), review denied (Minn. June 28, 2005). In Kroiss, we held that an insurer owed its insured...