Hankins v. Md. Cas. Company/Zurich Am. Ins. Co.

• Decision Date: 13 December 2012
• Docket Number: No. 2011–CA–01093–SCT.,2011–CA–01093–SCT.
• Citation: 101 So.3d 645
• Parties: Kaye HANKINS v. MARYLAND CASUALTY COMPANY/ZURICH AMERICAN INSURANCE COMPANY.
• Court: Mississippi Supreme Court

101 So.3d 645

Kaye HANKINS

v.MARYLAND CASUALTY COMPANY/ZURICH AMERICAN INSURANCE COMPANY.

No. 2011–CA–01093–SCT.

Supreme Court of Mississippi.

Oct. 4, 2012.

Rehearing Denied Dec. 13, 2012.

Alex A. Alston, Jr., James H. Herring, Canton, attorneys for appellant.

Thomas Ray Julian, Jason Hood Strong, Jackson, attorneys for appellee.

EN BANC.

RANDOLPH, Justice, for the Court:

¶ 1. In July 2001, Kaye Hankins entered into a home-construction contract with Elite Homes, Inc. (“Elite”). An August 2001 soil-test report on the subject property recommended that “a stabilizing blanket of natural silty clays ... and/or compacted fill soils having a maximum 7–foot thickness” was required “to minimize the Yazoo Clay ... swell or heave potential to within limits tolerable to a strong slab foundation....” Hankins received assurances from Elite that the Yazoo clay “was nothing to be concerned about.” She moved into the new home in April 2002. During Hankins's first year in the home, she reported to Elite numerous cracks, leaks, and difficulties in closing doors and windows. After repeated, unsuccessful home repairs, Hankins commissioned an engineer to study the problems. The engineer reported that the damage to Hankins's home was caused by “excessive differential movement of the foundation system[,]” that was “most likely due to a combination of both upward and downward [soil] movement[,]” which itself resulted from “an increase in moisture content.” One report read that insufficient “thickness of the nonexpansive silty clay ... fill and natural soil buffer[,]” along with deficient compaction of such material, were inadequate “to minimize differential movements due to seasonal changes in moisture content” and, therefore “contributed to the differential movement experienced by the residence.”

¶ 2. In September 2009, Hankins filed a complaint against Elite in the Circuit Court of Madison County, Mississippi, averring “that the damage which has occurred to said house ... would not have occurred except for the negligence” of Elite. Thereafter, a “Default Judgment” of $645,200 was entered against Elite. In August 2010, Hankins filed a “Suggestion for Writ of Garnishment” against Elite's commercial general liability (“CGL”) insurer, Maryland Casualty Company/Zurich American Insurance Company (“Maryland Casualty”). In October 2010, a default judgment of $645,200, plus interest, was entered against Maryland Casualty. Subsequently, Maryland Casualty filed a “Motion to Suspend Execution of Default Judgment against Maryland Casualty and For Leave to File Answer to Writ of Garnishment,” which argued, inter alia, that because its CGL policy “exclud[ed] coverage for property damage caused by earth movement,” then it “has no property or effects in its possession belonging to” Elite. Maryland Casualty then filed a “Motion for Summary Judgment” on the same basis. The circuit court, relying upon Rhoden v. State Farm Fire & Casualty Company, 32 F.Supp.2d 907 (S.D.Miss.1998), and Boteler v. State Farm Casualty Insurance Company, 876 So.2d 1067 (Miss.Ct.App.2004), concluded that the “earth movement” endorsement “excludes the damages suffered by [Hankins] from coverage under the policy.” Based thereon, the circuit court granted summary judgment in favor of, and set aside the default judgment against, Maryland Casualty. From that ruling, Hankins appeals.

FACTS

¶ 3. On July 13, 2001, Hankins and Elite entered into a “Contract for the Construction of a Dwelling.” ¹ An addendum to the contract provided that:

Buyer understands that expansive soils/clays have been found to have caused foundation problems in certain areas of Mississippi. Buyer assumes the responsibility of having the subject property tested and/or inspected to determine if expansive soils/clays are present and if foundation damage has been caused thereby. Buyer agrees to hold harmless Seller and all agents or brokers from any and all liability on account of expansive soils or clays.

On August 1, 2001, Engineer Laboratories, Inc., provided a “Materials and Soils Testing” report regarding the subject property. The report provided, in pertinent part, that:

[i]n order to minimize the Yazoo Clay (CH) swell or heave potential to within limits tolerable to a strong slab foundation, the Yazoo Clay (CH) should be covered with a stabilizing blanket of natural silty clays (CL) and/or compacted select fill soils having a minimum 7–foot thickness. In order to provide a necessary buffer zone, the blanket should also extend horizontally at least 7 feet beyond building lines and also 7 feet beyond lower level interior walls. This 7–foot thickness should preferably be established by filling above present surface grades.

(Emphasis added.) According to Hankins's subsequently-filed complaint, ² Elite “assured [her] that the soil test report of Engineer Laboratories, Inc., indicated that what Yazoo clay was under the surface was nothing to be concerned about; and that the tension rods in the foundation would take care of any problems.” On April 22, 2002, Elite conveyed to Hankins the property by warranty deed, and she moved into her new home.

¶ 4. At that time, Elite was the “Named Insured” under a “Precision Portfolio Policy” (“Policy”) with Maryland Casualty.³ The CGL “Declarations” provided the following “coverages and limits of insurance”: general aggregate—$600,000; ⁴ products/completed operations aggregate—$600,000; ⁵ each occurrence—$300,000.⁶ The “Residential General Contractor Commercial General Liability Coverage Form” (“Coverage Form”) provided, in pertinent part:

SECTION I—COVERAGES

COVERAGE A. BODILY INJURY AND PROPERTY DAMAGE LIABILITY

I. Insuring Agreement.

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of ... “property damage”[ ⁷] 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 ... “property damage” to which this insurance does not apply.

...

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

(1) The ... “property damage” is caused by an “occurrence” that takes place in the “coverage territory”;

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

The Coverage Form further stated that “[v]arious provisions in this policy restrict coverage.” (Emphasis added.) Among the exclusions and limitations was an endorsement entitled “EXCLUSION—INJURY OR DAMAGE FROM EARTH MOVEMENT,” which stated:

[t]his insurance does not apply to ... “property damage” ... arising out of, caused by, resulting from, contributed to, aggravated by, or related to earthquake, landslide, mudflow, subsidence, settling, slipping, falling away, shrinking, expansion, caving in, shifting, eroding, rising, tilting or any other movement of land, earth or mud.[ ⁸]

With respect to ... “property damage,” this exclusion only applies to the “products-completed operations hazard.” [ ⁹]

(Emphasis added.)

¶ 5. During Hankins's first year in the home, she reported to Elite numerous cracks, leaks, and difficulties in closing doors and windows. Elite denied that there were foundation issues. But after multiple, unsuccessful home repairs, Hankins contacted Structural Solutions, LLC, to evaluate the problem. Structural Solutions determined that the slab foundation on the front of the home had fallen nearly nine inches.

¶ 6. On December 15, 2008, Gary J. Rogers, P.E., of Advanced Engineering Resources, Inc. (“Advanced Engineering”), provided an opinion to Hankins. According to his report:

[b]ased on our observations, experience and knowledge, it is our opinion that the differential movement observed at the subject structure is most likely due to a combination of both upward and downward [soil] movements. In our opinion, upward soil movement has occurred in the rear portion of the residence footprint as a result of swelling of expansive clay. ... It is our further opinion that downward soil movement has occurred in the front portion of the residence footprint as a result of consolidation. Consolidation of the original soil would have occurred due to the additional weight of fill soil and the residence itself.

(Emphasis added.) The report further opined that the visible damages (cracked walls, leaks, etc.) were “symptoms of the major structural defect [,]” i.e., “excessive differential movement of the foundation system....”

¶ 7. On August 20, 2009, W. David Dennis, Jr., P.E., of Burns Cooley Dennis, Inc. (“Burns Cooley”), provided another opinion to Hankins. According to his report:

[f]or a residence supported by a stiffened slab-on grade foundation system, we typically recommend that the bottom of the slab and the ground surface adjacent to the residence be separated from highly expansive clays (CH) by not less than 7 ft of low permeability nonexpansive clayey soils to minimize differential movements caused by seasonal shrinking and swelling of the expansive clays (CH).

(Emphasis added.) Three borings of the property revealed “highly expansive clay (CH) soils” at depths of only 5 feet, 2.5 feet, and 6.5 feet. The report added that:

[w]e typically recommend that select fill materials for residence construction be compacted from lifts not exceeding 9 in. in loose thickness to not less than 95 percent of standard Proctor maximum dry density at moisture contents within 3 percentage points of the optimum water content.... [R]elative compactions for the stiff silty clay (CL) fill materials ... range[d] from 87.0 to 94.6 percent and average[d] 90.8 percent.

The Burns Cooley report concluded that:

[i]n our opinion, the residence has experienced differential movement primarily as a result of swelling of the highly expansive clay (CH) soils due to an increase in moisture content. The thickness of the nonexpansive silty clay (CL) fill and natural soil buffer is not adequate to minimize differential movements...