KB Home Tucson, Inc. v. Charter Oak Fire Ins. Co.

• Court: Arizona Court of Appeals
• Writing for the Court: CATTANI, Judge.
• Citation: KB Home Tucson, Inc. v. Charter Oak Fire Ins. Co., 236 Ariz. 326, 340 P.3d 405, 700 Ariz. Adv. Rep. 19 (Ariz. App. 2014)
• Decision Date: 25 November 2014
• Docket Number: No. 1 CA–CV 12–0681.,1 CA–CV 12–0681.
• Parties: KB HOME TUCSON, INC., an Arizona corporation, Appellant, v. The CHARTER OAK FIRE INSURANCE COMPANY; Travelers Property Casualty Insurance Company; Drachman Leed Insurance Inc., an Arizona corporation; American E & S Insurance Brokers Of California, Inc., a foreign corporation, Appellees.

236 Ariz. 326

340 P.3d 405

700 Ariz. Adv. Rep. 19

KB HOME TUCSON, INC., an Arizona corporation, Appellant

v.The CHARTER OAK FIRE INSURANCE COMPANY; Travelers Property Casualty Insurance Company; Drachman Leed Insurance Inc., an Arizona corporation; American E & S Insurance Brokers Of California, Inc., a foreign corporation, Appellees.

No. 1 CA–CV 12–0681.

Court of Appeals of Arizona, Division 1.

Nov. 25, 2014.

Dioguardi Flynn, LLP By John P. Flynn and Peter J. Moolenaar, Scottsdale, Counsel for Appellant.

Morales Fierro & Reeves By William C. Reeves, Phoenix, Counsel for Appellees Charter Oak and Travelers.

The Hassett Law Firm, PLC By Myles P. Hassett and Julie K. Moen, Phoenix, Counsel for Appellee Drachman Leed.

Pak & Moring, PLC By S. Gregory Jones, Scottsdale, Counsel for Appellee American E & S.

DeCiancio Robbins, PLC By Christopher Robbins, Tempe, Counsel for Amicus Curiae IiAbaz.

Lorber Greenfield & Polito, LLP By Holly P. Davies, Tempe, Counsel for Amicus Curiae Leading Builders of America.

Newmeyer & Dillion, LLP, Newport Beach, CA, By Alan H. Packer, Bonnie T. Roadarmel, Clayton T. Tanaka, and Susannah M. Eichele, Co–Counsel for Amicus Curiae Leading Builders of America.

Judge KENT E. CATTANI delivered the opinion of the Court, in which Presiding Judge MAURICE PORTLEY and Judge JOHN C. GEMMILL joined.

OPINION

CATTANI, Judge.

¶ 1 KB Home Tucson, Inc. (“KB”) appeals from the entry of summary judgment in favor of The Charter Oak Fire Insurance Company and Travelers Property Casual Insurance Company (collectively, “Charter Oak”) on KB's claims for declaratory relief, breach of contract, and breach of the covenant of good faith and fair dealing. KB also appeals from the entry of summary judgment in favor of Drachman Leed Insurance, Inc. (“Drachman Leed”) and American E & S Insurance Brokers of California, Inc. (“American E & S”) on KB's claims for negligence, negligent misrepresentation, and fraud. All of the claims relate to whether KB was entitled to coverage as an “additional insured” under insurance policies issued to a subcontractor hired by KB. For reasons that follow, we reverse the entry of judgment in favor of Charter Oak, but affirm the entry of judgment in favor of Drachman Leed and American E & S.

FACTS AND PROCEDURAL BACKGROUND

¶ 2 KB hired GRG Construction Co., Inc. (“GRG”) in May 1999 to perform work at a residential subdivision in Tucson. The contractual relationship continued for approximately four years. Charter Oak provided liability coverage for GRG, including “additional insured” coverage for any person or entity GRG was obligated to cover by virtue of a written contract or agreement. Drachman Leed and American E & S were GRG's insurance agents/brokers who—at GRG's direction—issued Certificates of Insurance requested by KB relating to GRG's policy with Charter Oak and with another insurer, Evanston Insurance Company (“Evanston”).

¶ 3 Charter Oak issued two annual general liability policies to GRG during the relevant time periods. The policies included a blanket additional insured endorsement, which provided as follows:

WHO IS AN INSURED—(Section II) is amended to include any person or organization you are required to include as an additional insured on this policy by a written contract or written agreement in effect during this policy period and executed prior to the occurrence of any loss.

¶ 4 GRG's written contracts with KB provided, in pertinent part:

7. All work and materials must be acceptable to and comply with all rules, regulations and requirements of [KB].

7.¹ [GRG] shall protect and indemnify [KB] from any claims, liability, or losses suffered by anyone wholly or partially through the negligence of [GRG] or any of his agents or employees. [KB] shall retain a reasonable portion of all payments due [GRG] until such claims are settled or suitable indemnity arrangements acceptable to [KB] are provided by [GRG].

8. [GRG] shall purchase and pay for all employer's liability and workman's compensation insurance required by the State in which this work is performed and shall also purchase and pay for public liability, property damage, products liability, and product performance insurance [in specified amounts]. Certificates of coverage or copies of such policies shall be furnished to [KB] prior to the commencement of work.

¶ 5 After the parties signed the contract, KB sent annual letters to GRG describing its insurance requirements. These letters detailed the minimum coverage mandated by KB and stated that KB “must be named as an Additional Insured on the General Liability Policy.” In response, GRG directed Drachman Leed to provide KB a copy of Charter Oak's above-described blanket additional insured endorsements, together with certificates of liability insurance listing KB as an additional insured for COMMERCIAL GENERAL LIABILITY and AUTOMOBILE insurance.

¶ 6 Evanston also issued two annual policies insuring GRG for the relevant time periods. Drachman Leed provided KB with certificates of liability insurance for GRG's Evanston policies, obtained through producer/broker American E & S. These informational certificates showed KB as an additional insured “As per written contract,” and named KB as “certificate holder,” stating, “Any and all jobs. Certificate Holder is an Additional Insured as per written contract, General Liability Coverage, as respect work performed by the named insured.”

¶ 7 The Evanston policies similarly contained blanket additional-insured endorsements, which referenced the “Name of Person or Organization: AS PER WRITTEN CONTRACT,” and provided:

WHO IS AN INSURED (Section II) is amended to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of “your Work” for that insured by or for you.

¶ 8 In May 2001, the City of Tucson asserted a claim against KB alleging deficiencies in streets and sidewalks within KB's residential subdivision project. KB sued GRG and other subcontractors for reimbursement for repair costs and attorney's fees incurred in defending against the City's claims. In February 2005, several homeowners in the project sued KB for damage to their homes allegedly resulting from construction defects. KB tendered its defense to Charter Oak on all of the claims and to Evanston on the homeowners' claims.

¶ 9 Charter Oak disclaimed coverage, stating that KB did not qualify as an additional insured under the blanket additional-insured endorsement because there was no written contract or agreement requiring that GRG add KB as an additional insured. Similarly, Evanston disclaimed coverage for the homeowners' suit because the underwriting file and policies did not contain an additional-insured endorsement, and because any such endorsement would not have conveyed additional-insured coverage in the absence of a written contract requiring that KB Home be made an additional insured.

¶ 10 KB filed a complaint against Evanston for declaratory relief, breach of contract, and breach of the implied covenant of good faith and fair dealing. KB subsequently amended its complaint to include claims against Drachman Leed and American E & S for negligence, negligent misrepresentation, and fraud.² KB also filed a separate action against Charter Oak for declaratory relief, breach of contract, and breach of the implied covenant of good faith and fair dealing. In January 2010, KB settled its claims against Evanston, and the superior court subsequently consolidated the Charter Oak, Drachman Leed, and American E & S actions.

¶ 11 Charter Oak, Drachman Leed, and American E & S filed separate motions for summary judgment on all of KB's claims. Among other arguments, Charter Oak asserted that KB did not qualify as an additional insured under the policies issued to GRG. Drachman Leed argued primarily that (1) the firm did not owe a duty of care to KB because KB was not a client; and (2) the firm provided accurate insurance information to KB and, therefore, did not misrepresent coverage or commit fraud. American E & S argued that KB had not shown: (1) a misrepresentation of coverage; (2) that American E & S was aware of the falsity of any alleged misrepresentation; or (3) KB's right to rely on the alleged misrepresentations. American E & S also joined Drachman Leed's motion for summary judgment. After briefing and oral argument, the superior court ruled in favor of Charter Oak, Drachman Leed, and American E & S, and directed entry of final judgment in favor of all three defendants.

¶ 12 KB timely appealed. We have jurisdiction under Article 6, Section 9, of the Arizona Constitution and Arizona Revised Statutes (“A.R.S.”) sections 12–120.21(A)(1) and –2101(A)(1).³

DISCUSSION

¶ 13 KB challenges the grant of summary judgment in favor of each named defendant.⁴ Summary judgment is appropriate only if there are no genuine issues as to any material fact and the moving party is entitled to judgment as a matter of law. Ariz. R. Civ. P. 56(a) ; Orme Sch. v. Reeves, 166 Ariz. 301, 305, 802 P.2d 1000, 1004 (1990).

¶ 14 We review de novo the superior court's grant of summary judgment, viewing the facts in the light most favorable to the party against whom judgment is entered. United Bank of Arizona v. Allyn, 167 Ariz. 191, 193, 195, 805 P.2d 1012, 1014, 1016 (App.1990). We will affirm summary judgment if it is correct for any reason supported by the record, even if not explicitly considered by the superior court. See Mutschler v. City of Phx., 212 Ariz. 160, 162, ¶ 8, 129 P.3d 71, 73 (App.2006).

I. Charter Oak.

¶ 15 Charter Oak's obligation to provide additional-insured general liability coverage to KB turns on whether GRG was required under a written contract or agreement to include KB as an additional insured. KB argues the superior court erred by finding that there was no such contract or agreement KB asserts in particular that its written instructions to GRG regarding additional-insured coverage, coupled with GRG's conduct in conformity with those instructions,...