Lennar Corp. v. Auto-Owners Ins. Co.

• Decision Date: 23 January 2007
• Docket Number: No. 1 CA-CV 03-0715.,No. 1 CA-CV 03-0593.,No. 1 CA-CV 04-0327.,No. 1 CA-CV 03-0451.,No. 1 CA-CV 03-0804.,1 CA-CV 03-0451.,1 CA-CV 03-0593.,1 CA-CV 03-0715.,1 CA-CV 03-0804.,1 CA-CV 04-0327.
• Citation: 214 Ariz. 255,151 P.3d 538
• Parties: LENNAR CORPORATION, a Delaware corporation; Lennar Homes of Arizona, Inc., an Arizona corporation; Lennar Communities Development, Inc., a Delaware corporation, Defendants, Counter-claimants, Cross Claimants, Third Party Plaintiffs, Appellants, v. AUTO-OWNERS INSURANCE COMPANY, a corporation, Third Party Defendant, Cross Claim Defendant-Appellee. United States Fire Insurance Company, Defendant, Crossdefendant, Counter defendant-Appellee, v. Lennar Corporation, a Delaware corporation; Lennar Homes of Arizona, Inc., an Arizona corporation; Lennar Communities Development, Inc., a Delaware corporation, Defendants, Crossclaimants, Third Party Plaintiffs-Appellants. Transamerica Insurance Company n/k/a TIG Insurance Company; United States Fidelity & Guaranty Company, Plaintiffs, Counter defendants-Appellees, v. Lennar Corporation, a Delaware Corporation; Lennar Homes of Arizona, Inc., and Arizona Corporation; Lennar Communities Development, Inc., a Delaware Corporation, Defendants, Counter claimants-Appellants. Lennar Corporation, a Delaware corporation; Lennar Homes of Arizona, Inc., an Arizona corporation; Lennar Communities Development, Inc., a Delaware corporation, Third Party Plaintiffs, Cross claimants-Appellants, v. United National Insurance Company, Third Party Defendant, Cross Claim Defendant-Appellee. Lennar Corporation, a Delaware corporation; Lennar Homes of Arizona, Inc., an Arizona corporation; Lennar Communities Development, Inc., a Delaware corporation, Defendants, Counterclaimants, Cross claimants, Third-Party Plaintiffs-Appellants/Cross Appellees, v. Fidelity and Guaranty Insurance Company; and St. Paul Fire & Marine Insurance Company, Defendants-Appellees/Cross Appellants.
• Court: Arizona Court of Appeals

151 P.3d 538

214 Ariz. 255

LENNAR CORPORATION, a Delaware corporation; Lennar Homes of Arizona, Inc., an Arizona corporation; Lennar Communities Development, Inc., a Delaware corporation, Defendants, Counter-claimants, Cross Claimants, Third Party Plaintiffs, Appellants, v. AUTO-OWNERS INSURANCE COMPANY, a corporation, Third Party Defendant, Cross Claim Defendant-Appellee.

United States Fire Insurance Company, Defendant, Crossdefendant, Counter defendant-Appellee, v. Lennar Corporation, a Delaware corporation; Lennar Homes of Arizona, Inc., an Arizona corporation; Lennar Communities Development, Inc., a Delaware corporation, Defendants, Crossclaimants, Third Party Plaintiffs-Appellants.

Transamerica Insurance Company n/k/a TIG Insurance Company; United States Fidelity & Guaranty Company, Plaintiffs, Counter defendants-Appellees, v. Lennar Corporation, a Delaware Corporation; Lennar Homes of Arizona, Inc., and Arizona Corporation; Lennar Communities Development, Inc., a Delaware Corporation, Defendants, Counter claimants-Appellants.

Lennar Corporation, a Delaware corporation; Lennar Homes of Arizona, Inc., an Arizona corporation; Lennar Communities Development, Inc., a Delaware corporation, Third Party Plaintiffs, Cross claimants-Appellants, v. United National Insurance Company, Third Party Defendant, Cross Claim Defendant-Appellee.

Lennar Corporation, a Delaware corporation; Lennar Homes of Arizona, Inc., an Arizona corporation; Lennar Communities Development, Inc., a Delaware corporation, Defendants, Counterclaimants, Cross claimants, Third-Party Plaintiffs-Appellants/Cross Appellees, v Fidelity and Guaranty Insurance Company; and St. Paul Fire & Marine Insurance Company, Defendants-Appellees/Cross Appellants.

No. 1 CA-CV 03-0451.

No. 1 CA-CV 03-0593.

No. 1 CA-CV 03-0715.

No. 1 CA-CV 03-0804.

No. 1 CA-CV 04-0327.

Court of Appeals of Arizona, Division 1, Department D.

January 23, 2007.

Fennemore Craig P.C. By John J. Balitis, Jr., Timothy Berg, Phoenix, and Payne & Fears LLP By Scott S. Thomas, J. Kelby Van Patten, Sean P. Reis, California, Attorneys for Defendants, Counterclaimants, Cross-Claimants, Third Party Plaintiffs-Appellants.

Campbell, Volk & Lauter By Ronald J. Lauter, Phoenix, Attorney for Third Party Defendant, Cross-Claim Defendant-Appellee.

Broening Oberg Woods & Wilson P.C. By Terrence P. Woods, Marilyn D. Cage, Phoenix, Attorneys for Defendant, Crossdefendant, Counterdefendant-Appellee.

Burke Panzarella Rich By Thomas P. Burke, Armanda M. Lorenz, Phoenix, and Harrington Foxx Dubrow & Canter, By Mark W. Flory, Marianne Fratianne, Vickie V. Grasu, California, Attorneys for Plaintiff, Counterdefendants-Appellees.

David Bell & Associates PLLC By David M. Bell, Phoenix, Attorney for Third Party Defendant, Cross-Claim Defendant-Appellee.

Harper Christian Dichter & Graif PC By Douglas L. Christian, Gena L. Sluga, Phoenix, Attorneys for Defendants-Appellees/Cross-Appellants.

Oliva & Associates ALC By Joseph L. Oliva, California, Attorney for Amicus Curiae — Woodside Homes and Mirage Home Construction.

Gallagher & Kennedy Phoenix By Kevin M. O'Malley, Trevor H. Chait, Jeffrey B. Kaykendell, Phoenix, Attorneys for Amicus Curiae Home Builders.

OPINION

SNOW, Judge.

¶ 1 Lennar Corporation, Lennar Homes of Arizona, Inc., and Lennar Communities Development, Inc. (collectively "Lennar") bring this consolidated appeal from the trial court's summary judgment to various insurers in a declaratory judgment action. In the judgments, the trial court determined that the insurers had no obligation to defend Lennar in a suit brought against it by homeowners in its Pinnacle Hill Development. Because we determine that Lennar was not a named insured on the policy that United National Insurance Company ("UNIC") issued to Wheeler Construction ("Wheeler"), we affirm the trial court's summary judgment as to UNIC on that policy. For all other insurers, we determine that the operative Pinnacle Hill complaint, in conjunction with the affidavits and other information set forth by Lennar, sufficiently alleges an "occurrence" that may give rise to coverage under the insurance policies. We thus reverse and remand the judgments entered on those policies and remand for further proceedings consistent with this opinion.

FACTUAL AND PROCEDURAL HISTORY

¶ 2 Lennar is a residential home developer. It oversaw the development of 105 homes in the Pinnacle Hill residential development in Glendale, Arizona. Lennar did not actually perform any of the construction at Pinnacle Hill. Rather, it subcontracted with various companies to perform the actual construction. Before construction began, Lennar hired a firm to perform a geotechnical evaluation of the soils. That firm's report indicated that the soils were subject to expansion and settlement if exposed to excessive moisture. Lennar eventually submitted an application to the Arizona Department of Real Estate stating that the soils were not subject to expansion, and the department issued a public report reflecting that information. Construction of the homes went forward, and the homes were completed between December 1993 and September 1995.

¶ 3 In December 1993, homeowners began complaining to Lennar of various problems in their homes, including drywall cracking. Lennar performed "investigative repairs." On September 8, 1998, Lennar homeowners Christopher and Robin Cioffi sued Lennar, alleging breach of implied warranty, breach of contract, negligent misrepresentation, consumer fraud and negligence. The negligence count alleged that Lennar "negligently oversaw and supervised the construction of the Residence and/or negligently constructed the Residence by causing it to be constructed on expansive soil." The complaint alleged property damage including wall cracks, tile grout cracks and separation, baseboard separation and sticking doors.¹ After being served with the complaint, Lennar tendered the defense of the suit to the insurers from which it had obtained general liability policies.²

¶ 4 In January 1999, the Pinnacle Hill plaintiffs amended their complaint and alleged that Lennar had promised to "construct the Residence, including the underlying real property which is part of the Residence, in a good and workmanlike manner in substantial accord with the plans and specifications on file." It amended the negligence count to allege that Lennar "negligently constructed the Residence, including the underlying real property which is part of the Residence." The amended complaint also added causes of action for fraud, fraudulent concealment, negligence per se and liability of a parent corporation. After the amended complaint was filed, Lennar also tendered the defense of the suit to its subcontractors' insurers, alleging that because it was an additional insured under those subcontractors' policies, the subcontractors' insurers were obliged to provide it a defense.³ The negligence allegations in the Second Amended Complaint, which is the complaint at issue, are essentially the same allegations as those included in the First Amended Complaint.

¶ 5 Additionally, at approximately this time, Lennar hired Roel Consulting Group to investigate the problems at Pinnacle Hill, determine the cause of the property damage and implement a remediation plan to prevent further damage to the homes. After inspection and testing, Roel and its consultants concluded that the primary cause of damage to the Pinnacle Hill homes was deficient work by various subcontractors. Of relevance to this appeal, it concluded that Wheeler, the rough grader, failed to properly compact fill soil, provide adequate draining and build non-expansive building pads. It further concluded that Morrison, the framing subcontractor, inadequately secured the exterior walls, improperly fastened the interior walls, and failed to install adequate backing for the stucco and drywall, and that Metro Drywall, the drywall subcontractor, failed to attach the drywall to an adequate backing and concealed the deficiencies of other subcontractors' work.⁴

¶ 6 In October 1999, the Pinnacle Hill plaintiffs disclosed that they had retained an expert, Randy Marwig, who had evaluated the soils at Pinnacle Hill and discovered that the soils were expansive. One month later, Marwig acknowledged in his deposition that his initial report, in which he had attributed the property damage to soil subsidence, had assumed that the homes were constructed in accordance with the plans and specifications. Marwig further stated that he now believed that not to be the case and that this could potentially cause him to reassess whether the problems were "the result of expansive soil movements or the result of construction deficiencies or structural inadequacies. . . ." He explicitly stated that there may be "specific deficiencies which may be either made worse or created by the construction deficiencies . . . even in the absence of soil movement."

¶ 7 In March and April 2000, Lennar arranged meetings between its attorneys and the various insurers. In the meetings Lennar detailed the nature and extent of the damages to the homes and presented the results of the Roel investigation.⁵ Lennar's experts also explained their view of how and why the subcontractors were at fault for the damages to the homes and that consequently the insurers were obligated to defend and indemnify Lennar. Lennar subsequently wrote a letter to the insurers reiterating this information. Additionally, it provided the insurers with copies of Marwig's deposition testimony, which, Lennar contends, indicates his agreement that the subcontractors' negligence could have caused or contributed to the damages.

¶ 8 Although none of the insurers provided Lennar with a defense to the Pinnacle Hill lawsuit, two insurers filed a declaratory relief action to determine whether they had a duty to defend Lennar and whether other insurers had a similar obligation. In addition to its answer, Lennar filed...