Liberty Ins. Underwriters v. Weitz Co.

• Decision Date: 27 March 2007
• Docket Number: No. 1 CA-CV 05-0859.,1 CA-CV 05-0859.
• Citation: 158 P.3d 209,215 Ariz. 80
• Parties: LIBERTY INSURANCE UNDERWRITERS, INC., Plaintiff/Appellant, v. The WEITZ COMPANY, LLC; Senio Enterprises, Inc., dba Skunk Creek Iron Works; S Diamond Steel, Inc., Defendants/Appellees.
• Court: Arizona Court of Appeals

158 P.3d 209

215 Ariz. 80

LIBERTY INSURANCE UNDERWRITERS, INC., Plaintiff/Appellant, v. The WEITZ COMPANY, LLC; Senio Enterprises, Inc., dba Skunk Creek Iron Works; S Diamond Steel, Inc., Defendants/Appellees.

No. 1 CA-CV 05-0859.

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

March 27, 2007.

Kunz Plitt Hyland Demlong & Kleifield PC By Steven Plitt and Joshua D. Rogers, Phoenix, Asperger Associates LLC By Jeffrey J. Asperger, Chicago, IL, Attorneys for Plaintiff/Counterdefendant/Appellant.

Sanders & Parks, P.C. By David J. Damron and Melinda Cekander, Phoenix, Snell & Wilmer LLP By Brian J. Foster, Phoenix,

Attorneys for Defendant/Counterclaimant/Appellee The Weitz Company, LLC.

Gallagher & Kennedy By Glen Hallman, Phoenix, Attorneys for Defendant/Counterclaimant/Appellee S Diamond Steel, Inc.

Raymond Greer & Sassaman, PC By Randy L. Sassaman, Phoenix, Attorneys for Defendant/Counterclaimant/Appellee Senio Enterprises, Inc.

OPINION

JOHNSEN, Judge.

¶ 1 Arizona law requires that certain property damage insurance policies conform to terms recited in a published form called the "Arizona Standard Fire Policy." By statute, however, "inland marine insurance" policies are exempt from the Arizona Standard Fire Policy requirements. In this case we consider whether a builder's risk insurance policy constitutes "inland marine insurance" and thereby is exempt from the Arizona Standard Fire Policy requirements. For the reasons that follow, we hold that the builder's risk policy at issue is an inland marine policy within the meaning of Arizona law to which the Arizona Standard Fire Policy requirements do not apply.

FACTUAL AND PROCEDURAL BACKGROUND

¶ 2 Appellant Liberty Insurance Underwriters, Inc. ("Liberty"), issued a commercial builder's risk insurance policy in connection with the construction of four dormitories by appellee Weitz Company, LLC ("Weitz"), for Arizona State University. The policy was issued to "Weitz Company, LLC/Arizona State University." By its terms, the policy was in effect from November 11, 2002 through July 11, 2003, and covered "Student Dorms" at the ASU campus on Thunderbird Road in Phoenix. The policy included three warranty endorsements that, if effective, required the insured to maintain adequate fire extinguishers on the job site, to conduct a fire watch "during all welding operations or other hot processes" and to inspect the premises for fire hazards at the end of each workday. Each warranty endorsement provided that "[f]ailure to comply with this warranty will render this coverage null and void."

¶ 3 On June 2, 2003, a fire destroyed one of the dormitories while it was still under construction. After a dispute arose with Weitz regarding insurance coverage, Liberty filed a complaint for declaratory judgment. It sought an order holding that the policy did not cover the damage because Weitz had failed to abide by the terms and conditions of the three warranty endorsements.¹ Weitz answered and counterclaimed for an order that the policy covered the fire damage.

¶ 4 On November 23, 2004, Weitz moved for summary judgment on the complaint and counterclaim. Weitz argued that the warranty endorsements that Liberty contended barred coverage were void because they were inconsistent with the Arizona Standard Fire Policy.² Liberty countered that its policy was an inland marine policy exempt from the Arizona Standard Fire Policy requirements. Alternatively, Liberty argued that the warranty endorsements did not conflict with the Arizona Standard Fire Policy and were enforceable as a matter of law, or, if the warranty endorsements were unenforceable, that questions of fact remained concerning Weitz's compliance with other policy requirements.

¶ 5 In March and June 2005, the superior court issued minute entries granting Weitz's motion for summary judgment. Liberty filed a motion for reconsideration arguing that, at a minimum, issues of fact remained concerning whether the policy constituted inland marine insurance.³ In support of its motion, Liberty attached an affidavit by William J. Warfel, Ph.D., CPCU, CLU, a professor of insurance and risk management at Indiana State University.⁴ The superior court denied the motion for reconsideration.

¶ 6 Thereafter, the case was reassigned and a different judge considered additional filings and oral argument on Liberty's motion for clarification. The superior court denied Liberty's motion and entered judgment in favor of Weitz on the grounds that Liberty's policy covered the fire damage and that the three warranty endorsements were unenforceable as a matter of law. The court awarded each defendant damages on the counterclaim and dismissed Liberty's complaint with prejudice.⁵ Liberty timely appealed.

DISCUSSION

A. General Principles of Insurance Policy Interpretation.

¶ 7 An insurance policy is a contract between the insurer and its insured. Tolifson v. Globe Am. Cas. Co., 138 Ariz. 31, 32, 672 P.2d 983, 984 (App.1983). Thus, the interpretation of an insurance contract presents questions of law, which we review de novo. State Farm Fire & Cas. Co. v. Rossini, 107 Ariz. 561, 564, 490 P.2d 567, 570 (1971); Liberty Mut. Fire Ins. Co. v. Mandile, 192 Ariz. 216, 220, 963 P.2d 295, 299 (App.1997).⁶

¶ 8 Courts construe the written terms of insurance contracts to effectuate the parties' intent, Tolifson, 138 Ariz. at 32, 672 P.2d at 984, and "to protect the reasonable expectations of the insured," Phoenix Control Sys., Inc. v. Ins. Co. of N. Am., 165 Ariz. 31, 34, 796 P.2d 463, 466 (1990). Insurance policy provisions must be read as a whole, giving meaning to all terms. Nichols v. State Farm Fire & Cas. Co., 175 Ariz. 354, 356, 857 P.2d 406, 408 (App.1993). If the contractual language is clear, we will afford it its plain and ordinary meaning and apply it as written. Almagro v. Allstate Ins. Co., 129 Ariz. 163, 164-65, 629 P.2d 999, 1000-01 (App. 1981); Stephan v. Allstate Ins. Co., 26 Ariz. App. 367, 370, 548 P.2d 1179, 1182 (1976).

B. The Arizona Standard Fire Policy.

¶ 9 Arizona Revised Statutes ("A.R.S.") section 20-1503 (Supp.2006)⁷ provides that "[n]o policy of fire insurance covering property located in this state shall be made ... unless it conforms as to all provisions and the sequence thereof with the basic policy commonly known as the New York standard fire policy, edition of 1943." The statute designates the New York standard form as the "Arizona standard fire policy," A.R.S. § 20-1503(A), and provides that the director of the Arizona Department of Insurance shall maintain a copy of the standard policy on file, A.R.S. § 20-1503(C).

¶ 10 Because the warranty endorsements that Liberty contended barred coverage are not found in the Arizona Standard Fire Policy, Weitz's motion for summary judgment argued that the warranty endorsements were invalid under Arizona law, and therefore unenforceable. By law, however, inland marine insurance policies are exempt from the Standard Fire Policy requirements imposed by A.R.S. § 20-1503. The exemption is found in A.R.S. § 20-1501 (2002), which states in its entirety: "This article shall not apply to vehicle, casualty, inland marine or ocean marine insurance, or reinsurance." In superior court, Liberty argued that since the builder's risk policy it issued to Weitz was an inland marine policy, the policy was exempt from the Arizona Standard Fire Policy requirements under section 20-1501, and the warranty endorsements therefore were enforceable.

C. The Liberty Policy.

¶ 11 The parties agree that the policy Liberty sold to Weitz was a builder's risk policy. The declarations page of the policy contained the labels "Interest Builder's Risk" and "Scheduled Property Floater."⁸ Nevertheless, the policy also contained language by which it might be said to announce itself as an inland marine policy. Attached to the declarations page of the policy were five pages of "General Terms and Conditions," the first page of which recited that "[t]he following general terms and conditions apply to all Commercial Inland Marine Coverage Forms." Following the General Terms and Conditions was a six-page form labeled "Builder's Risk & Installation Form."

¶ 12 The policy defined "Covered Causes of Loss" to mean "Risks of Direct Physical Loss to Covered Property except those causes of loss not covered."⁹ It defined the "[c]overed [p]roperty" as:

(a) Property which will become a permanent part of buildings or structures which are shown in the Schedule;

(b) Scaffolding, construction forms and temporary structures.

This may be your property or the property of others for which you are legally liable.

In addition, the policy's "Attachment of Coverage" provided as follows:

We cover from the time the property is at your risk starting on or after the time this coverage begins, but we will not cover:

(a) After the owner or buyer accepts the property;

(b) When your interest ceases;

(c) Beyond sixty (60) days after completion of the project;

(d) When each building or structure is occupied for its intended purpose;

(e) When the property is leased or rented to others;

(f) When you abandon the construction with no intention to complete it; or

(g) When this policy expires or is cancelled, whichever occurs first.

(Emphasis omitted.)¹⁰

D. Inland Marine Insurance and Builder's Risk Insurance.

¶ 13 No Arizona court has decided whether a builder's risk policy is fire insurance subject to A.R.S. § 20-1503, or if such a policy may constitute inland marine insurance and thereby be exempt from the Standard Fire Policy requirements pursuant to A.R.S. § 20-1501. Although at first blush it may seem unlikely that a policy issued for an urban construction project in the desert might constitute "marine insurance," there is considerable support for the proposition that a builder's risk policy such as that at issue here might constitute inland marine insurance.

¶ 14 Inland marine insurance is an outgrowth of marine insurance. 1 Eric Mills Holmes...