Nova Cas. Co. v. Able Const., Inc.

• Decision Date: 20 July 1999
• Docket Number: No. 970594.,970594.
• Parties: NOVA CASUALTY COMPANY, Plaintiff and Appellee, v. ABLE CONSTRUCTION, INC., John C. Flagg, Rita M. Killpack, and Ruth Edmonds, Defendants and Appellants.
• Court: Utah Supreme Court

983 P.2d 575

1999 UT 69

NOVA CASUALTY COMPANY, Plaintiff and Appellee, v. ABLE CONSTRUCTION, INC., John C. Flagg, Rita M. Killpack, and Ruth Edmonds, Defendants and Appellants.

No. 970594.

Supreme Court of Utah.

July 20, 1999.

J. Rand Hirschi, Salt Lake City, for plaintiff.

M. Dayle Jeffs, Provo, for defendants.

ZIMMERMAN, Justice:

¶ 1 This case comes to us as an appeal from a trial court's grant of summary judgment in favor of plaintiff Nova Casualty Company ("Nova") in a declaratory judgment action against defendant Able Construction, Inc. ("Able") and John Flagg, Able's owner. Nova asked the trial court to rule that its insurance contract with Able did not require it to defend Able in a lawsuit filed by Ruth M. Killpack and Rita Edmonds, two purchasers of a residence constructed by Able. The court ruled in Nova's favor, and Able brought this appeal. We affirm.

¶ 2 Able is a construction company owned by Flagg. Nova issued Able an insurance policy on May 1, 1992.¹ The policy provided Able with commercial general liability coverage and required Nova to defend and indemnify Able against certain claims filed against it.

¶ 3 In 1993, Able contracted with Killpack and Edmonds to construct a house on a lot, located in the Apple Ridge Subdivision in Utah County, which Killpack and Edmonds had purchased from a third party. Able had previously owned lots in the Apple Ridge Subdivision, including the lot in question, and in 1988, Flagg, Able's owner, had filed restrictive covenants on these lots. Able completed construction of the home in 1994, after which Killpack and Edmonds occupied it. They also began operating a psychotherapy business, Aspen Therapy, from the home. On October 4, 1994, the architectural committee of the subdivision informed Killpack and Edmonds that the restrictive covenants of the subdivision barred the operation of Aspen Therapy and demanded that they cease. Killpack and Edmonds refused, claiming that Flagg had assured them that the subdivision's restrictive covenants would allow them to operate their psychotherapy business from their home. The architectural committee then filed an action against Killpack and Edmonds, seeking to enjoin the business. Upon stipulation, the court ordered Killpack and Edmonds to cease operating the business from their home.

¶ 4 In June of 1996, Killpack and Edmonds filed a complaint against Able and Flagg in the Fourth Judicial District Court. They alleged breach of contract, fraud, negligent misrepresentation, promissory estoppel, and breach of implied warranty. The complaint alleged that before purchasing the lot, Killpack and Edmonds informed Flagg of their desire to operate a psychotherapy business from their home. Their complaint also alleged that in response, Flagg represented that as developer of the subdivision and drafter of the restrictive covenants, he knew that "there would be no restriction against the operation of the psychotherapy business by [Killpack and Edmonds] from their home."

¶ 5 Able then filed a claim on its insurance policy. It asked Nova to defend and indemnify it for any damages it might have to pay Killpack and Edmonds. Nova accepted the defense of Able pursuant to a reservation of rights in the event Nova determined that the policy did not cover the claims involved. On September 16, 1996, Nova sent Able a letter informing it that the insurance policy did not require Nova to defend or indemnify Able. Nova then filed a declaratory judgment action against Able, Edmonds, and Killpack,² seeking a declaration that the insurance policy did not cover the claims. Nova moved for summary judgment. The trial court granted Nova's motion, concluding that the policy's "contract liability exclusion" precluded coverage. Able appealed to this court. On appeal, Nova argues that the trial court was correct in concluding that an exclusion under the policy prevented coverage for claims assumed under a contract. Nova further argues that there are several other grounds for precluding coverage under the policy, all of which were rejected by the trial court. Able contends that a cross-appeal is necessary before we can consider these other arguments.

¶ 6 We set out the standard of review before turning to our analysis. Summary judgment is appropriate when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. See Utah R. Civ. P. 56(c). Interpretation of the terms of a contract is a question of law. Thus, we accord the trial court's legal conclusions regarding the contract no deference and review them for correctness. See AOK Lands, Inc. v. Shand, Morahan & Co., 860 P.2d 924, 925 (Utah 1993)

; Viking Ins. Co. v. Coleman, 927 P.2d 661, 663 (Utah Ct.App.1996).

¶ 7 First, we address Able's contention that we cannot consider arguments rejected by the trial court but renewed on appeal by Nova as alternative grounds for the trial court's ruling. Able asserts that if arguments were raised and rejected below, Nova must cross-appeal from the rejection of those arguments before we can consider them. This argument is without merit. Appellees need to cross-appeal only when "they wish to attack a judgment of a trial court for the purpose of enlarging their own rights or lessening the rights of their opponent." State v. South, 924 P.2d 354, 355 (Utah 1996). If they wish to uphold the trial court's ruling on grounds that were raised but rejected below, a cross-appeal is not necessary. See id. at 356. Here, Nova does not request any change in relief. It was granted summary judgment, and it asks only that the decision of the trial court be affirmed. Therefore, it is free to raise arguments, not accepted below, in support of the ruling.

¶ 8 We next address Nova's duty to defend under the terms of the policy. An insurer's duty to defend is determined by reference to the allegations in the underlying complaint. When those allegations, if proved, could result in liability under the policy, then the insurer has a duty to defend. See Sharon Steel Corp. v. Aetna Cas. & Sur. Co., 931 P.2d 127, 133 (Utah 1997)

(citing Deseret Fed. Sav. & Loan Ass'n v. United States Fidelity & Guar. Co., 714 P.2d 1143, 1146 (Utah 1986)). Therefore, we must examine the allegations in the complaint in light of the applicable provisions of the insurance policy to determine if any duty to defend exists.

¶ 9 There are three provisions in the insurance policy that determine coverage. They are titled "Coverage A," "Coverage B," and "Coverage C." Coverage A applies to bodily injury and property damage, Coverage B applies to personal and advertising injury, and Coverage C applies to medical payments. The trial court only addressed Coverage A, finding it to apply, but then finding the exclusion provision to obviate this coverage. Under the terms of the policy, if any one of the three provisions applies, then the insured is covered under the policy. We, therefore, undertake to consider all these provisions.

¶ 10 We first address Coverage A, which applies to bodily injury and property damage. It provides in relevant part:

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 any "suit" seeking those damages. We may at our discretion investigate any "occurrence" and settle any claim or "suit" that may result....

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;" and

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

¶ 11 We first consider Killpack and Edmonds's tort claims under Coverage A. In the complaint, Killpack and Edmonds allege fraud and negligent misrepresentation. We must determine whether the trial court correctly held that these allegations do not amount to claims for bodily injury or property damage. We will first examine the fraud claim and second, the negligent misrepresentation claim, in light of Coverage A. The fraud claim alleges as follows:

Defendants willfully represented that restrictive covenants would not prevent plaintiffs from pursuing a home occupation of psychotherapy and that approval of the home containing the business facilities would be approved as long as plaintiffs complied with Orem City ordinances relating to home businesses.

Defendants knew that such representations were false or made the representations recklessly, knowing that they had insufficient knowledge upon which to base such representations.

Such fraudulent misrepresentations were made for the purpose of inducing plaintiffs to enter into a contract for the construction of the home upon the premises. Plaintiffs reasonably acted in reliance on the defendants [sic] false representations and in ignorance of their falsity and were induced thereby to construct the home which included the home office facilities.

¶ 12 In determining whether an intentional misrepresentation is an "occurrence" under the general liability insurance policy, we first look to the policy for guidance. According to the definition section of the policy, "`[o]ccurrence' means an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Nothing in the insurance policy defines "accident." We therefore turn to our case law.

¶ 13 In Richards v. Standard Accident Insurance Co., 58 Utah 622, 200 P. 1017 (1921), this court said,

"the word [accident] is descriptive of means which produce effects which are not their natural and probable consequences.... An effect which is the natural and probable consequence of an act or course of action is not an accident, nor is it produced by accidental means. It is either the result of actual design, or it falls under the maxim that every man must be held to

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