Pamperin Rentals II, LLC v. R.G. Hendricks & Sons Constr., Inc.

• Decision Date: 10 October 2012
• Docket Number: No. 2011AP2544.,2011AP2544.
• Citation: 2012 WI App 125,825 N.W.2d 297,344 Wis.2d 669
• Court: Wisconsin Court of Appeals
• Parties: PAMPERIN RENTALS II, LLC, Pamperin Rentals III, LLC, Airport Shell, Inc., Brookside Shell, LLC, D/D Williamson, LLC, Grand Central, LLC and PJ's of DePere, LLP, Plaintiffs, v. R.G. HENDRICKS & SONS CONSTRUCTION, INC., Defendant–Appellant. ABC Insurance Company, Red–D–Mix Concrete, Inc., AMCO Insurance Company and Nationwide Mutual Insurance Company, Defendants, Pekin Insurance Company, Intervenor–Respondent.

344 Wis.2d 669

825 N.W.2d 297

2012 WI App 125

PAMPERIN RENTALS II, LLC, Pamperin Rentals III, LLC, Airport Shell, Inc., Brookside Shell, LLC, D/D Williamson, LLC, Grand Central, LLC and PJ's of DePere, LLP, Plaintiffs,

v.R.G. HENDRICKS & SONS CONSTRUCTION, INC., Defendant–Appellant.^†

ABC Insurance Company, Red–D–Mix Concrete, Inc., AMCO Insurance Company and Nationwide Mutual Insurance Company, Defendants,

Pekin Insurance Company, Intervenor–Respondent.

No. 2011AP2544.

Court of Appeals of Wisconsin.

Submitted on Briefs Aug. 14, 2012.

Opinion Filed Oct. 10, 2012.

On behalf of the defendant-appellant, the cause was submitted on the briefs of April Rockstead Barker and Kurt A. Goehre of Liebmann, Conway, Oleniczak & Jerry, S.C., Green Bay.

On behalf of the intervenor-respondent, the cause was submitted on the brief of Susan R. Tyndall of CMT Legal Group, Ltd., Waukesha.

Before HOOVER, P.J., PETERSON and MANGERSON, JJ.

HOOVER, P.J.

[344 Wis.2d 671]¶ 1 R.G. Hendricks & Sons Construction, Inc., appeals a summary judgment dismissing Pekin Insurance Company from the action. The court concluded that Pekin's policy afforded no coverage for the claims asserted against Hendricks, and that Pekin therefore had no duty to indemnify or further defend Hendricks. Hendricks argues the policy does afford coverage. We disagree, and affirm.

BACKGROUND

¶ 2 This case arises from the construction of several service stations. Hendricks contracted to “prepare the site and supply and install concrete, stamped concrete, and colored concrete....” Pamperin Rentals II, LLC and others (collectively, Pamperin) sued Hendricks, alleging the concrete Hendricks supplied and installed “was defective and/or the work performed was not done in a workmanlike manner and has resulted in damages, including pitting and deterioration of the concrete, and will require replacement.” Pamperin further alleged:

That [Hendricks's] breach has and will cause the Plaintiffs damages, including, but not limited to, concrete and asphalt repair, all appropriate testing for the installation of replacement concrete, all incidental and consequential damages related to the tear-out and replacement of concrete and asphalt, business interruption and lost profits, and all incidental and consequential damages including contractual liabilities related to business interruption.

¶ 3 Hendricks's insurer, Pekin, agreed to provide a defense, subject to a reservation of its right to later contest coverage. During discovery, Pamperin disclosed that only the concrete had suffered physical damage. The alleged business interruption and physical damage to asphalt were merely expected future harms to be incurred when the concrete itself was repaired or replaced.

¶ 4 Pekin moved for summary judgment, arguing it had no duty to indemnify or further defend Hendricks because there was no policy coverage for Pamperin's alleged damage. Pekin argued there was no occurrence in the first instance and, additionally, the business risks exclusions applied to bar coverage. Specifically, Pekin argued exclusions k. and l. applied, which preclude coverage for damage to the insured's product and work, respectively. The court granted Pekin's motion, holding there was no occurrence. Hendricks now appeals.

DISCUSSION

¶ 5 The parties dispute whether Pekin has a duty to indemnify and further defend Hendricks. Where an insurer has provided an initial defense pending a final coverage determination, the “four-corners rule”—related to the duty-to-defend inquiry—is not implicated. Olson v. Farrar, 2012 WI 3, ¶ 34, 338 Wis.2d 215, 809 N.W.2d 1. Instead, the court simply proceeds to a coverage determination. Id. The court may consider extrinsic evidence and, if there is no arguable coverage, determineon summary judgment that there is no duty to indemnify. Id., ¶¶ 35–37. “ ‘The insurer's duty to continue to defend is contingent upon the court's determination that the insured has coverage if the plaintiff proves his case.’ ” Id., ¶ 38 (quoting Estate of Sustache v. American Family Mut. Ins. Co., 2008 WI 87, ¶ 29, 311 Wis.2d 548, 751 N.W.2d 845). Thus, when a court concludes there is no duty to indemnify, the insurer is relieved of its duty to further defend the insured. See also Baumann v. Elliott, 2005 WI App 186, ¶¶ 9–10, 286 Wis.2d 667, 704 N.W.2d 361.

¶ 6 As relevant here, Hendricks's commercial general liability (CGL) policy affords coverage when an “occurrence” causes “property damage.” The policy defines property damage as:

a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or

b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the “occurrence” that caused it.

[344 Wis.2d 674]¶ 7 Hendricks argues both definitions apply here because, regardless of the alleged damage to Hendricks's own product or work,¹ Pamperin alleges physical injury to asphalt and plumbing, and loss of use of its stores and carwash bays. Hendricks fails to acknowledge, however, that no such physical injury or loss of use has happened. Thus, there is no “property damage” subject to coverage.²

[344 Wis.2d 675][5] ¶ 8 Hendricks next contends there is policy coverage because Hendricks paid a separate premium for products—completed operations coverage. It asserts that, because this is therefore a separate, purportedly expensive, coverage, the business risks exclusions do not apply.

¶ 9 The policy structure and language do not support Hendricks's argument. The policy's common declarations page explains the policy is comprised of three parts: a CGL coverage part, a commercial inland marine coverage part, and a commercial property coverage part. This page also sets forth the premium for each part. The CGL coverage part declarations pages, in turn, specify multiple limits of insurance, including a “general aggregate limit (other than products—completed operations)” and a “products—completed operations aggregate limit,” both of which are $2,000,000. These pages further break out the CGL coverage part's premium. Pekin charged $3,545 for the “premises/operations” portion of the CGL coverage part and $594 for the “products/completed operations” portion.³ Together, these charges match the premium specified for the CGL coverage part as specified on the common declarations page.⁴ In addition to the two-page declarations, the CGL coverage part includes an eleven-page CGL coverage form. This form contains all of the insurance provisions that are relevant here.

¶ 10 The CGL coverage form is divided into the following five sections: I—Coverages; II—Who is an insured; III—Limits of insurance; IV—Commercial general liability conditions; and V—Definitions. Section I is subdivided into the following three separate coverages: Coverage A. Bodily injury and property damage liability; Coverage B. Personal and advertising injury liability; and Coverage C. Medical payments. Each of the three coverages sets forth its own insuring agreement and contains its own set of exclusions.

¶ 11 Coverage A. indicates it covers liability for personal injury or property damage caused by an occurrence. Coverage A. includes numerous exclusions, several of which explicitly state they do or do not apply to the “products—completed operations hazard.” As set forth above, there is no separate coverage identified specifically for products—completed operations. Thus, it is apparent that that risk is part of Coverage A. This is confirmed by Section V—Definitions, which explains that the “ ‘Products—completed operations hazard’ includes all ‘bodily injury’ and ‘property damage’ occurring away from premises you own or rent and arising out of ‘your product’ or ‘your work’ except: (1) Productsthat are still in your physical possession; or (2) Work that has not yet been completed or abandoned.

¶ 12 Thus, a plain reading of the policy reveals that it merely recognizes two types of property damage and personal injury risks—those arising from property or operations under the insured's control, and those arising from products or work over which the insured has relinquished control—and provides separate limits of coverage for each type of risk. The fact that the insured pays a separate (substantially discounted) premium for the (apparently diminished) risk of liability associated with products or work for which it has relinquished control does not dictate that the risk magically becomes a separate coveragegrant with its own insuring agreement and set of exclusions. Rather, the products—completed operations hazard is plainly a component of Coverage A., which insures for bodily injury and property damage liability.

¶ 13 Hendricks asserts that the policy definition of “products—completed operations hazard” itself is an independent grant of coverage, subject to no exclusions or occurrence requirement. That interpretation is unreasonable at best. No reasonable insured would turn to the policy's definitions section, rather than the coverages section, to locate the grants of coverage. Moreover, the definition does not purport to define a coverage; instead, it defines a “hazard.”

¶ 14 Hendricks also relies on Robert E. Lee & Associates, Inc. v. Peters, 206 Wis.2d 509, 557 N.W.2d 457 (Ct.App.1996). There, we held the policy's CGL pollution exclusion did not apply to products—completed operations coverage. Id. at 526, 557 N.W.2d 457. That case, however, involved an altogether different insuring agreement. We explained:

Coverage A and the CGL products/completed operations form appear in separate sections of the insurance policy. Although the CGL products/completed operations clause contains a long list of its own exclusions, some of which are identical to those in Coverage A's absolute pollution exclusion, it does not contain its own pollution exclusion clause. If the exclusions in Coverage A...