Pavlicek v. Am. Steel Sys., Inc.

• Decision Date: 18 February 2022
• Docket Number: 20210116
• Citation: 970 N.W.2d 171
• Parties: Larry PAVLICEK, Plaintiff and Appellee v. AMERICAN STEEL SYSTEMS, INC., Gabriel Construction Services, LLC, Door Pro, Inc., Dickinson Ready-Mix, Co., and JRC Construction, LLC, Defendants and Grinnell Mutual Reinsurance Company, Garnishee and Appellant
• Court: North Dakota Supreme Court

970 N.W.2d 171

Larry PAVLICEK, Plaintiff and Appellee

v. AMERICAN STEEL SYSTEMS, INC., Gabriel Construction Services, LLC, Door Pro, Inc., Dickinson Ready-Mix, Co., and JRC Construction, LLC, DefendantsandGrinnell Mutual Reinsurance Company, Garnishee and Appellant

No. 20210116

Supreme Court of North Dakota.

FILED FEBRUARY 18, 2022

Craig E. Johnson, Fargo, ND, for plaintiff and appellee.

Chris A. Edison (argued) and Matthew S. Menge (on brief), Bismarck, ND, for garnishee and appellant.

Crothers, Justice.

[¶1] Grinnell Mutual Reinsurance Company appeals from a district court judgment ordering it to pay Larry Pavlicek $214,045.55 under a commercial general liability insurance (CGL) policy Grinnell had with JRC Construction. Grinnell argues the district court misinterpreted the insurance policy. Grinnell claims it is not required to indemnify JRC Construction because its work product was defective. We affirm in part, reverse in part and remand.

I

[¶2] In 2013, Pavlicek hired a contractor to construct a steel building on his property. JRC Construction installed the concrete floor and floor drain for the project. Another subcontractor installed the in-floor heating system for the concrete floor. Throughout the project, Grinnell insured JRC under a CGL policy, effective from July 30, 2012 through July 30, 2013.

[¶3] After JRC completed the floor drain, it failed to properly install the concrete floor, and its attempts to repair the concrete damaged the drain. Pavlicek sued JRC for breach of contract relating to the defective work. After a December 2017 trial, the jury awarded Pavlicek $217,244.55 in damages against JRC for replacement of the concrete floor, drain and in-floor heating system.

[¶4] In February 2020, Pavlicek filed a supplemental complaint against Grinnell, alleging it was required to satisfy the judgment as JRC's insurer. Grinnell claimed it had no obligation to indemnify JRC under the CGL policy. Grinnell asserted Pavlicek's damages were not covered under the CGL policy.

[¶5] Pavlicek and Grinnell waived trial, relying on evidence from the 2017 trial and interpretation of the insurance policy. The district court concluded JRC's defective work on the concrete floor was not covered under the CGL policy. The court concluded the damage to the floor drain was covered under the policy. The court found the floor drain could only be repaired by removing and replacing the concrete floor. The court also found replacement of the floor would destroy the in-floor heating system. Because removal and replacement of the floor and in-floor heat were necessary to repair the drain the court concluded the CGL policy covered all of those costs. The court concluded the CGL policy covered $214,045.55 of the $217,244.55 judgment awarded to Pavlicek.

II

[¶6] The district court made findings of fact and conclusions of law on the basis of the evidence presented at the 2017 trial.

"In an appeal from a bench trial, the district court's findings of fact are reviewed under the clearly erroneous standard of review, and its conclusions of law are fully reviewable. A finding of fact is clearly erroneous if it is induced by an erroneous view of the law, if there is no evidence to support it, or if, after reviewing all of the evidence, this Court is convinced a mistake has been made. In a bench trial, the district court is the determiner of credibility issues and we will not second-guess the district court on its credibility determinations. Findings of the trial court are presumptively correct."

Gimbel v. Magrum , 2020 ND 181, ¶ 5, 947 N.W.2d 891 (cleaned up).

III

[¶7] Grinnell argues the district court erred in its interpretation of the CGL policy. Grinnell claims the policy does not cover the cost of replacing the concrete floor, in-floor heating system and floor drain. Grinnell also contends the policy excludes coverage for damage to JRC's work.

[¶8] Grinnell's arguments involve the interpretation of its CGL policy with JRC, which is a question of law fully reviewable on appeal. ACUITY v. Burd & Smith Constr., Inc. , 2006 ND 187, ¶ 7, 721 N.W.2d 33. We have summarized our standards for construing an insurance contract:

"Our goal when interpreting insurance policies, as when construing other contracts, is to give effect to the mutual intention of the parties as it existed at the time of contracting. We look first to the language of the insurance contract, and if the policy language is clear on its face, there is no room for construction. If coverage hinges on an undefined term, we apply the plain, ordinary meaning of the term in interpreting the contract. While we regard insurance policies as adhesion contracts and resolve ambiguities in favor of the insured, we will not rewrite a contract to impose liability on an insurer if the policy unambiguously precludes coverage. We will not strain the definition of an undefined term to provide coverage for the insured. We construe insurance contracts as a whole to give meaning and effect to each clause, if possible. The whole of a contract is to be taken together to give effect to every part, and each clause is to help interpret the others."

Id. See also N.D.C.C. §§ 9-07-02, 9-07-03, 9-07-06.

[¶9] When interpreting an insurance policy, we will first examine the coverages provided by the policy before examining a policy's exclusions from coverage.

K & L Homes, Inc. v. Am. Fam. Mut. Ins. Co. , 2013 ND 57, ¶ 9, 829 N.W.2d 724. If a coverage provision applies to the harm at issue, then we will review the policy's exclusions and limitations of coverage. Id. "Exclusions from coverage in an insurance contract must be clear and explicit and are strictly construed against the insurer." Id. at ¶ 8 (quoting Tibert v. Nodak Mut. Ins. Co. , 2012 ND 81, ¶ 9, 816 N.W.2d 31 ). Although a policy's exclusionary provisions are strictly construed, this Court will not rewrite a policy to impose liability on the insurer when the policy unambiguously excludes coverage. K & L Homes, at ¶ 8.

[¶10] Here, the CGL policy provides coverage for property damage caused by the insured if the property damage results from an occurrence during the policy period. The CGL policy defines "property damage" as: "(a) [p]hysical injury to tangible property, including all resulting loss of use of that property; or (b) [l]oss of use of tangible property that is not physically injured." " ‘Occurrence’ means an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Accident has been defined as "happening by chance, unexpectedly taking place, not according to the usual course of things." ACUITY , 2006 ND 187, ¶ 14, 721 N.W.2d 33 (quoting Wall v. Penn. Life Ins. Co. , 274 N.W.2d 208, 216 (N.D. 1979) ). "[P]roperty damage caused by faulty workmanship is a covered occurrence to the extent the faulty workmanship causes bodily injury or property damage to property other than the insured's work product." ACUITY , at ¶ 16.

[¶11] The CGL policy contains several exclusions to coverage, including a "Damage To Your Work" exclusion. The damage to your work exclusion states the insurance does not apply to: " ‘Property Damage’ to ‘your work’ arising out of it or any part of it and included in the ‘products-completed operations hazard.’ "

[¶12] The CGL policy defines "[y]our work" as "[w]ork or operations performed by you or on your behalf." "Products-completed operations hazard" is defined as:

"a. 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) Products that are still in your physical possession; or

(2) Work that has not yet been completed or abandoned. However, ‘your work’ will be deemed completed at the earliest of the following times:

(a) When all of the work called for in your contract has been completed.

(b) When all of the work to be done at the job site has been completed if your contract calls for work at more than one job site.

(c) When that part of the work done at the job site has been put to its intended use by any other person or organization other than another contractor or subcontractor working on the same project.

Work that may need service, maintenance, correction, repair or replacement, but which is otherwise complete, will be treated as completed."

[¶13] In Fisher v. Am. Fam. Mut. Ins. Co. , 1998 ND 109, ¶ 15, 579 N.W.2d 599, this Court construed a similar damage to your work exclusion:

"The injury to products or work exclusion is intended to exclude insurance for damage to the insured's product or work, but not for damage caused by the insured's product or work. Thus, the exclusion does not apply where the product or work causes damages to other persons or property. In such a situation, while there would not be coverage for damage to the work or product itself, damages caused by the product to other work or products would be covered.

"The injury to work or products exclusion is consistent with the goal of the CGL, which is to protect the insured from the claims of injury or damage to others, but not to insure against economic loss sustained by the insured due to repairing or replacing its own defective work or products."

(quoting 3 Rowland H. Long, The Law of Liability Insurance § 11.09[2] (1998)).

A

[¶14] Grinnell argues the district court erred in concluding the CGL policy covered the damage to the floor drain. Grinnell claims the damage to your work exclusion of the CGL policy excludes the damage to the drain because the drain was JRC's work as defined in the policy.

[¶15] The declarations page of the CGL policy provides coverage for "Products-Completed Operations" in the aggregate limit of $2,000,000. The policy includes an endorsement stating: "The most we will pay for ... [a]ll ‘bodily injury’ or ‘property damage’ that is included in the ‘products-completed operations hazard’ arising from all ‘occurrences’ during the policy period is the amount of the Products-Completed Operations Aggregate...