Pursell Const. v. Hawkeye-Security Ins., 97-2370.
| Decision Date | 08 July 1999 |
| Docket Number | No. 97-2370.,97-2370. |
| Citation | 596 N.W.2d 67 |
| Parties | PURSELL CONSTRUCTION, INC., Appellee, v. HAWKEYE-SECURITY INSURANCE COMPANY, Appellant. |
| Court | Iowa Supreme Court |
Gregory G. Barntsen of Smith Peterson Law Firm, Council Bluffs, for appellant. Peter J. Peters of Peter J. Peters, P.C., Council Bluffs, for appellee.
Considered by HARRIS, P.J., and CARTER, LAVORATO, NEUMAN, and TERNUS, JJ.
In this declaratory judgment proceeding, Pursell Construction, Inc. sued Site Search Hawkeye-Security Insurance Company under a policy Hawkeye had issued to Pursell. Pursell asked the district court to determine whether Hawkeye had coverage regarding a claim for breach of contract and negligent work on a construction project. Pursell also sought a determination that Hawkeye had a duty to defend Pursell against the claim. The policy in question is a general commercial liability insurance policy that includes a products-completed operations hazard provision. Hawkeye appeals a district court ruling that (1) the claim against Pursell involved an occurrence triggering coverage under the policy, (2) there was property damage covered by the policy, and (3) the policy exclusions did not preclude coverage. We reverse as to the first issue and remand with directions.
K.P. Investments, Inc. hired Pursell to build basements, footings, block works, sidewalks, and driveways for two houses K.P. was building in Council Bluffs in 1995. The construction sites were in a floodplain. The city ordinance required the lowest level of the two houses to be elevated above the floodplain. However, a final city inspection revealed that the lowest level of each house fell below the floodplain and thus violated the ordinance. As a result of this violation, K.P. could not legally occupy, rent, or sell the two houses.
To bring the two houses into compliance with the ordinance, K.P. hired contractors to raise the level of the houses approximately two feet by (1) adding dirt over the existing lower level concrete floors Pursell had constructed, (2) raising the plumbing and pouring another concrete floor on the fill dirt, and (3) constructing knee walls of wood on top of the concrete block to raise the level of the second floor of the houses. Additionally, the contractors had to make other necessary modifications such as constructing new duct work to accommodate the new elevation of the basement floors.
K.P. sued Pursell on theories of breach of contract and negligence for failing to construct the lowest floor of the houses at the elevation required by the city ordinance.
Pursell then brought this declaratory judgment action against Hawkeye. Pursell asked the district court to determine both Pursell's and Hawkeye's rights regarding K.P.'s claims against Pursell under the general commercial liability policy that Hawkeye had issued to Pursell. Hawkeye answered, denying coverage for the claims under the policy and denying it had a duty to defend Pursell against the claims. Hawkeye asserted three grounds for the denials: (1) K.P.'s claims against Pursell are not based on an "occurrence" within the meaning of the policy, (2) the claims are not for "property damage" as defined in the policy, and (3) several exclusions under the policy apply to the claims.
The district court determined the policy did provide coverage for the claims, concluding that there was an "occurrence" and "property damage" as defined in the policy. The court also concluded that the exclusions Hawkeye relied on were indeed applicable to the claims. The court nevertheless concluded the exclusions conflicted with the coverage available under the products-completed operations hazard provision. Because of this conflict, the court ultimately found the policy was ambiguous and construed the ambiguity against Hawkeye. Additionally, the court concluded Hawkeye had a duty to defend Pursell against K.P.'s claims. On appeal Hawkeye challenges these conclusions, contending there was no coverage and therefore no duty to defend.
We review a declaratory judgment action either for correction of errors at law or de novo, depending on whether the case was tried at law or in equity. Mead v. Iowa State Bd. of Parole, 331 N.W.2d 102, 103 (Iowa 1983). Because this case was tried as a law action, our review is for correction of errors at law.
7A John Alan Appleman, Insurance Law and Practice § 4508.3, at 388-90 (Berdal ed.1979) (footnote omitted) [hereinafter Appleman].
Before proceeding to our analysis of whether there was coverage, we think it would be helpful to explain how the PCOH provision fits into a CGL policy. A CGL policy, like every other insurance policy, has an insuring clause under which the insurer agrees to pay sums that the insured becomes legally obligated to pay because of property damages caused by an occurrence. The CGL policy also has exclusions that take away some of this coverage. The PCOH provision is an exception to these exclusions. Or, stated in another way, the PCOH provision is simply a category of losses that are covered even though these losses might otherwise be excluded. Viewed in this light, the PCOH provision does not create a separate category of coverage. Rather, any loss falling within the PCOH provision must still meet all the requirements of the policy, like any other loss, except the exclusion from which the losses are excepted. See generally 1 Eric Mills Holmes & Mark S. Rhodes, Appleman on Insurance (Second) § 4.20, at 473 (1996).
From this discussion, it appears our framework of analysis for determining coverage may involve three steps. First, we look to the insuring agreement. If there is coverage, we look next to the exclusions. Last, if any exclusions apply, we then consider whether the PCOH provision is an exception to the exclusion. Here, our analysis ends with the first step because for reasons that follow we conclude that under the insuring agreement there was no coverage.
B. Analysis. The insuring agreement portion of the policy here provides in pertinent part:
1. Insuring Agreement.
The parties stipulated there was no physical damage to the house. Pursell, however, contends there was loss of use of the houses because K.P. could neither rent nor sell the houses. Hawkeye contends K.P. did not ask for loss of use; it only asked for the damages to put the houses at the proper elevations. Hawkeye also contends loss of use is an economic loss not recoverable in tort and therefore not recoverable under the policy. We assume, without deciding, that such loss of use is a recoverable element of damages under the policy.
But our inquiry does not end here. Because "property damage" is insured only when "caused by an occurrence," the core issue in this appeal is whether the damage for which Pursell seeks coverage resulted from an occurrence.
The policy defines "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." (Emphasis added.)
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