St. Paul Fire & Marine Ins. Co. v. Coss

Citation145 Cal.Rptr. 836,80 Cal.App.3d 888
CourtCalifornia Court of Appeals
Decision Date12 May 1978
PartiesST. PAUL FIRE AND MARINE INSURANCE COMPANY, a corporation, Plaintiff and Respondent, v. T. M. COSS, Defendant and Appellant. Civ. 51533.

William Walsh, IV, San Fernando, Thomas P. Kestler, Lancaster and Amy Rehm Hinderer, Edwards, for defendant and appellant.

Hagenbaugh & Murphy, and Larry Klein, Los Angeles, for plaintiff and respondent.

HASTINGS, Associate Justice.

On this appeal we are asked to determine whether a comprehensive general liability insurance policy issued to a general contractor covers a claim for damages by a home owner against the contractor for the contractor's failure to construct the home in a workmanlike manner. Under the facts of this case, we conclude that it does not.

Plaintiff, St. Paul Fire and Marine Insurance Company (St. Paul) issued to the defendant, T. M. Coss (Coss), a comprehensive general liability insurance policy (policy). Coss, a licensed building contractor in the State of California, entered into a contract with Kenneth R. Runyon and Bettye J. Runyon (Runyons) which provided that Coss would construct for the Runyons on their property and pursuant to their plans and specifications a dwelling and garage. The agreement provided that Coss would construct and complete the Runyon residence in a "good, workmanlike and substantial manner."

Coss commenced construction and when it was approximately 85% completed, a dispute arose between Coss and the Runyons in reference to the quality of the work being performed. Coss discontinued the work, and the Runyons sued for damages in the Superior Court. 1 A judgment has now been entered in said case in favor of the Runyons for approximately $60,000. At the time Coss discontinued the work, neither the dwelling nor the garage were in a condition so that they could be used for their intended purposes. No completion or performance bond was obtained with regard to the contract between Coss and the Runyons. Coss demanded that St. Paul defend the action, claiming coverage under his comprehensive policy issued by them. St. Paul, without admitting the coverage, defended Coss at the outset but also brought its action for declaratory relief seeking a determination that it had neither the duty to defend nor the obligation to indemnify Coss with respect to the Runyon action. The case was submitted on a stipulation of facts, written briefs, and oral arguments, and judgment was entered in favor of St. Paul, holding that it had no further obligation to defend or indemnify Coss. This appeal followed.

The policy involved was first issued by St. Paul to Coss on or about April 5, 1971, and was renewed annually thereafter to April 5, 1976. The construction contract entered into between Coss and the Runyons was made on or about April 2, 1973.

The comprehensive general liability insurance section of the St. Paul policy provides as follows:

"The Company will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of:

Coverage A. bodily injury or

Coverage B. property damage

to which this insurance applies, caused by an occurrence, and the Company shall have the right and duty to defend any suit against the Insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, . . . ".

Under the definition section of the policy, property damage is defined as follows:

" 'Property Damage' means (1) physical injury to or destruction of tangible property which occurs during the policy period, including the loss of use thereof at any time resulting therefrom, or (2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period."

In the Runyons' complaint there are 36 particulars as to alleged defect in the work done by Coss. These defects fall into two classifications: the first can be considered defective materials allegedly used by Coss in construction of the dwelling, and the second can be considered defective work on the part of Coss. The damages sought by the Runyons are the costs incurred by them in engaging architects and contractors to correct the defective work of Coss, for loss of use of the house, for having to rent a substitute residence, and for attorney's fees incurred in prosecuting their action against Coss.

The policy defines property damage to mean physical injury to or destruction of tangible property. St. Paul argues that defective materials and workmanship are not physical injury to tangible property. Coss, on the other hand, contends the combination of the two has caused injury to the residence, which is tangible property.

Although a tennis racket is not a home, this issue was raised in Hamilton Die Cast, Inc. v. United States F. & G. Co., (7th Cir. 1975) 508 F.2d 417, where a customer sued the insured for an alleged failure to comply with a contract for supplying tennis racket frames. The insured had withdrawn the frames from the market because of a defective design. Plaintiff contended that there was "property damage" within the terms of a general comprehensive liability insurance policy because the finished product, the tennis rackets, were damaged by reason of the incorporation of the allegedly defective part, the frame. The court rejected this contention and stated: "We do not think that the mere inclusion of a defective component, where no physical harm to the other parts results therefrom, constitutes 'property damage' within the meaning of the policy. For example, if an automobile crash results from the failure of its defective tire, the defective component can be said to have caused 'property damage' to the finished product. If, however, some of the tires purchased by the automobile manufacturer are found to be defective and the manufacturer therefore withdraws its cars from the market, there has not been 'injury to or destruction of tangible property' (within the coverage provisions)." (Id., at pp. 419-420.) In our present case, the defective materials and workmanship concededly produced an inferior home, just as the poorly designed frame produced an imperfect tennis racket. Hamilton Die Cast concludes that poor workmanship on the delivered product is not "property damage" within the terms of the general comprehensive liability policy, and we agree.

Furthermore, the exclusions in the policy, clearly and unambiguously stated, eliminate coverage for the type of damages awarded to the Runyons and now sought by Coss from St. Paul. Under the heading "Exclusions" is found the following pertinent provisions:

"This insurance does not apply: . . . (k) to property damage to premises alienated by the Named Insured arising out of such premises or any part thereof; (l ) to loss of use of tangible property which has not been physically injured or destroyed resulting from (1) a delay in or lack of performance by or on behalf of the Named Insured of any contract or agreement, or (2) the failure of the Named Insured's products or work performed by or on behalf of the Named Insured to meet the level of performance, quality, fitness or durability warranted or represented by the Named Insured . . . ; (n) to property damage to work performed by or on behalf of the Named Insured arising out of the work or any portion thereof, or out of materials, parts or equipment furnished in connection therewith . . .,"

An endorsement to the policy entitled "Broad Form Property Damage" which has the effect of replacing exclusions (j) (not listed above) and (n), provides as follows: "This insurance does not apply . . .

"(w) to property damage . . .

(2) except with respect to liability under a written sidetrack agreement or the use of elevators to . . .

(d) that particular part of any property, not on premises owned by or rented to the Insured.

(i) upon which operations are being performed by or on behalf of the Insured at the time of the property damage arising out of such operations, or

(ii) out of which any property damage arises, or

(iii) the restoration, repair or replacement of which has been made or is necessary by reason of faulty workmanship thereon by or on behalf of the Insured;

(x) with respect to the completed operations hazard (if the insurance otherwise applies to property damage included within such hazard, to property damage to work performed by or on behalf of the Named Insured arising out of the work or any portion thereof, or out of materials parts or equipment furnished in connection therewith. " 2

In Rafeiro v. American Employers' Ins. Co., 5 Cal.App.3d 799, 85 Cal.Rptr. 701 there was a very similar factual situation. Plaintiff had entered into a contract with Wentz Construction company which was to construct for plaintiff two separate apartment buildings. In the lawsuit against Wentz, plaintiff contended that Wentz had either used unsuitable materials or performed unworkmanlike construction. Judgment was awarded to plaintiff for $13,400, and plaintiff then brought an action against American Employers Insurance Co., insurer of Wentz, to recover the amount of the judgment. The insurance policy in question was, to all intents and purposes, the same as the St. Paul policy. The exclusions considered by the court were identical to exclusions (w)(2)(d) (iii) above. The court's opinion discusses the exclusions in detail, and then concludes on page 808, 85 Cal.Rptr. on page 708: "It appears from the above provisions that the insurance furnished, unlike malpractice insurance, was not intended to indemnify the contractor (and through him the owner) for direct damages resulting because the contractor furnished defective materials or workmanship. (Cf. contractor's bond as contemplated by Code Civ.Proc., § 1185.1, subds. (c) and (d); and Civ.Code, §§ 3235 and 3236, as effective ...

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