Trus Joist Corp. v. Safeco Ins. Co. of America, 1
| Decision Date | 30 September 1986 |
| Docket Number | CA-CIV,No. 1,1 |
| Citation | 153 Ariz. 95,735 P.2d 125 |
| Parties | TRUS JOIST CORPORATION, and American Bankers Insurance Company of Florida, individually and as assignee of Trus Joist Corporation, Plaintiffs Counterdefendants-Appellees, Cross-Appellants, v. SAFECO INSURANCE COMPANY OF AMERICA, Defendant Counterclaimant-Appellant, Cross-Appellee. 7367. |
| Court | Arizona Court of Appeals |
Jennings, Strouss & Salmon by M. Byron Lewis, Stephen A. Myers, Kevin J. Worthen, Phoenix, for plaintiffs counterdefendants-appellees, cross-appellants.
Kunz & Waugh, Ltd. by Donald R. Kunz, Phoenix, for defendant counterclaimant-appellant, cross-appellee.
This case involves several appeals and cross appeals from three separate judgments arising from appellees, cross-appellants' (plaintiffs') suit for breach of an insurance contract and bad faith. To say that the facts and procedural history are unique and somewhat complex would be an understatement.
Trus Joist Corporation (Trus Joist), appellee, cross-appellant, is a Nevada corporation that designs and manufactures building trusses which are the structural supports that hold up the roofs and floors of buildings. As part of its comprehensive liability protection plan, Trus Joist carried the following liability insurance coverage:
1) a primary policy for $250,000 with Safeco Insurance Company of America (Safeco), appellant, cross-appellee;
2) a $1,000,000 umbrella policy providing excess coverage from American Bankers Insurance Company of Florida (American Bankers), appellee, cross-appellant.
The Safeco policy provided very comprehensive coverage to Trus Joist for a variety Sometime in 1975, Trus Joist was hired by a local general contractor to design and manufacture trusses for a new automobile showroom being built for Chapman Chevrolet in Tempe. Chapman was in the business of selling new and used cars and desired to move its location from Chandler to a much larger facility.
[153 Ariz. 97] of potential losses. In return for such protection, Trus Joist paid an extraordinarily high annual premium of $62,500.
Trus Joist had its nonengineer employees design the required trusses for the planned showroom. The design and specifications for these trusses were subsequently approved by a licensed engineer, Fred Miller. Trus Joist then sent the plans and specifications for the trusses, along with the material for building the trusses, to the general contractor for installation. After reviewing the plans and specifications for the trusses, the general contractor contacted Trus Joist several times about what it perceived to be an error in the trusses' design. 1 Trus Joist responded each time by informing the general contractor that this was a new type of truss and that there would be no problems. The trusses were thereafter installed and a new roof constructed over them.
On August 18, 1976, several of the trusses failed due to a clear design defect, causing a major portion of the unfinished showroom's roof to collapse. No personal injuries resulted from this "falldown," as it is termed in the industry, but extensive physical damage was done to the building site. Trus Joist immediately contacted Safeco about the falldown since the general contractor, roofing subcontractor, and Chapman Chevrolet were all holding Trus Joist responsible for their damages.
Safeco began an immediate investigation. By the end of August, it had gathered sufficient information to permit it to estimate that the damages from the falldown would probably exceed Safeco's $250,000 policy limit. However, the company desired further investigation into the cause of the falldown and the nature of the claimed damages.
By early September, 1976, Trus Joist had notified Safeco of its belief that it was clearly responsible for the falldown and that it wanted a quick settlement of the claims against it in order to avoid a costly law suit which could harm the company's reputation. Safeco informed Trus Joist that its investigation was not yet complete and that it was in no position to settle any of the claims.
On September 28, 1976, in an effort to speed Safeco's investigation along in the hope of obtaining a quick settlement, Trus Joist sent Safeco an itemized list of the damages claimed against it. These damages exceeded $300,000. Safeco still refused to consider settling the claims, saying that its investigation was not yet complete.
Because of Safeco's unwillingness to discuss settlement, the claimants threatened to bring suit against Trus Joist for the damages arising from the falldown. They agreed, however, to meet with Trus Joist on October 14, 1976, in a final attempt to settle. Prior to this meeting, Trus Joist contacted Safeco about the possibility of allowing Trus Joist to settle with the claimants on its own without waiving any of its rights to reimbursement from Safeco for monies due under the policy. 2 Safeco agreed on the condition that Trus Joist consent to a reduction of the policy limits from $250,000 to $230,000 and that it further agree that any dispute as to the amount of reimbursement due under the policy would render the entire amount subject to arbitration upon demand by either party. A written contract incorporating these modifications to the insurance policy was signed on October 11, 1976.
On October 14, 1976, Trus Joist met with the claimants. Representatives from both Safeco and American Bankers were Subsequently, Safeco appraised the prior claimants' damages and offered Trus Joist $195,000 as reimbursement under the October 11 agreement. 3 Trus Joist rejected this offer and on December 28, 1976, demanded arbitration. Arbitration was pending for approximately a year and a half without a hearing. Trus Joist eventually filed suit against Safeco on April 4, 1978, claiming breach of the insurance contract and bad faith. 4 American Bankers subsequently joined in this action as a plaintiff.
[153 Ariz. 98] present. However, Safeco's representative refused to participate in the settlement negotiations, stating that he was present only as an "observer." Because the claimants were demanding more than $250,000 in damages, Trus Joist refused to settle on its own and prepared to walk away from the negotiations. American Bankers, realizing that litigation would drive up costs and that it would be liable as the excess carrier for any award against Trus Joist over Safeco's policy limits, urged settlement. To this end, it agreed to pay $250,000 to settle the claims against Trus Joist and to release it from any liability in return for an assignment of Trus Joist's right to reimbursement from Safeco under the October 11 agreement. Trus Joist agreed and the third party claims were settled for $256,000. Of this amount, American Bankers paid $253,000 and Trus Joist $3,000
During discovery, Safeco learned that Fred Miller, the engineer who approved the truss plans and specifications, was not an employee of Trus Joist, but was an independent consultant. As a result, Safeco claimed that it owed no coverage to Trus Joist under exclusion (h) of the policy, which reads:
This insurance does not apply:
* * *
* * *
(h) to contractual liability assumed by the insured, if the insured or his indemnitee is an architect, engineer or surveyor, for ... property damage arising out of the rendering of or the failure to render professional services by such insured or indemnitee, including
1) the preparation or approval of ... designs or specifications....
(Emphasis in original.) Trus Joist responded by pointing out that Safeco had specifically conceded coverage for the falldown in the October 11, 1976 agreement and was therefore barred from raising any coverage issues. Safeco consequently filed a counterclaim seeking rescission of the October 11 agreement due to Trus Joist's alleged fraudulent misrepresentation as to Fred Miller's employment status with Trus Joist.
The trial court divided the proceeding into three separate trials or "phases," each dealing with a specific aspect of the case. Phase I dealt solely with the issue of whether exclusion (h) of Safeco's policy precluded coverage for Trus Joist. The court granted summary judgment to Trus Joist on this issue, holding that coverage did exist.
Phase II dealt solely with the issue of Safeco's requested rescission of the October 11 agreement between Trus Joist and Safeco. Trus Joist agreed to Safeco's requested rescission. The court therefore found no triable issue and entered summary judgment granting rescission.
Phase III consisted of a jury trial on the breach of contract and bad faith claims. After trial, the jury returned a single verdict against Safeco for $267,434 in compensatory damages for breach of contract and bad faith and $10,000,000 in punitive damages. Safeco subsequently filed a timely motion for a new trial which was granted on the grounds that the trial court gave improper instructions to the jury on the bad faith claim. The trial court vacated the jury's award but entered a judgment on behalf of Trus Joist and American Bankers for $250,000, with prejudgment interest, on the breach of contract claim. The court ordered a new trial on the bad faith claim and awarded the plaintiffs attorney's fees in the sum of $103,499.
All parties now appeal raising numerous issues regarding all three phases of the proceeding in the trial court. Because of the breadth of the issues and the interplay that they have with one another, we will address the issues as they relate to the trial court's rulings as follows:
1) the summary judgment granted to Trus Joist and American Bankers on the issue of whether Trus Joist had coverage under the Safeco policy;
2) the order granting rescission of the October 11, 1976 agreement;
3) the order granting a new trial on the issue of bad faith;
4) the entry of a judgment in favor of Trus Joist and American Bankers...
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