U.S. Fidelity & Guar. Corp. v. Advance Roofing & Supply Co., Inc.

Citation788 P.2d 1227,163 Ariz. 476
Decision Date14 December 1989
Docket NumberCA-CV,No. 1,1
PartiesUNITED STATES FIDELITY & GUARANTY CORPORATION, a Maryland corporation, Plaintiff-Appellee, v. ADVANCE ROOFING & SUPPLY CO., INC., an Arizona corporation, Defendant-Appellant. 88-003.
CourtCourt of Appeals of Arizona

Jennings, Kepner & Haug by Craig R. Kepner and Michael J. Raymond, Phoenix, for plaintiff-appellee.

Campana, Vieh & Strohm, P.C., by Richard L. Strohm and Scott B. Mitchell, Scottsdale, for defendant-appellant.

LEVI RAY HAIRE, Judge, Retired.

The issues presented in this appeal concern whether the trial court correctly granted declaratory judgment in favor of an insurer, finding that the insurer had no duty to defend an action filed against its insured. The insurer (USF & G) had issued its comprehensive general liability policy covering appellant Advance Roofing & Supply Co., Inc. (Advance Roofing) for "all sums which the Insured shall become legally obligated to pay as damages because of ... property damage to which this insurance applies, caused by an occurrence...." (emphasis in original.)

The coverage issues involved in this appeal arise out of a contract entered into between Advance Roofing and Villas West IV Homeowners Association (Homeowners Association), pursuant to which Advance Roofing contracted to replace all the roofs of 250 units in a housing complex governed by the Homeowners Association. In consideration of Advance Roofing's undertaking to replace the 250 roofs, the Homeowners Association agreed to pay Advance Roofing the total sum of $253,360.00. Upon the alleged breach of that contract by Advance Roofing, the Homeowners Association filed a complaint alleging, among other claims, a breach of contract claim against Advance Roofing.

The Homeowners Association's complaint named as defendants the individual members of its own board of directors as well as four other defendants who had entered into various contracts with the Homeowners Association. The complaint contained 14 separate claims for relief, and in essence alleged that one member of its board of directors had wrongfully and fraudulently diverted and disposed of funds of the Homeowners Association by entering into certain contracts with the four other defendants, leading to personal Against this background we now focus on the specific claim asserted against Advance Roofing. The fourth claim for relief was entitled "Breach of Contract by Advance." It alleged that Advance Roofing had agreed to replace the 250 roofs in consideration of the Association's promise to pay the sum of $253,360. It was further alleged that:

[163 Ariz. 478] profit and gain on that member's part. The complaint sought recovery of the monies paid to these four other defendants pursuant to their contracts with the Association. Claims were asserted against the other members of the board of directors based on negligent breach of fiduciary relationship. Claims against all of the four defendants other than the members of the Association's board of directors were asserted for breach of contract and unjust enrichment, with claims for civil racketeering being asserted against defendants other than Advance Roofing.

"Defendant Advance has failed and refused to perform its obligations under the contract. Upon information and belief, Defendant Advance replaced only 40 roofs, some of which were not replaced as required under the terms of Contract. The work that was performed by Defendant Advance was not completed in accordance with the contract requirements and was not performed in a good and workmanlike manner."

Although from the above quoted allegations of the complaint it appears that Advance Roofing had replaced only 40 of the 250 roofs, and did faulty work on those, it further appears that notwithstanding this almost total lack of performance on Advance's part, Advance had been paid the full amount due under the contract, $253,360. Accordingly, the breach of contract claim against Advance alleged that as a direct and proximate result of Advance Roofing's breach of contract, the Homeowners Association had sustained damages in the full amount of the contract price, $253,360.

The only other claim asserted against Advance Roofing was entitled "Unjust Enrichment." That claim sought recovery of the contract amount, asserting that the Homeowners Association had paid the $253,360 to Advance, and that accordingly Advance had been unjustly enriched at the expense of the Association.

The Homeowners Association's complaint against Advance Roofing and the various other defendants was filed in July, 1986. In October, 1986, Advance Roofing requested that USF & G defend Advance against the claims asserted by the Homeowners Association. USF & G refused to do so, contending that under its policy, it had no obligation to defend or indemnify Advance concerning the claims asserted in the complaint. In order to resolve the controversy concerning its policy obligations, USF & G then filed this action for declaratory judgment, naming both Advance Roofing and the Homeowners Association as defendants.

Some ten months after the filing of the complaint for declaratory judgment, USF & G filed a motion for summary judgment. USF & G contended that there were no disputed issues of material fact and that it was entitled to judgment as a matter of law. Its motion presented three separate grounds for the entry of judgment in its favor. First, USF & G urged that based on certain exclusions in its policy (business risk exclusions), the policy provided no coverage for property damage liability which Advance Roofing might have incurred for property damages arising out of Advance's performance of its contract with the Homeowners Association.

USF & G's second argument was that even if the business risk exclusions were inapplicable, its policy provided liability coverage for bodily injury and property damages only, and that no such damages were sought in the claims alleged against Advance in the Homeowners Association's complaint. USF & G's third argument, somewhat related to its second argument, was that in any event coverage under its policy was limited to property damages caused by an occurrence, and that the complaint did not present a claim based on an occurrence as defined in the policy.

In granting USF & G's motion for summary judgment, the trial judge did not find it necessary to consider USF & G's first argument based on the business risk exclusions in the policy. Rather, the summary judgment was based upon USF & G's second and third arguments that the complaint did not seek property damages, and that if property damages were sought, they were not the result of an occurrence as defined in the policy. The trial judge's minute entry order granting summary judgment stated, in pertinent part:

"Counsel agree that the policy does NOT cover Count 8, the unjust enrichment count and further agree that the policy does not cover economic losses in Count 4 which is breach of contract seeking damages in the anticipated benefit of the bargain measure.

"A careful reading of the underlying complaint in C 586297 does not disclose a claim for property damages as a result of an occurrence. In an answer to an interrogatory there is suggested that there was some water damage to some homeowner's property (furniture) but that is not alleged nor have any invoices, etc. been made part of the record. In addition, there is no claim that the Homeowner's Assn. has any right to sue for such property damage.

"There being no genuinely contested issue of material fact and the law favoring the position of plaintiff, ORDERED granting plaintiff's Motion for Summary Judgment and denying defendant Advance Roofing's Cross Motion for Summary Judgment."

THE BUSINESS RISK EXCLUSIONS

Although the parties have devoted a substantial part of their briefs in this appeal to USF & G's contention that the provisions in its policy relating to the business risk exclusions preclude any possibility of coverage, we find it unnecessary to consider that issue. First, as we have previously noted, the trial court did not consider that issue in granting summary judgment in favor of USF & G. More importantly, even though USF & G has presented strong arguments in favor of its position on that issue, it is our opinion that the Arizona Supreme Court's decision in Federal Insurance Co. v. P.A.T. Homes, Inc., 113 Ariz. 136, 547 P.2d 1050 (1976), precludes our adoption of the policy interpretation urged by USF & G. We therefore turn to the other issues presented on appeal.

THE DAMAGE ALLEGATIONS

Advance Roofing first argues that, contrary to USF & G's contentions, the Homeowners Association's complaint does allege a claim for property damages against Advance. To support this contention, Advance points solely to the allegation in the breach of contract claim that: "the work that was performed by Defendant Advance was not completed in accordance with the contract requirements and was not performed in a good and workmanlike manner." We reject Advance's contention that this can be considered as constituting a claim for property damage in the context of the breach of contract claim filed by the Homeowners Association.

Obviously the complaint does not expressly allege property damage. The claim against Advance is denominated "breach of contract" and the Homeowners Association seeks damages equal to the original contract price which the Association had paid in full to Advance prior to Advance's breach. The only damage complained of was that Advance had replaced only 40 of the 250 roofs, "some of which were not replaced as required under the terms of the contract" and that the work that was performed by Advance "was not completed in accordance with the contract requirements and was not performed in a good and workmanlike manner." Immediately following these allegations is the following:

"Plaintiff has demanded that the...

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