Vari Builders, Inc. v. U.S. Fidelity and Guar. Co.

• Citation: 523 A.2d 549
• Parties: VARI BUILDERS, INC., t/a Vari Construction Co., Plaintiff, v. UNITED STATES FIDELITY AND GUARANTY COMPANY, Defendant. . Submitted:
• Decision Date: 27 August 1986
• Court: Superior Court of Delaware

Page 549

523 A.2d 549

VARI BUILDERS, INC., t/a Vari Construction Co., Plaintiff, v. UNITED STATES FIDELITY AND GUARANTY COMPANY, Defendant.

Superior Court of Delaware,

New Castle County.

Submitted: Aug. 27, 1986.

Decided: Dec. 18, 1986.

Upon defendant's motion for summary judgment. Granted.

Lawrence A. Ramunno, of Ramunno & Ramunno, Wilmington, for plaintiff.

James F. Kipp, and Robert K. Pearce, of Trzuskowski, Kipp, Kelleher & Pearce, Wilmington, for defendant.

O'HARA, Judge.

This is the Court's decision on defendant United States Fidelity and Guaranty Company's ("USF & G") motion for summary judgment. For the reasons stated herein, the motion is granted.

The action underlying the motion is one for a declaratory judgment in which Vari Builders, Inc. ("Vari") seeks coverage and defense from USF & G in a suit against Vari by David D. Smith and Jane R. Smith. According to the allegations in the Smith action, the Smiths and Vari entered into a written contract in which Vari agreed to construct a home and sell the home and lot to the Smiths. The Smiths contend, inter alia, that Vari failed to construct the home in a workmanlike manner and that, as a result, the Smiths were forced to expend thousands of dollars to repair and reconstruct the home. The Smiths additionally allege damage to their personal property as a result of the collapse of the basement and demand compensation for expenditures incurred for storage and substitute living quarters.

Vari has turned to USF & G for coverage and defense in the Smith suit on the basis of a Comprehensive General Liability ("CGL") insurance policy providing coverage for bodily injury or property damage liability for Vari's operations at specific locations. The policy reads in pertinent part:

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

A. bodily injury or

B. property damage

to which this insurance applies, caused by an occurence, 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....

The exclusions section of the policy states in part:

This insurance does not apply:

(a) to liability assumed by the insured under any contract or agreement except an incidental contract; but this exclusion does not apply to a written warranty of fitness or quality of the Named Insured's products or a warranty that work performed by or on behalf of the Named Insured will be done in a workmanlike manner;

* * *

(n) to property damage to the Named Insured's products arising out of such products or any part of such products (o) to property damage to work performed by or on behalf of the Named Insured arising out of the work of any portion thereof, or out of materials, parts or equipment furnished in connection therewith....

Attached to the policy is a Broad Form Comprehensive General Liability Endorsement which modifies the policy by replacing exclusion (o) with the following exclusion:

(3) with respect to the completed operations hazard and with respect to any classification stated in the policy or in the company's manual as "including completed operations", to property damage to work performed by the named insured arising out of such work or any portion thereof, or out of such material, parts or equipment furnished in connection therewith.

USF & G now seeks summary judgment in the declaratory judgment action on the ground that the exclusions set forth at (n) and modified (o) apply to exclude coverage with respect to the damage to the house and the incidental expenses relating to storage and substitute living quarters. ¹ In response, Vari contends that language contained in exclusion (a) conflicts with language in modified (o) to create an ambiguity which must be resolved in the insured's favor. Alternatively Vari contends that the modified exclusion (o) contained in the Broad Form endorsement provides a basis for coverage in the instant case.

Exclusions similar to those appearing in the policy at issue are commonly referred to as "business risk" exclusions and have been widely recognized as a valid limitation on coverage in general liability insurance policies. In the context of this case the exclusions are designed to protect insurers from contractors' attempts to recover funds to correct deficiencies caused by the contractors' questionable performance. Their use demonstrates the insurers' belief that the cost of not performing well is a cost of doing business and not considered part of the risk sharing scheme for which general liability policies are written. The distinction between the two risks contemplated by insurers--one intended for coverage and the other targeted for exclusion by provisions of the type used here--is well articulated in Henderson, Insurance Protection for Products Liability and Completed Operations--What Every Lawyer Should Know, 50 Neb.L.Rev. 415 (1971) as follows:

The risk intended to be insured is the possibility that the goods, products or work of the insured, once relinquished or completed, will cause bodily injury or damage to property other than to the product or completed work itself, and for which the insured may be found liable. The insured, as a source of goods or services, may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable because it is lacking in some capacity. This may even extend to an obligation to completely replace or rebuild the deficient product or work. This liability, however, is not what the coverages in question are designed to protect against. The coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained.

Id. at 441 (emphasis added).

Business risk exclusion clauses have repeatedly been held to insulate the insurer from exposure where the work product of the insured is the subject of the claim. See, e.g., Biebel Brothers, Inc. v. United States Fidelity & Guaranty Co., 8th Cir., 522 F.2d 1207 (1975); St. Paul Fire & Marine Insurance Co. v. Coss, Cal.App., 80 Cal.App.3d 888, 145 Cal.Rptr. 836 (1978); LaMarche v. Shelby Mutual Insurance Co., Fla.Supr., 390 So.2d 325 (1980); Indiana Insurance Co. v. DeZutti, Ind.Supr., 408 N.E.2d 1275 (1980); Green Construction Co., Inc. v. Liberty Mutual Insurance Co., Kan.Supr., 213 Kan. 393, 517 P.2d 563 (1973); Vobill Homes, Inc. v. Hartford Accident & Indemnity Co., La.App., 179 So.2d 496 (1965), cert. denied, 248 La....