Western Exterminating Co. v. Hartford Acc.

• Decision Date: 12 July 1984
• Docket Number: No. 82-1492.,82-1492.
• Citation: 479 A.2d 872
• Parties: WESTERN EXTERMINATING COMPANY, Appellant, v. HARTFORD ACCIDENT AND INDEMNITY CO., Appellee.
• Court: D.C. Court of Appeals

479 A.2d 872

WESTERN EXTERMINATING COMPANY, Appellant, v. HARTFORD ACCIDENT AND INDEMNITY CO., Appellee.

No. 82-1492.

District of Columbia Court of Appeals.

Argued February 29, 1984.

Decided July 12, 1984.

Alan Farber, Washington, D.C., for appellant. Phillip D. Green, Washington, D.C., was on the brief, for appellant.

Edwin A. Sheridan, Washington, D.C., for appellee.

Before BELSON and TERRY, Associate Judges, and KERN,^* Associate Judge, Retired.

KERN, Associate Judge, Retired:

Appellant, Western Exterminating Company (Western), is a corporation organized under the laws of Delaware, doing business in the District of Columbia. As part of its normal business operation, Western inspects homes for termite damage and termite infestation.

Western has a comprehensive general liability insurance policy with appellee, Hartford Accident and Indemnity Company (Hartford). Basically, the policy provides that Hartford will pay all damages incurred by Western and defend any suit brought against Western because of an "occurrence" resulting in "property damage".

Mr. and Mrs. Remeikis filed a complaint and then an amended complaint against Western in the trial court alleging that they were damaged by Western's negligent and fraudulent termite inspection of a house the Remeikises had agreed to purchase. The complaints alleged that Western's actions amounted to gross negligence and willful disregard of the plaintiffs' rights. In addition, the Remeikises alleged that Western's misrepresentations as to the absence of termite damage in the house they were about to purchase amounted to fraud, deceit and conspiracy to defraud in concert with the seller of the house and the realty broker firm. The complaints sought both compensatory and punitive damages.

Hartford, upon being notified of these claims, took various positions as to its duty under the policy to defend Western. Hartford ultimately refused to defend Western against the complaints in the Remeikis case. Western retained counsel and, at trial, won a directed verdict against the Remeikises. This court on appeal reversed and remanded for a new trial. Remeikis v. Boss & Phelps, 419 A.2d 986 (D.C.1980). Western subsequently settled with the Remeikises and now seeks to recover all expenses incurred in defending the Remeikis case as well as all expenses incurred in establishing Hartford's wrongful refusal to provide a defense in that case.

On the cross-motions by the parties for summary judgment, the trial court ruled that the policy in question did not require Hartford to defend or indemnify Western in the Remeikis case. The court concluded that "the negligent or fraudulent issuance of a termite inspection report is not an `occurrence' which caused property damage." The court determined that Hartford's actions in first entering and then withdrawing from the Remeikis litigation on behalf of Western raised a question of fact as to whether Hartford might be estopped from denying any obligation to defend Western. However, Western withdrew its estoppel claim before the trial court in order to permit entry by the court of a final judgment; Western then appealed the trial court's ruling that Hartford did not have a duty under the policy to defend Western against the claims asserted in the Remeikis litigation or to pay the amount of Western's settlement with the Remeikises.

The duty to defend depends on the terms of the insurance policy and the allegations in the complaint against the insured. The rule is stated as follows:

The obligation of the insurance company to defend an action against insured, as distinguished from its obligation to pay a judgment in that action, by the overwhelming weight of authority is to be determined by the allegations of the complaint. . . . If the allegations of the complaint state a cause of action within the coverage of the policy the insurance company must defend. On the other hand, if the complaint alleges a liability not within the coverage of the policy, the insurance company is not required to defend. In case of doubt such doubt ought to be resolved in the insured's favor. [Boyle v. National Casualty Co., D.C.Mun. App., 84 A.2d 614, 615-16 (1951) (footnotes omitted).]

S. Freedman & Sons, Inc. v. Hartford Fire Insurance Co., 396 A.2d 195, 197 (D.C.1978).

Hartford's obligation in the instant case then is determined by comparing its policy with Western with the complaints filed against Western in the Remeikis litigation. Hartford promises in the policy to defend all suits arising because of an "occurrence" which causes "property damage". Specifically, the insurance policy provides in relevant part as follows:

The company [Hartford] will pay on behalf of the insured [Western] 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. . . .

The policy defines "occurrence" as "an accident, including continuous or repeated exposure to conditions which result in bodily injury or property injury neither expected nor intended from the standpoint of the insured." The policy defines property damage as "(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." Thus, under the terms of the policy, there can be no "occurrence" without resulting damage to tangible property. The question is whether the Remeikis complaints raise the possibility of such "property damage" caused by an "occurrence".

The Remeikis complaints were drafted in three counts: breach of contract; negligence; and fraud and deceit. The breach of contract count ran against the seller of the house who contracted to provide the Remeikises "with a statement from a reliable termite company that the property in question was free from termite damage . . . ." The complaints allege that the contract was breached in that the statement from Western that the house was free from termite damage was not tendered in good faith, and was false and misleading in that the house had extensive termite damage. The second count alleged that Western was negligent in providing the statement regarding the absence of termite damage without conducting a thorough investigation from which it would have or should have known of the presence of termite damage. The third count alleges fraud and deceit and a conspiracy to defraud by the misrepresentation that the property was free from termite damage.

After reviewing the complaints, it is clear that the Remeikises in essence allege that Western negligently and fraudulently prepared a termite report indicating that the house the Remeikises purchased was free from termite damage when in fact the house "did contain termite damage." We assume arguendo that the alleged negligent inspection by Western qualifies as an "accident," as that term is used in the general liability insurance policy here, since any injury resulting from ordinary negligence is accidental. See 11 Couch on Insurance 2d § 44:286 (Rev. ed. 1982). However, the terms of the insurance policy between Western and Hartford make clear that the accident must result in damage to tangible property for the accident to be an "occurrence", within the meaning of the policy. We are unable to discern from the complaints any allegation that Western's negligence caused an accident resulting in damage to tangible property. The injuries the Remeikises allege they suffered from Western's alleged negligent inspection consist of their costs to restore the house they purchased to the condition warranted by the seller, and their damages arising out of the fact that the house was less valuable than they had expected when they bought it. However, "[s]trictly economic losses such as loss of profits, loss of good will or loss of benefits are not damage or injury to tangible property and do not constitute the requisite property damage." 11 COUCH ON INSURANCE 2d, supra, § 44:287.

In Hamilton Die Cast, Inc. v. United States F. & G. Co., 508 F.2d 417 (7th Cir.1975), the relevant portions of the insurance policy were substantially identical to the policy in the instant case. Hamilton Die Cast sought a declaratory judgment that the insurance company had to defend it against a suit by Midland Sporting Goods. The complaint alleged that Hamilton Die Cast provided Midland with defective tennis rackets, and described the damages as follows:

As a result...