Calvert Ins. v. Herbert Roofing & Insulation

Citations: 807 F. Supp. 435; 1992 U.S. Dist. LEXIS 21064; 1992 WL 366088Docket: 1:91-cv-10031

Court: District Court, E.D. Michigan; December 1, 1992; Federal District Court

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Calvert Insurance Company filed a declaratory judgment action against Herbert Roofing and Insulation Company and its owners, seeking a ruling that an insurance policy did not cover property damage resulting from a roof installation at an elementary school. Following the installation, the roof leaked, causing damage to the school’s interior, exterior, and personal property of employees and students, leading the school district to sue Herbert for breach of contract, negligence, and consumer protection violations. 

The court denied Calvert's motion for summary judgment and granted the defendants' motion, concluding that the insurance policy did indeed cover the damages beyond just Herbert's work product. The court emphasized that the relevant facts were undisputed, allowing for a clear interpretation of the insurance contract. The court also noted that granting declaratory relief would clarify the legal relations between the parties and was in the best interest of both, as it would determine whether Calvert was obligated to defend Herbert in the state court action. The jurisdiction for this case was established based on diversity of citizenship between the parties.

A federal court exercising diversity jurisdiction must apply the substantive law of the state in which it is located, as established by Erie R. Co. v. Tompkins. The insurance policy at issue governs property damage resulting from an "occurrence," defined as an accident causing bodily injury or property damage that is neither expected nor intended by the insured. To trigger coverage, three elements must be established: 1) an accident, 2) resulting in bodily injury or property damage, and 3) which is not expected or intended by the insured. The Plaintiff argues, referencing Hawkeye-Security Ins. Co. v. Vector Construction Co., that there was no accident in this case due to defective workmanship, therefore no "occurrence" to trigger the insurance policy's obligations. In Vector, the court ruled that defective workmanship alone does not constitute an "occurrence." Defendants counter this argument by citing Bundy Tubing Co. v. Royal Indem. Co., where the court held that an insurer must indemnify for damage resulting from the insured's defective workmanship. This creates an apparent inconsistency between the Vector and Bundy rulings. The Plaintiff contends that Vector undermines Bundy's reasoning, asserting that their interpretation of Vector is incorrect.

The Vector court recognized the precedent set by the Sixth Circuit in Bundy, clarifying that Bundy establishes an insurer’s duty to defend and potentially indemnify an insured under a general liability policy when faulty work damages the property of others. In contrast, the current case involves the insured seeking recovery for damage to its own work product, rather than damage to third-party property. The distinction hinges on the nature of the property damage: in Bundy, the insured's defective work caused damage to others' property, qualifying as an "accident" under liability policies, while in Vector, the damage was limited to the insured's own work, which does not fit this definition. The Michigan Supreme Court's definition of an "accident" underscores that unforeseen and unexpected damage constitutes an accident, further supporting this interpretation. 

In the current situation, the leaking roof installed by Herbert caused damage to the school building and personal property, leading the court to rule that the insurer must defend Herbert against the negligence claims and indemnify him for damages to the school property. However, the insurer is not required to cover the costs associated with removing or replacing the defective roof, as such liabilities are considered contractual rather than tort-based. Consequently, the court denied the insurer's motion for summary judgment and granted the defendants' motion, instructing them to submit a proposed judgment.