W.R. Berkley Corp. v. Rea's Country Lane Construction, Inc.
Docket: No. 2009-CA-01223-COA
Court: Court of Appeals of Mississippi; July 30, 2013; Mississippi; State Appellate Court
The case revolves around a dispute between an insured party, Rea’s Country Lane Construction, Inc., and its insurer, Great River Insurance Company, regarding the insurer's denial of defense in an underlying lawsuit filed by Margaret Broom. The primary issue is whether the allegations in Broom's lawsuit triggered Great River’s duty to defend under the insurance policy, which is contingent on the existence of 'property damage' caused by an 'occurrence' defined as an 'accident.' Broom's lawsuit alleged intentional acts leading to damage, not accidental occurrences, thus negating the insurer's duty to defend.
As a result, the Court reversed a judgment of $193,684.95 against Great River for breach of contract and bad faith denial of coverage. The background details include Broom's contract with Kent Excavating for a dirt purchase related to a project, which was not fulfilled, leading to Broom suing multiple parties, including Kent and its bonding company. Great River denied coverage for Rea’s, leading to Rea’s filing a third-party complaint. The trial court initially ruled in favor of Rea’s, stating that Broom's claims did allege damages from an 'occurrence.'
On appeal, Great River contended that there were no allegations of 'property damage' from an 'occurrence' as defined in the policy. Additionally, Great River argued that even if there were such allegations, specific policy exclusions would negate coverage. The insurer's motions for summary judgment, involuntary dismissal, and judgment notwithstanding the verdict were all denied, which Great River contested.
Three motions were filed challenging the sufficiency of Rea’s evidence, with differences in timing and the evidence available to the chancellor. A motion for summary judgment requires the trial judge to evaluate various forms of evidence in favor of the nonmovant to determine if sufficient evidence exists to create a factual issue for trial (M.R.C.P. 56(c)). Conversely, a motion for involuntary dismissal can be made by the defendant after the plaintiff presents its case, allowing the judge to assess whether the unrebutted evidence warrants a judgment (M.R.C.P. 41(b)). A judgment notwithstanding the verdict (JNOV) is sought post-judgment, requiring the judge to review evidence favorably towards the verdict to check for substantial support (M.R.C.P. 50(b)).
On appeal, Great River's motion for JNOV has been preserved despite the denial of earlier motions, but by proceeding to trial and presenting evidence following these denials, it has waived the right to contest those decisions. Thus, the appellate review focuses solely on the sufficiency argument related to the JNOV motion, which was denied after considering all evidence.
Rea cross-appealed the denial of pre-judgment interest and punitive damages, but these issues became moot due to the finding that the chancellor incorrectly denied Great River’s JNOV motion. Upon review, it was determined that there was no substantial evidence to support the judgment favoring Rea, leading to the conclusion that the JNOV should have been granted and the judgment reversed.
The burden of proof for coverage lies with the insured, requiring Rea to demonstrate: 1) an allegation of 'property damage,' 2) that the damage resulted from an 'occurrence,' and 3) that no valid exclusion applied, particularly in the context of Commercial General Liability (CGL) coverage.
Broom's complaint and the language of the Commercial General Liability (CGL) policy are critical in determining whether the insurer, Great River, has a duty to defend Rea’s in the lawsuit. Broom's allegations include intentional misconduct related to improper land preparation, such as failure to line pits with clay, improper grading, and unauthorized removal of topsoil. She specifically points to actions by W.C. Pitts, a subcontractor, who misrepresented waste material as topsoil, leading to additional truckloads being dumped against her wishes. Broom also claims she was not compensated as agreed and that the work was not completed on time, without any assertion of inadvertent conduct causing damage.
Under the CGL policy, Great River is obligated to defend against suits for bodily injury or property damage that the insurance covers. However, it explicitly states it has no duty to defend against claims outside the policy’s coverage. The insurer's duty to defend is broader than its duty to indemnify, meaning it must provide a defense if there is any potential liability under the policy. Despite this, Great River is not required to defend against allegations that do not involve an "occurrence," defined as an accident. Broom's complaint lacks any allegations of accidental conduct, thus Great River has no duty to defend. The insurer's obligations are strictly defined by the contract, which does not extend beyond its specific terms.
Allegations of 'property damage' were raised, defined in the policy as 'physical injury to tangible property, including all resulting loss of use.' Great River claims Broom's complaint only asserted economic damages rather than property damage. However, it was determined that Broom did allege physical injury to her property due to activities such as digging pits, stripping topsoil, and dumping waste dirt, qualifying her claims as 'property damage.'
Despite this, the policy stipulates that property damage must result from an 'occurrence,' defined as an 'accident,' to trigger the duty to defend. Broom's complaint lacks allegations that her property damage was accidental. Rea’s argues that Broom’s lack of expectation or intention for her property to be damaged qualifies as an 'accident.' However, recent Mississippi case law clarifies that 'accident' refers to the insured's actions, not the unintended consequences of those actions. In a relevant case, the Mississippi Supreme Court held that intentional actions, regardless of the unintended results, do not constitute an accident. Thus, while Broom's damages may have been unintentional, they were not classified as accidental under the policy, negating any duty to defend from Great River.
Broom's lawsuit against Rea’s includes claims of negligence, breach of contract, conversion, unjust enrichment, and fraud, but this does not imply that her damages arose from an 'accident.' In *United States Fidelity & Guaranty Co. v. Omnibank*, the Mississippi Supreme Court determined that despite allegations of negligence by a bank, there was no 'occurrence' since the damages were not caused by an accident. The bank’s actions were intentional, even if harm was not intended. Similarly, Broom’s allegations against the defendants do not suggest that the breaches were accidental.
Rea’s attempts to argue that it bears no responsibility for the damages because they were caused by others. However, the court's recent ruling in *Architex* clarified that 'accident' pertains to the nature of the act causing damage, regardless of who performed the act. In that case, the insured contractor's claim of 'occurrence' due to subcontractor faults was rejected, emphasizing that faulty workmanship, while potentially accidental, does not automatically constitute an 'occurrence' under a CGL policy.
Broom specifically claims that the defendants intentionally caused damage by actions such as digging pits and failing to follow her requests. Her complaint does not allege any inadvertent acts that could qualify as an accident. Consequently, without an accident, there can be no 'occurrence,' and therefore, no duty to defend exists for Rea’s.
Rea's failed to demonstrate that coverage existed under the applicable policy exclusions despite Broom alleging property damage. Even if property damage had been claimed, Great River's duty to defend would not have been activated due to the 'business-risk' exclusions in the CGL policy, specifically exclusions j(5) and j(6). These exclusions preclude coverage for faulty workmanship by the insured, emphasizing that such risks should be borne by the insured rather than the insurer. The rationale is that faulty workmanship does not constitute an insurable “fortuitous event.” Broom's claims related solely to damage occurring in areas where the contractors performed work, seeking restoration for work that was improperly executed under the Kent contract. Exclusion j(5) applies to property damage arising from operations performed by the insured, while exclusion j(6) pertains to damage requiring restoration due to incorrect work by the insured's contractors. Consequently, since Broom's claims fell within these exclusions, Rea's could not prove a lack of applicable policy exclusions, undermining its duty-to-defend and bad-faith claims. The judgment awarding Rea’s $193,684.95 was reversed, with the court ruling in favor of Great River and co-defendants, and all appeal costs were assigned to the appellee/cross-appellant.
Rea's has initiated legal action against Great River and several associated entities, including W.R. Berkley Corporation, Union Standard Insurance Company, and Union Standard Insurance Group. Great River contends that the chancellor's final judgment regarding liability for these additional defendants was ambiguous. It argues that it is the sole entity that could have breached a duty to Rea's or acted in bad faith, as the only one that had a contract with them. The court, however, does not need to determine this matter. If the chancellor's judgment did include these other defendants, the court reverses and rules in favor of all defendants listed. In jury trials, Rule 50(a) permits a motion for a directed verdict following the plaintiff's case-in-chief. Substantial evidence is defined as that which could lead reasonable jurors to different conclusions. Great River also sought to analyze how other jurisdictions define 'property damage' in relation to alleged damage to an insured's work under Commercial General Liability (CGL) policies, but the court finds such analysis unnecessary. Instead, it emphasizes that the primary inquiry should focus on whether the alleged damage arose from an 'occurrence' and if it fits within any applicable exclusions.
