K & L Homes, Inc. v. American Family Mutual Insurance Co.
2013 ND 57
| N.D. | 2013Background
- K & L Homes, Inc. sought declaratory judgment and other remedies against American Family for coverage of an adverse judgment arising from a homeowner’s suit.
- Underlying Lenos action claimed construction defects in a newly built home purchased from K & L, with recovery for contract/implied warranties; negligence later abandoned.
- Jury awarded the Lenos damages for breach of contract and implied warranties; final judgment against K & L was $254,629.25, affirmed on appeal.
- K & L was insured under American Family’s CGL policy during the underlying construction; American Family provided defense under reservation of rights.
- The district court granted summary judgment finding no coverage under the policy due to the alleged lack of an “occurrence”; this Court reverses and remands for further proceedings based on the potential for an occurrence.
- Policy contains a “your work” exclusion with a subcontractor exception, and post-1986 CGL policy history supports coverage for subcontractor fault in certain circumstances.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a subcontractor’s faulty workmanship can be an ‘occurrence’ under the CGL policy | Faulty subcontractor work can be an accidental occurrence triggering coverage | Faulty workmanship is not an occurrence under the policy absent broader definitions or exceptions | Yes, may constitute an occurrence if unexpected and unintended; remanded for fact-finding on applicability |
| Whether the policy’s subcontractor exception to the ‘your work’ exclusion preserves coverage in this case | Subcontractor work damage should be covered under the exception to the exclusion | Coverage depends on whether a subcontractor performed the work and on other policy terms | Remanded to determine if a subcontractor performed the work and if the exception applies |
| Whether any other policy exclusions apply to bar coverage despite the potential occurrence | To be addressed on remand; the majority notes possible applicability of other exclusions on remand |
Key Cases Cited
- Leno v. K & L Homes, Inc., 2011 ND 171 (ND 2011) (affirming underlying judgment on contract/implied warranties)
- ACUITY v. Burd & Smith Constr., Inc., 2006 ND 187 (ND 2006) (held faulty workmanship could be an occurrence for CGL purposes when damages to property other than the work product occur)
- Wisness v. Nodak Mut. Ins. Co., 2011 ND 197 (ND 2011) (interpretation of insurance contracts; exclusions strictly construed)
- Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1 (Tex. 2007) (construction defects can be covered if caused by faulty workmanship resulting in property damage)
- United States Fire Ins. v. United States Fire Ins. Co., 979 So.2d 871 (Fla. 2007) (post-1986 CGL policy coverage for subcontractor fault in completed projects)
- Sheehan Constr. v. Continental Cas. Co., 935 N.E.2d 160 (Ind. 2010) (faulty workmanship may constitute an occurrence in some circumstances)
- ACUITY v. Burd & Smith Const., Inc., 721 N.W.2d 33 (ND 2006) (see above quote; foundational to North Dakota view on occurrence)