Alverson v. Northwestern National Casualty Co., 559 N.W.2d 234

Alverson v. Northwestern National Casualty Co.

559 N.W.2d 234

S.D.

1997

Check Treatment

*1 SD 9 ALVERSON, Plaintiff Steve Appellee, CA- NATIONAL

NORTHWESTERN COMPANY, Defen-

SUALTY Appellant.

dant and

Nos. 19306. Dakota.

Supreme Court South 14, 1996.

Considered on Briefs Feb. Reassignment Sept.

Decided Feb. Rehearing Denied March Gienapp David R. and Chris S. Giles of

Arneson, Issenhuth, Blair, Gienapp & Madi- son, plaintiff appellee. Cadwell, Garry of & William C. Sanford Deibert, Falls, ap- Sioux for defendant and pellant. (on

SABERS, reassignment). Justice Summary judgment granted 1] on the Alverson basis the insurance provided issued Insurer property damage by Al- for certain ap- verson in his business. Insurer peals. We reverse and hold that the exclu- sion for when it is caused by “your unambiguous. By work” is notice review, summary argues that his judgment granted by motion could have been applying expecta- the doctrine of reasonable We.disagree tions. affirm the denial of summary judgment on that issue. FACTS subcontracted with [¶ 2] Alverson Schmidt (Schmidt) perform masonry Construction fireplace veneer and work on a new residence under construction Sioux Falls. The ma- sonry dirt mortar work left residue of on the and its house windows. employees applied an acid solution with a nylon brush to this residue. scrub remove they gran- When scoured the sand permanent ules the mortar left scratches $10,546.16 glass. in the Schmidt withheld payment from the final due Alverson to cover expense the windows. *2 235 Ass’n, Valley Empire his com- Dirks v. Sioux Elec. filed a claim under Alverson Inc., (S.D.1990). 426, 427-28 policy liability insurance 450 N.W.2d We mercial (CGL). questions on the ba- review of law de novo. Aadland v. Insurer denied Ctr., specifically Regional excluded the loss was St. Luke’s Midland Medical sis that (S.D.1995); sued and both King Alverson 537 N.W.2d 668 v. under summary judgment. parties filed motions John Hancock Mut. 500 Life granted motion was and Insurer N.W.2d review, ar- By appeals. notice of expecta- of

gues that the doctrine reasonable THE EX- [¶ 6] WHETHER POLICY coverage under the as provides tions CLUDES COVERAGE FOR ALVER- summary judg- ground for an alternative SON’S LOSS

ment. parties language Both claim the yet unambiguous, of exclusion is OF REVIEW STANDARD a different conclusion as to its each reaches on a standard of review [¶4] Our Therefore, meaning. we must first deter summary judgment is well settled: motion for ambiguous. the exclusion is mine whether reviewing grant or a denial of sum- coverage for cer The CGL 15-6-56(c), mary judgment under SDCL property damage: tain moving whether the we must determine 2. Exclusions. the absence of party demonstrated apply This insurance does not fact and showed genuine issue of material judgment on the merits as a entitlement to of The evidence must be matter of law. restored, repaired or re- favorably non-moving most to the viewed placed because work” was incor- doubts should be re- party and reasonable rectly performed on it. against moving party. The non- solved however, present spe- moving party, must ambiguous appli “A contract is when showing genuine, that a material cific facts interpretation genu cation of rules of leave appeal exists. Our task on issue for trial uncertainty as to which of two or more ine only genuine whether a issue to determine City v. meanings is correct.” Watertown of fact exists and whether the law Dakota, of material E. R.R. 1996 SD Minnesota & ¶ correctly applied. If exists there 82, 13, (citing Baker v. 551 N.W.2d supports ruling (S.D.1990)). the trial Wilburn, which basis 456 N.W.2d court, summary judgment of a affirmance Fid. stated in Olson v. United States As we proper. 66, ¶ 6, 1996 SD 549 N.W.2d & Guar. 199, 200, specific rules of construction Garretson, Bank Lamp v. First Nat'l policy: interpretation of an insurance (S.D.1993) (citation genuine poli- no issues of material fact There are of an insurance (cid:127)Where Therefore, summary judgment cy fairly susceptible in this case. of different inter- interpretation affirmed if the trial court has correct most favor- pretations, will be legal adopted. before it. Farm ly decided the issues insured should be able Heitmann, v. 498 N.W.2d in favor of land Cos. This rule of liberal construction (S.D.1993) Java, (citing strictly against Strok v. Town the insurer the insured and Gordon, (S.D.1990); Bego language applies only 463 N.W.2d 923 where (S.D.1987); Trapp v. Ma and sus- 407 N.W.2d insurance contract is (S.D. Inc., Pacific, interpreta- ceptible dera of more than one tion_ 1986)). mean, howev- This rule does er, may seek out a strained that the court The construction of a written meaning benefit of the or unusual question of law. Bell v. East contract is insured. Inc., Coop. River Elec. Power (S.D.1995); Rogers v. Mutual Ins. (citing Allied American State Bank (S.D.1994)). am- Adkins, “[A]n simply biguity masonry is not of itself created contract. While work parties interpretation as to differ on windows was not included Johnson, contract, the contract.” Johnson it became Alverson’s work to clean (S.D.1980) (citations them incidental to the contract. This was *3 language “An contract’s deposition. admitted in his according plain construed to its and must be Therefore, “This insurance does not ordinary meaning and a court cannot make a (6) part That [the forced construction or a new contract for the restored, repaired windows] that must be parties.” Paul Fire & Marine St. Ins. Co. replaced ‘your because work’ [window clean- (S.D.1994) Schilling, 520 N.W.2d ing] incorrectly performed on it.” Ac- (citations omitted). cordingly, applies the exclusion and there is policy “property damage” The defines coverage.1 no injury “[p]hysical tangible property, as including resulting all loss of use of that [¶ 12] DOCTRINE OF REASONABLE property. All such loss of use shall be EXPECTATIONS physical deemed to occur the time of the argues alternatively [¶ 18] Alverson

injury that caused it.” “Your work” is de- expectations that the doctrine of reasonable operations as fined “work applies adopt in this case that we should “materials, you your parts or on behalf’ and that doctrine. furnished in connection with operations.” expectations such work or The doctrine of reasonable objectively expec- directs “[t]he reasonable employees Alverson and his worked applicants tations and intended benefi- on the windows to remove the mortar fi*om regarding ciaries the terms of insurance key them. fact that The the windows were contracts though will be honored even damaged cleaning before the and could painstaking study policy being damaged. have been cleaned without negated expectations.” would have those Alverson cleaned some of him- the windows Dairyland Wyant, Co. they self were neither scratched nor (S.D.1991) Keeton, (quoting In- damaged. employees His cleaned the other Rights surance Law At Variance With damaged windows and scratched and them. Provisions, Policy 83 HarvLRev employees His did the incorrectly (1970)). Although governs this doctrine replaced. had the windows to be interpretation of insurance contracts (6) [¶ 11] Section states, other it has not been declared law windows, property, which includes the Wyant, in South Dakota. 474 N.W.2d at replaced “your must be because work” was 516; Trammell v. Prairie States Ins. incorrectly performed on it. trial concluded that the exclusion is Elliot, subject American Mut. Ins. because the term work” is Co. (S.D. 1994). interpretations. two As work” was the Elliot, case in opera- is defined as “work we are not confronted with the performed by you your tions might apply or on behalf.” issue of whether this doctrine cleaning The window “by” was “work” done an insurance contract which contained am- employees biguous Alverson and his and it language: was done circumstances, nearly 1. For a similar result in similar Lusalon court found identical Lusalon, see Inc. v. Accident & unambiguous Indent. exclusion and ruled that costs asso- Mass.App.Ct. 498 N.E.2d clean-up, ciated with unworkmanlike which re- aff'd, 400 Mass. paint peeling sulted in the finish from the doors (1987): properly were excluded from cov- unexpected splash It is not that mortar will on erage. (relying Id. 498 N.E. 2d at 1374-75 mortaring doors and windows in the course of Bros., Robinson, Bond Inc. v. 393 Mass. in, and, barring language them contract ( 1984)). N.E.2d 1332 contrary, we think stands to reason that it will be a of the subcontractor’s up splash. work to clean opinion no whether expresses This Court restored, repaired or re- expectations of reasonable doctrine “your work” was incor- placed because of an insurance govern

would construction rectly performed on it.2 that contract were if the terms of contract policy- may otherwise lead ambiguous, or liability policy This contains incorrectly, reasonably, con- but holder to products is called a section. what Wyant, As existed. clude H. very practice. common Rowland This is today us is not before that issue Liability Long, The Law Insurance ambigu- nothing that there is have held (1996). 11.01, § at 11-3 plain clear and ous about deny or work exclusion is meant ucts read meaning of the terms payment coverage when the insured seeks *4 coverage[.] a whole exclude work, damage product or to the insured’s “damage by the insured’s but not for Id. 11.09[2], § at 11-85 product or work.” Id. nothing about There is does not to -86. “Thus the exclusion case, in this and there- policy exclusion damages product or work causes where expectations fore, the doctrine of reasonable property.” Id. persons other or to policy language apply to this simply does not 11.09[2], § at 11-86. affirm on issue circumstances. We in these Co., Haugan In v. Home Indent. 21] [¶ (1972), interpret N.W.2d 18 S.D. damage under the The was excluded very contract com ed a similar insurance reverse the trial of this We terms present in case. pared to the contract judgment in remand for court on issue liability policy Haugan general in was a Insurer’s favor. policy for a construction business. As is with here, an exclu at issue there was MILLER, C.J., and KONENKAMP sion: GILBERTSON, JJ., concur. (m) per- property to of the named formed or on behalf AMUNDSON, J., dissents. 17] [¶ any arising out of the work or insured AMUNDSON, (dissenting). Justice materials, thereof, portion or out furnished in con- parts equipment or liability general 18] therewith!.] nection injury to provide to policy is property. George persons 412, 21-22. This at Id. at 44:344, Couch, § Insurance Couch on J. went on to state: (2dEd 1982); also Western World see com- allegations of the According Design Erection Eng’g H.D. & Ins. Co. v. completed plaint principal in action the Co., 630, (Minn.Ct.App.1988). entirety, constituted hangar building, its designed and Haugan’s product. He First, determined wheth- it must be damages sought it. The ambigu- constructed forth below are the exclusions set er solely Haugan’s Aviation relate liability policy at issue Business general ous. The by him or work property excludes budding. There construction of (5) property particular part of real damages claimed. no other any or you or contractors on which 412, found the We working directly Id. at or subcontractors unambiguous. Ex- exclusion to be your performing directly on behalf are (6) exclu- j(5) are similar this damage” clusions if operations, clearly sion. The operations; or arises out of those per- operations as "work or "property damage” work” is defined policy- defines property, including tangible your "materi- “[plhysical by you behalf” and or on formed property. resulting of that All such als, all loss of use parts in connection or furnished to occur at the time use be deemed loss of shall operations.” with such work or physical injury caused it.” “Your damages which occurs Alverson’s own thereunder claim for work, i.e., arising brick. the facts in internal defectiveness of product. insured’s own work the terms of this am- cáse leave biguous. Haugan, the insured was the added). addition, (emphasis we cited contractor, responsible design for the several other cases which reached the same and creation of the entire structure. Smith, conclusion: Geddes & Inc. v. Saint at 20. Alverson Paul-Mercury Indem. 51 Cal.2d subcontractor, responsible (1959), appeal, 334 P.2d 881 second 63 Cal.2d claim and the veneer. here (1965); Cal.Rptr. 407 P.2d 868 were not involved windows which involved Corp., v. Ocean Accident and Guarantee Volf open facts leave Alverson’s work. These (1958); Liberty 50 Cal.2d 325 P.2d 987 possibility interpretations of two of the exclu- Cal.Dist.Ct.App Bldg. Royal Co. v. Indem. prop- sions: “that of real Cal.App.2d Cal.Rptr. erty you on which contractors or (1960); Consumers Constr. Co. v. Ameri directly working indirectly subcontractors Ill.App.2d can Motorists your performing operations behalf are (1969); Plumbing, Kendall _” “[t]hat Mercury Inc. v. St. Paul Kan. restored, repaired Homes, 370 P.2d 396 Vobill *5 replaced ‘your incorrectly work’ was Co., Accident & Indem. 179 Hartford par- on it.” The exclusions “that (La.Ct.App.1965); So.2d 496 Acci part” susceptible ticular work” are Bros., Inc., dent & Indem. Co. v. Olson 187 meanings: to at least two the 179, (1971); Neb. Bryan 188 N.W.2d 699 perform; the insured was contracted to Employers’ Surplus Constr. Co. v. Lines Ins. actually performed, all work whether it Co., 181, 110 NJSuperCt 181, 110 N.J.Super. was contracted for or not. the Since exclu- (1970); 264 A.2d 752 McGann v. Hobbs Lum ambiguous, interpret sions are we must Co., ber 150 W.Va. S.E.2d 476 them. See American Mut. Ins. Co. Serv., Co., Engine Inc. v. Reliance Ins. 487 (S.D.1994). Elliot, 100, 523 102 (Wyo.1971). Haugan, P.2d 474 S.D. 412-13, 197 N.W.2d at 22. ambiguous,

[¶22] When a is we liberally should construe the “in favor property damage [¶ 24] The in this case is strictly against of the insured and the insur factually distinguishable Haugan. Sons, (citing er.” Id. Pete Lien & Inc. v. First, perform only Alverson contracted to Co., 824, First Am. Title Ins. 478 N.W.2d house, masonry work on the rather than (S.D.1991); Tri-State Ins. Co. Minn. v. Second, project. construction of the entire 697, Bollinger, 476 the loss was to suffered the not the Co., v. United States Fire Ins. compared contracted work as McGriff (S.D.1989)). In insurance damaged Haugan. contracted work In contracts, when we deal with terms of exclu stated, “However, Haugan we when in- sion, strictly construe the terms of the product actively sured’s malfunctions exclusion. Novak v. State Farm Mut. Auto. damages and causes to other cover- age is 86 S.D. at afforded.” added) (citations omitted). (emphasis [¶ must be 23] The terms which construed part” this case are “that jurisdictions Other [IT25] have dealt with Again, Haugan work.” we stated problem. similar In Holsum Foods v. coverage “arising the exclusion denies Home Ins. 162 Wis.2d product out of to the work or denied, (Ct.App.1991), review insured.” 86 S.D. at 197 N.W.2d at 22. (Wis.1991), N.W.2d 107 stated: quote We went on to Home Indem. Co. v. Home’s has a clause which is enti- Miller, (8th Cir.1968): 399 F.2d (n).” coverage tled “Exclusion It denies When light viewed and in the considered “to to the named in- contract, thereof, products arising entire and as a sured’s out of such it is clear any part products.” that such clause excludes from ucts or of such exclusion, In Adler a standard exclu- & Nielson Insurance Co. Am., N. industry, prevent N.Y.2d N.Y.S.2d by the sion used 1335, 1336(1982),the products liability 434 N.E.2d court inter using its insured from preted a clause which excluded coverage form of as a performed by or on behalf of repairing to cover cost of (Em- arising out of the named insured the work or products or work. its own defective added.) any portion The insured thereof[.]” was phasis responsible installation subcontractor on “This The Holswm court went to state: angles shelf the exterior of a of steel walls ‘injury products or work’ exclusion building. masorny facing concrete Id. The damage to insurance for tended exclude damaged incorrectly by the installed work, product or hut not the insured’s angles. Ultimately, shelf insured was the insured’s allowed recover for the that he ” added). Id. (emphasis work. caused to other work. Id. Properties, In v. Home 26] United Insurer us to directs four cases [¶29] (Iowa.Ct.App.1981), 311 N.W.2d 689 persuasive. which believes are Houston placed top existing coat the insured over an Serv., Bldg. Inc. v. American Gen. Fire & top damaged asphalt court. The coat tennis Casualty (Tex.App. 799 S.W.2d 308 had to project tennis the entire court so 1990), coverage janitorial was denied to a cov replaced. policy excluded from be misapplied service which linseed oil to the erage “inspecting, repairing, re cost of The work to doors inte doors. was an contract, withdrawing from the placing, removing, or gral part of the into service entered product. at 691. The market” insured’s janitorial by the service. insurer denied essence, this was “their work.” This is factu *6 brought asphalt so and won. the insured suit ally distinguishable from this case in that Appeals Iowa of held that the Court masonry Alverson was contracted to do asphalt damaged was not insured’s “own work, cleaning. the not product,” only top coat his “own the was The insured in Vinsant Elec. Con- coverage product,” was allowed. therefore Casualty v. Aetna & Sur. tractors Id, (Tenn.1975), was contracted S.W.2d in a a circuit breaker switchboard. install Appeals Minnesota Court of shortage that led to the The insured caused a interpreting the result when reached same at explosion of the entire switchboard. Id. comparable language. contract Western Coverage for was denied the switch- Ins., at World a subcontrac- particular part” of is “that board provided building for a which tor steel work “upon operations are property the which be- collapsed. insurance excluded A ing performed.” at 78. circuit is Id. coverage per- for part of a we cannot switchboard. by the formed or on behalf of named insured part in this case hold that the window was arising portion out of work or there- the addition, in both of these of the brick. of, materials, parts or out of or quality of questions the cases exclusions were furnished connection therewith.” Id. by the This is workmanship of the insured. comprehensive purpose “[T]he of liabil- strictly question negligence by the of provide ity coverage protec- is to insurance surrounding cleaning up the sured while personal property tion for or area. by only the and not are replacement repair product.” The last cases both from or of two (quotations citations The Massachusetts and deal with identical insur- and pro- language which cover- court held that this ance contract excluded Western World Ins. particular coverage age did of “that vision not exclude restoration, any property ... to another’s due occurred replacement of which has been collapse repair or steel mesh wire. faulty necessary by reason of or is at 636. made See, workmanship by liability e.g., behalf of the contracts. Rich thereon Lusalon, Co-op., East River Elec. Inc. v. Acci ardson v. Power insured[.]” Mass.App.Ct. & Indem. dent (1986), aff'd, 400 Mass. N.E.2d repair This is not a claim for [¶34] Bros., Bond masonry replacement fireplace work Robinson, 471 N.E.2d Mass. quality Alverson. The of the work itself is (1984). Both of these found that eases negligent not at This is a claim for issue. “faulty unambiguous, exclusion was another, by installed workmanship” includes all work accidentally damaged by which was Alverson. Lusalon, N.E.2d at by insured. Thus, liability a tort it is claim which should 1374; Bros., Bond 471 N.E.2d 1333-34. above, be As stated covered provision is different from work” This of these prevent exclusions is to work,” “that mean the which using liabili- the insured its limiting more work contracted to do and are ty/products insurance “as a form “faulty workmanship,” than which means all property insurance to of re- cover cost performed by insured. pairing its own defective Foods, 32] The trial court determined the exclu- ucts or Holsum work.” particular part” (citations omitted). “that work” sions policy, at 920 Under this actually was “restricted to the work that should be available for the being masonry performed, that since it is not own the windows cleaning mortar off product, [Alverson].” the brick. i.e. of the windows was incidental the work Therefore, I dissent. and, therefore,

performed under the contract not excluded. As the trial ex- plained:

If puts up contractor a wall down, wall falls covered. that’s job

That’s his work. That’s the he con- cleaning

tracted to do. The of the win- distinguishable, in that it’s not dows 1997 SD 16 something together. put that he built or *7 EVANS, Appellee, Edwin E. Plaintiff and They clean the because their windows splattered on to the windows and they had to be cleaned. Cynthia EVANS, S. Defendant 33] The trial con court’s determination Appellant. with our It Haugan. forms decision is our Nos. long-standing rule that “where fairly susceptible an contract are Supreme Court of South Dakota. interpretations, interpretations different Considered Briefs Dec. most favorable to the should be insured adopted.” Dakota Block Co. v. Western Ca Decided Feb. sualty 213, 219, & Sur. 81 S.D. (1965) (citations omitted); State