Sheehan Construction Co. v. Continental Casualty Co.

packages future benefit assured pension, SHEEHAN CONSTRUCTION COMPA becoming commonplace more

that are Hewlett, NY, INC., Alig, Vincent B. M.D. and many employers. example, For Mary Individually, (HP) Alig Jean discounts to its re Co-Trus provides Packard Mary Alig tees of the Jean Revocable tirees, allowing purchase them to HP ranging laptops printer Trust, from products Representatives and as of a price.10 a reduced cartridges ink Similarly Situated, class of all Others (Petitioners below), Appellants known for its retirement industry airline is flights include free for its benefits that can retirees, giving and them the employees any destination world flying

value of CONTINENTAL CASUALTY COMPA NY, serviced the airline. Some Company, wide Indiana Insurance (Re Insurance, Inc., automobile manufacturers also have a ben Appellees MJ below). employees spondents efit for their and retir package (GM) ees. General Motors and Ford Mo No. 49S02-1001-CV-32. their Company provide employees tor both periodic purchases.11 vehicle discounts Supreme Court of Indiana. Furthermore, many companies, such as Sept.30,2010. up compa Verizon have teamed with other non-monetary nies to offer benefits to Rehearing Granted Dec. 2010. their retirees.12 Some of these benefits Noble, at Barnes & include discounts Dell 1-800-Flowers, National

Computers, Car

Rental, All and Sears Commercial.13 potential specula

these benefits have but beneficiary

tive to the provide value monetary compensation

no direct beneficiary.

designated Assigning pres

ent value to vested such benefits will be a impossible

formidable if not task.

Believing today's decision con- statute,

trary intrudes legislative

policy-making, harmfully ex- disrupts

isting law, dissolution division I

dissent. Verizon, Employee 10. HP Retirees: Purchase http://www22.verizon.com/ Pro- 12. See gram, http://www.hp.com/retiree/epp.html content/retiree/your + + discounts/other (last 2010). Sept. visited (last visited discounts/other+discounts.htm | 15, 2010). Sept. First, Family

11. https://www. See GM gmfamilyfirst.com/ip-gmemployee/; Ford Mo- 13. Id. Company, http://www.ford.com/about- tor (last Sept. visited ford/careers/careers-benefits 15, 2010). McNamar, McNamar & Asso- David F. IN, ciates, P.C., Indianapolis, Attorneys Appellant. Reeder, Mary Riley K. Bennett & IN, LLP, Indianapolis, Joseph Bor- Egloff, Daniels, counsel, Peter G. ders and LLP, Chicago, Wilcox Matousek Walker IL, Attorneys Exceptions Continental Ca- sions. to exelusions narrow and, sualty Company. scope exclusion as a conse- However, quence, add back coverage. it is Dietz, Thompson Dietz & Joseph Meils the initial grant coverage, broad of not the Berish, IN, Attorneys Indianapolis, Ap- for exclusion, exception to the ultimately Company. Insurance pellee Indiana (or create) creates does not the coverage Kalamaros, Hunt Ka- Philip E. Suedhoff Dekker, sought." Douglas David Green & LLP, MI, Joseph, Attorneys lamaros St. Stephen Palley, Expansion The Insur- of Insurance, Appellee for MJ Inc. Coverage Construction, ance for Defective Law, 19, 28 Constr. Fall 20. Petition To Transfer from the Indiana Qn Appeals, No. 49402-0805 precursor today's standard com CV-420 mercial liability insurance contracts was promulgated in 1940 and has since under RUCKER, Justice. gone revisions, five principal the most re Casualty Company Continental filed a cent of which came into use in 1986. Prior declaratory judgment action to determine the ISO had not significantly re insured, to its obligation its Sheehan Con- vised its standard commercial general lia The trial Company. struction court deter- bility Martin, Jr., form since 1973. Ernest policy mined that the issued Continen- Mabery, Daniel T. Erika L. Blomquist & tal to Sheehan did not cover Sheehan's Lowenstein, Jeffrey S. Insurance Cover granted summary judgment claim and age the New Breed Internet-Related for The main favor Continental. issue in Claims, Trademark Infringement this case is whether standard commercial ("ISO SM.U.L.Rev.1973, (2001) 1987-88 ("CGL") general liability policy insurance frequently makes minor revisions to its an insured covers contractor for the form, but rarely a major, undertakes workmanship of its subcontractor. substantive overhaul.... The standard Background ISO form in existence before the 1986 discussing Before 1978...."). issues at stake in revision was promulgated in case, provide this we some background "In the 1978 version of the [ISO's CGL policies form], information. CGL insurance are performed work exclusion an designed protect insured precluded cer coverage property arising tain losses out opera of business performed by work or on behalf of policies tions. Most CGL are written on named arising insured out of the work or developed by thereof, standardized forms any an asso portion materials, or out of ciation of domestic parts insurers or equipment furnished in connection known as the Insurance Services Office therewith." French v. Assurance Co. of ("ISO").1 Am., (4th Cir.2006) (in Fire Ins. v.Co. Cali 448 F.3d Hartford 764, 772, formia, U.S. 118 S.Ct. omitted) ternal quotations citations (1993). added); 125 L.Ed.2d 612 policies (emphasis "[These] see also 9A Eric Mills begin Holmes, with a broad of coverage, Holmes' Appleman on Insurance which (2002). is then limited in seope by § exclu- 2d 132.9 at 152 The "on behalf 1. Liability Continental's Commercial General copy- relevant to this case also include this Coverage provides notice, Form at the bottom of right dated 1994 for one page "Copyright, each Insurance Services Of- Appellee 1997 for the other. See Indiana's fice, Inc., 1997." See Continental's App. at 125-47. at 102-13. Indiana's two CGL 1,n. supra in 1994 and see righted to mean interpreted was language of" post in this case Polices at issue the CGL damage to a sub- no existed include a sub- the 1986 revisions and date damage to the or for work contractor's exception to the "Your Work" contractor from a sub- resulting own insured's in mind background this exclusion. With Russ, Lee R. et See 9A contractor's work. of the case before proceed we to the merits § 3d 129:18 al., on Inswrance Couch us. (2005); Holmes, supra, at 153. History Facts and Procedural were dissatisfied

Many contractors more and of affairs because this state Because this action is based 2004, being completed were filed in November projects underlying more claim Russ, et See of the help by tracing history of subcontractors. the begin the we ("Due al., increasing § to the B. April 129:18 action. In 2000 Vincent supra, original pro- Mary Alig pur- on his wife Jean Alig use of subcontractors and construction were not Crystal contractors in the Lake resi- jects, many general chased a home coverage provid- with the lack of subdivision located in Marion satisfied dential commercial County. Company CGL] under 1973 ISO Sheehan Construction [the ed general where the liability policies project contractor on the general was the directly responsible for hiring was not subcontrac- responsible contractor and was work."). to this response In the houses. After actually the defective tors who built home, dissatisfaction, an in- beginning water leaks in their experiencing policy Aligs under the 1973 ISO CGL notified their homeowner's insur- sured the to obtain an pay higher premium engi- could a ance which in turn hired form carrier damage endorse property investigate. Among a form neering company broad Endorsement) revealed things investigation (the other the which ef- ment BFPD windows, lan- the "on behalf of" on the fectively leaking fungus growth eliminated sheathing, deteriorat- guage siding, decayed and excluded OSB performed by joists, work and water damage decaying and floor ing Thus, liability Id. cov- includ- named insured. to the interior of the home damage the the insured's com- Appellee was extended to erage ing carpeting. water stained damage the arose out of pleted App. work when at 40. These Continental's Id. work- performed by by subcontractor. were caused the problems subcontractors manship of Sheehan's revision, major the part In as adequate flashing which included lack aspect of the exception subcontractor windows, quality caulking around directly added BFPD Endorsement was of a weather resistant barrier behind lack policy in the body of the ISO's CGL com- protect veneer to the wood the brick "Your exception form of an express wall, installed ponents improperly Id.; Limbach Work" exelusion. Co. LLC flashed or roofing shingles, improperly Am. Ins. 396 F.3d 362- v. Zurich vents, chimney for the openings sealed (4th Cir.2005) (internal citations omit ventilation in the crawl inadequate ted). Thus, under the 1986 ISO CGL Poli Id. at 74-76. space. cies, specifical the "Your exclusion Work" filed a Aligs In if the November ly provides apply that it "does in the Marion Cireuit Court complaint which work or the work out of damaged to Indiana Code pursuant Sheehan performed [the arises was (concerning cause sections 32-27-3-1 to by behalf a subcon insured contractor's] defects). During for construction Copy- at 245. of action Appellants' App. tractor." suit, which the home was built Aligs After the filed Sheehan con- period insured under a CGL which agreed repre- Sheehan was tacted Continental by Company. Insurance issued Continental sent Sheehan under a reservation of was also included as an additional rights. Sheehan When other in the homeowners in a named insured issued began experiencing problems subdivision Company Indiana Insurance to Somerville experi- with their homes similar to those of Sheehan's subeon- Construction-one Aligs, they sought enced to be policies provided coverage tractors. The joined plaintiffs. Consequently as counsel for the "sums that the insured becomes filed, granted, and the trial court a motion legally obligated pay damages be- Aligs' complaint to convert the into a Class 'bodily injury' 'property dam- cause Action lawsuit. After the Class was certi- age'.... 'occurrence' fied the trial court ordered the parties into in the place 'coverage territory'" takes participated mediation. Continental there- during policy period. Appellee Conti- in and the mediation resulted in a settle- 102; nental's Indiana's approximately ment million. $2.8 App. poli- at 189. As defined in the Among things provid- other the settlement cies, accident, an "occurrence" is "an in- ed that pursue Class would not its cluding repeated continuous or exposure to Instead, against claims Sheehan. Sheehan substantially the same harmful assigned to the any rights might Class it conditions," "property damage" in- against have in Continental addition to cer- "[plhysical injury tangible cludes prop- non-settling tain subcontractors MJ erty, including resulting all of loss use of Insurance-Sheehan's insurance broker. property." Appellee Continental's declaratory judg- Continental filed this 112, 118; App. at Appellee App. Indiana's ment action in Superior the Marion Court 188-34, 146, at 147. coverage provi- The seeking a declaration that it was not obli- sions were limited numerous exelusions. gated indemnify Sheehan. Sheehan and particular Of relevance in this case is the answer, counter-claim, the Class filed an exclusion, exception, with its that exeludes third-party and a complaint damage prop- the insured's Indiana Insurance. Sheehan and the Class erty and work: party also filed a third complaint against 2. Exclusions. MJ negligent insurance for pro- failure to This insurance not apply does to: cure parties insurance. All moved summary judgment. The trial deter- court Damage 1. To Your Work designated mined the materials showed "Property damage" "your work" "property there was no damage other than arising any part out of it or of it and components structural the homes of in the included "products-completed Appellants' App. themselves." at 27. Ac- operations hazard". reasoned, cordingly, the trial court under This exelusion apply does not if the the terms of the insurance policies there damaged work or the work out of was no "occurrence" or "property dam- which the damage per- arises was age," and thus granted summary judgment your formed on behalf a subcon- in favor Continental and Indiana Insur- tractor. "Insurers"). (collectively, ance Id. at 102, 105; Continental's at The granted 29. trial court also summary judgment in favor of MJ Insurance on 125, 128; 189, Appellee Indiana's App. at statute of grounds. limitations Sheehan 142. (hereafter to collec referred and the Class construed in favor of the non- them are Reeder, moving party. 788 N.E.2d at "Sheehan') and Indiana tively appealed 1240. In a divided cross-appealed.2 Insurance affirmed the Appeals opinion Discussion Sheehan of the trial court. See

judgment I. Co., 908 v. Continental Cas. Constr. Co. Broadly speaking appeal requires this us (Ind.Ct.App.2009). major N.E.2d 305 damage to determine whether things other there ity among concluded workmanship covered under a damage within the mean was no policy. This issue has been standard CGL because ing of Insurers' CGL frequently litigated juris in a number of to the homes "cannot be treat dictions. Our Court last broached sub underlying faulty from the ed as distinct DeZutti, in ject Indiana Insurance Co. v. workmanship...." grant Id. at 309. We (Ind.1980). 408 N.E.2d 1275 We examine sum explore ed transfer to this issue. We today language appearing DeZutti because marily portion affirm the of the Court provided in that decision has the bases for affirming summary judg Appeals opinion Appeals opinions least two Court of of MJ Insurance. ment favor that the declaring part risk intended to Standard of Review by a possi be insured is "the appellate In the review of a bility goods, products, we summary judgment, or denial of insured, relinquished complet onee apply the same standard as the trial court. ed, bodily injury damage will cause or Harper, 788 N.E.2d 1240 Reeder product to the or property other than com (Ind.20083). be Summary judgment "shall Amerisure, pleted work itself." Inc. v. evi- designated rendered forthwith if the Co., Wurster Constr. 818 N.E.2d is no dentiary matter shows that there (Ind.Ct.App.2004) (quoting Thomp R.N. genuine any issue as to material fact and Assocs., & Inc. v. Monroe Ins. son Guar. to a moving party the is entitled Co., (Ind.Ct.App.1997) N.E.2d of law." Ind. Trial judgment as a matter 1279)) DeZutti, (em (citing N.E.2d 56(C). review, During original). Rule our all facts in Amerisure and R.N. phasis Thompson provide primary authority from and reasonable inferences drawn Although summary judgment, which 2. the trial court entered the trial court denied. Sec- ond, although portions Insurance, of the affidavit were judgment in it favor of Indiana inadmissible, not, appeals contending nonetheless cross the trial portions other were failing portions identify made no erred in to strike of an Indiana Insurance effort court precisely portions thought which it affidavit Thomas Corridan-a witness on should be expertise handling hearing parties' In of Sheehan with in deleted. fact at a on the behalf summary judgment, insurance claims. Indiana Insurance com- motions Indiana In- plains legal broadly that the affidavit includes conclu- surance moved more that "the affida- opinions Corydon Appel- vit [sic] sions and about Indiana law. of Mr. be stricken." say express It Indiana Insurance does not so in lants' at 86. was entitled to no such Third, although terms, relief. the record does not presume "invoking but we it is actually reviewing reveal whether the trial court ruled rule that a court can affirm a trial strike, summary judgment any on Indiana Insurance's motion to noth- court's of suggests theory support." ing the trial court consid- the Trial Rule 56 materials before us summary judgment ered the affidavit in its See Estate v. Conn. Gen. Mintz of Life (Ind.2009). Finally, ruling. even if the entire affidavit 905 N.E.2d We decline record, were stricken from the its absence to address this issue for several reasons. First, eight-page bearing on the outcome of this Sheehan tendered the affida- would have no appeal. summary support vit in of its own motion for in than the Appeals persons property other opinion of Court

for the If, this case.3 in product insured's own or work. case, damage is confined to the this the homeowners sued DeZutti In work, or it is a product insured's own allegedly for damages contractor intended expense business risk and faulty construc- the contractor's policy to be covered under the and is house, namely, serious crack- tion of their exceptions.... [certain] excluded bricks. The con- the mortar and ing of question The does not cover an upon his insurance in turn called tractor faulty workmanship but rath- accident pursuant a defense provide carrier to faulty workmanship er which causes an policy. its The insurer the terms of accident. declaratory judgment and filed declined (internal trial court determined that action. The quotation Id. at 1279 citation and omitted). obligated provide Appeals was relied the insurer Court Appeals affirmed. foregoing language and the Court to conclude defense holding Amerisure, reversed On transfer this Court in Thompson, R.N. and the provide did not cover- that the CGL polices stant case that the Insurers' CGL correct, repair replace or the con- age to damage not cover mem do Class In poor workmanship. doing tractor's own bers' homes. quoted approval so the a law Court following make the observations. In We part:

review article that declared in addressing DeZutti the was the im- intended to be insured is the The risk pact duty on the insurer's to defend not possibility goods, products or insuring on the provisions based or the insured, relinquished work of the once "property damage" definition of or "occur- completed, bodily injury will cause or rence" but rather because work- other than to the manship by a contractor specifically was product completed itself, and for unambig- excluded based on the clear and may which the insured be found lia- exclusionary "business risk" uous clauses. coverage liability ble. ... The is for tort The policy at issue DeZutti had several physical damages for others not exclusionary provided clauses one of which liability for contractual of the insured for that the policy apply "property did not product economic loss because the or products to the named insured's completed work is not that for which arising any out of such products part or of damaged person bargained. products." such Id. at 1277. ex- Another DeZutti, at (quoting Rog- 408 N.E.2d 1279 clusionary provision provided that the poli- Henderson, er C. Insurance Protection ey apply "property damage did not for Liability Products and Completed Opera- performed by work or on behalf of the Know, Every Lawyer tions-What Should arising named insured out of the work or 415, (1971)) 50 thereof, materials, (emphasis Neb. L.Rev. 441 any portion or out of added). continued, The Court parts equipment or furnished in connec- neglectful craftsmanship may Examining same tion therewith...." Id. these concluded, expense repair provisions provi-

cause both a business we "[these by damage and a represented coverage loss sions exclude insurance clearly proposition 816, 3. For the same T.R. Bul see also (Ind.Ct.App.2003); N.E.2d 824 Schultz 1110, ger, 971, (Ind.Ct. Inc. v. Ind. 901 N.E.2d Group, Erie Ins. 754 N.E.2d 975 (Ind.Ct.App.2009); Log Sys. 1115 Jim Barna App.2001). Wis., Midwest Inc. v. Gen. Cas. Ins. Co. 791 product Inc., (Tenn. to the insured's or damages Assocs., 216 S.W.3d are confined to damages when such 2007) (declaring that "[rleliance by the product or work and caused CGL's 'exelusions' to determine the mean work, any part It product or ing regret of 'occurrence' has resulted in thereof. only damage property arising to other tably generalizations concerning overbroad or work which product out of the insured's (internal citation quotation CGLs" at 1280 (emphases would be covered." Id. omitted)). in original). In DeZutti relied on the exclu- essence II. sions to determine that no exist- The Insurers CGL insure ed in that case. There was no intent to liability "property damage" regarding that the suggest language broad an Appellee "occurrence." Con polices stand for the purpose CGL 102; App. Appellee tinental's at Indiana's proposition faulty workmanship that App. at 189. The policies follow the damages the contractor's own work can widely defining used CGL form "occur never constitute a covered "occurrence." accident, rence" "an including continu Further, the CGL at issue in De- or repeated exposure ous to substantially predated

Zutti the 1986 ISO revisions. the same harmful conditions." agree Indeed we with the observations of 112; App. Continental's at Appel- Supreme the Wisconsin "CGL lee Indiana's 146. Whether policies generally do not cover contract faulty workmanship fits within the insur arising claims out of the insured's defec- ance policy's definition of "occurrence" un product, by opera- tive work or but this is der standard polices has been the exclusions, tion of the CGL's business risk subject of much debate litigation because a loss actionable in con- throughout country jurisdic and the tract can never be the result of an 'oceur- tions are divided the issue. Some rence' within the of the CG's states have held that workmanship initial of coverage." Family Am. improper construction is not an "occur Girl, Inc., Mut. Ins. v. Am. Co. Wis.2d rence" because it does not constitute (2004); 673 N.W.2d see also "accident." Other states have found im Travelers Indem. Co. Am. v. & Moore See, eg., 4. U.S. Fid. & Guar. v. (Iowa 1999) ("defective Advance workmanship Roof Co., 476, ing Supply alone, is, & 163 Ariz. 788 P.2d standing resulting damages that 1227, ("mere (Ariz.Ct.App.1989) faulty 1233 itself, only product to the work not an alone, workmanship, standing cannot consti policy"); occurrence under a CGL Auto-Own- policy, tute an occurrence as defined in the Cos., 528, ers Ins. Co. v. Home Pride 268 Neb. repairing nor would the cost of the defect 571, (2004); ("although 684 N.W.2d 578 property damages") constitute Gen. Sec. provide standard CGL does not cover- Idem. Co. v. Mountain States Mut. Cas. Ariz. of age faulty workmanship damages that Co., 529, (Colo.Ct.App.2009) 205 P.3d 535 resulting product, faulty the work if ("claims poor workmanship, standing of workmanship bodily injury property causes or alone, trigger are not occurrences that cover damage something to other than the insured's age under CGL similar to those product, unexpected an unintended and here"); issue State Farm Fire and Cas. Co. v. occurred, exists"); event has Tillerson, 404, 63, Ill.App.3d 334 268 Ill.Dec. Herrmann, 351, App.3d Heile v. 136 Ohio 736 986, (2002) ("[where 777 N.E.2d 991 the 566, (1999) (holding faulty N.E.2d 568 that defect is no more than the natural and ordi workmanship is not an accident and therefore nary consequences faulty workmanship, of it occurrence); not an Oak Crest Co. v. Constr. accident"); by is not caused an Pursell Constr. Co., 620, Austin Mut. Ins. 329 Or. 998 P.2d Co., 67, Hawkeye-Security Ins. 596 N.W.2d

168 without resulting damage occurs be an "ac where the construction to faulty or proper expectation foresight.5 the insured's an "occurrence" therefore cident" and damage' resulting 'property ed or unintended 1254, (2000) ("'there can be no 'acci- 1257 meaning negligent of a subcon of a commercial acts or conduct within the from dent' tractor, resulting damage is or the in unless otherwise excluded liability policy, when contract"); loss"); High Kvaerner Met- merely a breach of breaches its duties after sured U.S., Inc. v. Commercial Co., 39, Kvaerner als Div. Country N.H. v. N.H. Ins. 139 Assoc. 474, 888, (1994) Co., 317, damage (property to 648 A.2d 478 Pa. 908 A.2d 589 Union Ins. (2006) (holding that "the definition of 899 by defective work condominium units caused establish an 'occur- required to 'accident' manship within the mean is an "occurrence" policies cannot be satisfied rence' under Exchange v. ing policy); Erie Ins. of CGL faulty workmanship"); by 406, claims based App.3d Colony Corp., 736 Dev. 136 Ohio 941, (1999) damage Marine Ins. (property Fire & N.E.2d 947 L-J, Inc. v. Bituminous 33, 117, (2005) Co., S.E.2d 37 S.C. 621 366 by negligence in con caused contractor's workmanship "faulty does not (finding that structing designing a condominium com "); Corder v. Wil- an 'occurrence' constitute "reasonably policy's plex within the fallfs} Co., 110, Excavating 210 W.Va. liam W. Smith property damage caused an definition of 77, (2001) ("commercial gener- 83 556 S.E.2d occurrence, -Le., accident"); Travelers designed are not to cover liability policies al Inc., Idem. Co. v. Moore & Assocs. 216 S.W.3d workmanship); Burlington Ins. Co. v. poor (Tenn.2007) (defective of win 302 installation Design Constr., Inc., 940, 383 F.3d Oceanic & causing penetration water "constitute[s] dows Cir.2004) (9th (applying law and Hawaii 948 CGL"); 'property damage' purposes liability policies ... are declaring "General Co., Inc. v. Mid-Continent Cas. Homes, Lamar provide and de- designed to contractors not 1, (Tex.2007) (Damage 242 S.W.3d 9 coverage against claims their velopers with damage a third insured's work as well as defective."); Lenning v. inferior or work is party's property can result from an occur Co., Ins. 260 F.3d 583 Commercial Union general rence defined in commercial liabil as (6th Cir.2001) Kentucky (applying law and ity policy; definition of no basis exists declaring "there is no 'occurrence' distinguish "occurrence" between the alleges damage complaint property extent [a] Co., two.); Family 673 N.W.2d Am. Mut. Ins. faulty craftsman- arising of defective or out (Excessive at 70 settlement of soil after build Resources, King, Inc. v. ship"); J.Z.G. ing completed building's was caused the foun Cir.1993) (2d (applying law New York F.2d 98 This the rest of the dation sink. caused proposition that defective workman- for the There structure to buckle and crack. Held: alone, occurrence). ship, standing is not an " 'property damage' was caused an 'occur poli within the CGL rence' Co., 5. See, Fejes e.g., v. Alaska Ins. 984 P.2d general grant coverage."); cies' French v. (Alaska 1999) (standing gen for the Am., (4th F.3d Assurance Co. faulty proposition improper or work eral that Cir.2006) (applying Maryland law and hold accident); manship Lee Build constitutes an ing standard 1986 commercial Bureau Mut. ers, Inc. v. Farm liability policy "provides liability form cover (2006) (agreeing Kan. 137 P.3d age remedy unexpected for the cost to occurring "damage as a result of damage to the contrac unintended negligent workmanship constitutes work-product tor's otherwise nondefective long an occurrence as insured did the subcontractor's defective work occur"); intend Joe Banks for the Acoustics, manship"); Drywall Great Am. Ins. Co. v. Woodside Inc. v. Transcontinental & 1275, Co., Corp., F.Supp.2d (La.Ct.App.2000) 980 Homes 448 1283 Ins. 753 So.2d (D. 2006) (applying Utah law and declar general proposition (standing that im for Utah ing, "Certainly, jurisdictions different have faulty workmanship proper or constitutes question pre approached and answered a occurrence within Ass'n, ways. in this case in various But the liability policy); sented commercial Architex approach approach, better-reasoned and the Co., 1148, Inc. Ins. 27 So.3d v. Scottsdale law, that is most consistent with Utah views (Miss.2010) (concluding that "the term 1162 faulty an occurrence 'occurrence' cannot be construed in such a subcontractor work as preclude coverage unexpect- insured."). manner as to standpoint from the

169 under a is that in covered CGL cases are discussed these cited Many of " both sides of matter advancing interpretation, numerous articles '[tlhe of contract J. Sha- reference to accident or Compare, eg., fortuity implied Clifford the issue. Inadvertent Point/Counterpoint: commonly is not what is meant exposure piro, Are an "Occurrence" workmanship." Construction a failure of Auto-Own Defects Co., Law., (quoting Policies, 22 at 577 Ins. 684 N.W.2d ers Constr. under CGL ("The Co., 2002, 13, 44 124 N.H. better-rea- v. Peerless Ins. at Spring McAllister the actual give effect to (1984)). soned decisions 1033, 676, find 474 A.2d 1036 We holding that insurance intent of CGL little provides that this rationale however allege claims an 'occur- construction-defect unhelpful analysis. is to our guidance and Foster, rence'...."), Linda B. Rather, align ju ourselves with those we Coverage Under Point/Counterpoint: No adopting improper the view that risdictions Policy Standard Construction the CGL faulty workmanship does constitute an Claims, Law., Spring 22 Constr. long resulting damage Defect so as the is accident ("When 2002, 18, analysis proper 47 expectation that occurs without an event insuring agree- done-starting with detail foresight. explained As more is reached. correct conclusion ment-the this rationale is consistent with this below con- coverage no for standard There is jurisdiction's definition of "accident" as and re- repair claims for struction defect policies. contained in standard CGL work."). placement of defective that IIL At one court has observed least two different rationales appear there to be policies Insurance are contracts that workman proposition for the subject are to the same rules of con a standard CGL ship is not covered under Lilly struction as are other contracts. Eli the-rule has been policy. On the one hand Co., 467, 482 & v. Home Ins. N.E.2d Co. policy grounds; namely, justified public (Ind.1985). language When the of an 470 repair replace damages the cost to unambigu contract is clear and insurance by faulty workmanship is a busi ous, assign language plain its we will policy. covered under a ness risk not CGL ordinary meaning. Id. An insurance Cos., v. Home Pride Auto-Owners Ins. Co. unambiguous must be en- policy that 528, 571, (2004); 268 Neb. 684 NW.2d 577 terms, according to its even those foreed & v. Patrick see also Astna Cas. Life liability. limit an insurer's Ra terms that (Ind.Ct. Inc., 656, Indus. 645 N.E.2d 662 Family v. Am. Mut. Ins. mires Stone-E-Brick, Inc., v. App.1995); Weedo Thus, (Ind.Ct.App.1995). N.E.2d (1979). 81 N.J. 405 A.2d coverage be may we not extend insurance However, rule been a the business risk has provided by unambiguous yond standard since at part of in the contract. Shelter Ins. Co. language "your in the form of work" least 1986 (Ind. Woolems, 759 N.E.2d v. therefore do exceptions coverage. We Also, trans. denied. insur Ct.App.2001), the business risk rule as an interpret right coverage to limit their ers have the rather we view coverage, initial bar to but and, therefore, liability by their of risks excluding certain events potentially it as conditions, exclu imposing exceptions, coverage "your under the work" ex from Boles, sions. Allstate Co. clusion, where the is found to (Ind.1985). N.E.2d initially. On the other hand earlier Insurers' CGL As indicated supporting rationale the deter competing against liability "proper- insure for workmanship policies is not faulty mination that an "occurrence." In a ty damage" improperly contractor installs a [If shingle turn the define "occurrence" as that later falls and hits a passer- accident, by, this event is unforeseeable including expo "an continuous and is "occurrence" or "accident." ... A shin- substantially general the same sure to gle falling injuring person a is a conditions." term "accident" harmful natural consequence of an improperly However, policies. in the is not defined shingle just installed as water damage is has defined accident to mean this Court a natural consequence improperly of an happening "an without an in unexpected installed window. If we assume that Tri-Etch, design." Inc. v. tention or Cin shingle either the or the window instal- Co., 909 N.E.2d cinmati Ins. completed lation will be negligently, it is (Ind.2009) (quoting Auto-Owners Ins. Co. If, foreseeable that damages will result. (Ind. Harvey, 842 N.E.2d however, we assume that 2006). the installation Implicit in the of "acci shingle of both the and the window will lack intentionality. dent" is the Id. The completed properly, be then neither the question presented is whether faulty work falling shingle nor the penetration water manship is an accident within the meaning is foreseeable and both events are "acci- of a In policy. standard CGL our view the dents." answer on the depends facts of the case. faulty Indem.,

For example, workmanship that is Travelers 216 S.W.3d at 309. As viewpoint intentional from the applied us, of the in to the case before if faulty be an sured cannot "accident" or an workmanship "oc the product was of uninten tional conduct then we start with the as Homes, currence." See Lamar 242 S.W.3d at 8-9. On the other if hand sumption, from Sheehan's viewpoint, that workmanship "unexpected" and "without the work on the Class members' homes design" intention or and thus not foresee completed would be properly. The result viewpoint insured, able from the ing damage would therefore be unforesee then it is an accident within the meaning of able and constitute an "accident" and policy. a CGL The following example il therefore an "occurrence" within the point. lustrates the meaning of the Insurers' policies.6 CGL disagree 6. We proposi- Justice age" resulting Sullivan's from defective construction bond, performance opposed tion that a to a does not transform a CGL into a policy, appropriate is the performance avenue for require bond and a CGL carri insuring damages for defective work- pay anytime er to an insured fails to com manship. generated This issue has also a with, plete, comply or otherwise its con considerable amount of discussion and de- tract. bate. one court As has observed: Co., Corp. Lennar v. Great Am. (internal (Tex.App.2006) S.W.3d 673-74 [Although defective may construction con- "occurrence," omitted); stitute an quotations insurer indem- citations and see also resulting nifies the insured "prop- J.S.U.B, U.S. Fire Ins. Co. v. 979 So.2d erty damage" arising (Fla.2007) (''The project after the purpose per 887-88 of a contrast, completed. performance In a guarantee bond formance bond is to completion is broader than a CGL upon that it contract default the contractor. guarantees Thus, completion of a construction unlike an policy, perform insurance a contract the default of the project ance bond benefits the owner of a Therefore, variety contractor. a of deficien- Further, rather than surety, the contractor. insurer, cies that "property do not constitute liability dam- unlike a is entitled to indem age" may (internal performance be covered nification from the contractor." cita omitted)); bond, quotation Deposit tions Fid. & and not all deficiencies cause addi- property damage. tional Consequently, al- Co. Md. v. Cas. Ins. Hartford lowing "property some dam- (D.Kan.2002) F.Supp.2d (rejecting seope be included in the broad support we find must For an additional reason within that "accident" "occurrence" in the coverage for our conclusion the term at policies of the CGL issue grant, coverage and that the determina- workmanship. Al- faulty this case includes of property damage tion for this kind grant not though exclusionary clauses "do must be made based on the construc- DeZutti, 408 N.E.2d enlarge coverage," tion-specific policy exclusions. principles contract construction at Good, Bad, Shapiro, J. Clifford pertinent provisions us to read the instruct Ugly: Supreme and the New State together. See Id. policies of insurance Decisions Address Whether an Inadver- ("The only damages covered ean property an tent Construction "Occur- Defect by resort to the contract as be determined Policies, rence" Under CGL Constr. whole, exelusionary provi- all including a Law., 9, 12; Summer at see also sions."). noted, previously As Homes, ((By at 12 Lamar SW.3d on the Class members' workmanship incorporating exception the subcontractor by subcontractors performed homes was exclusion, 'your-work' into the the insur- that Sheehan-the contractor- industry specifically contemplated ance hired to do the work. The CGL property damage by for caused a damage "your an include exclusion by work" and then narrow the exclusion performance."). defective subcontractor's authorities, apply that it expressly declaring agree does We these and also work or the work out of damaged "if the agree that "if the insurer decides that this damage performed which the arises was insure, it not want it risk does can your behalf a subcontractor." clearly policy amend the to exclude cover- 105; Appellee at App. Continental's can either elimi- age, simply be done insuring 142. If the Indiana's nating exception the subcontractor or add- an initial provisions do not confer ing a breach of contract exclusion." coverage, then there would be no reasons J.S.U.B., 979 So.2d at 891. See La- also "your work" exclusion. As one com- ("More Homes, 242 at 12 mar S.W.3d re- mentator observed: cently, the Insurance Services Office has only why A court need ask the CGL may issued an endorsement that be includ- includes an exelusion for in the the subcontrac- ed CGL eliminate damages to the insured's own work exception 'your-work tor exclu- that of its subcontractors to understand sion."). poli- that it would be nonsensical for the In this case the trial court entered if cy provision to include such a this kind summary judgment in favor of Insurers on could never be property damage grounds damage there was no caused "occurrence" the first property "other than to the structural why A court ask place. need components of the homes themselves" and includes an ex- specifically "prop thus there was no "occurrence" or "your ex- press exception work" erty at 27. damage." Appellants App. On arising out property damage clusion for point this the trial court erred. As we of a subcontractor to under- explained faulty workmanship may have property damage stand that this kind of way'' protect- argument "if the bond" because the bond "in no structural by faulty workmanship constitutes an subcontractor from lia- ed the contractor 'occurrence,' poli- then the CGL and umbrella bility). performance will into a cies be transformed point today. put and thus an occur- we decide I would us on an accident constitute spe- the facts. More the other side of this divide. depending rence work of the sub- cifically, if the defective SULLIVAN, Justice, dissenting. intentionally were done instead

contractors it is design", intention or then of "without My review of the authorities convinces the is opposite Otherwise not an accident. me that an "occurrence" under a CGL Here, parties' Trial Rule true. none policy in the context of these cases is question address the 56 materials by accidental caused an insured faulty workmanship was the whether the (or subcontractors) proper- an insured's versus unintentional product of intentional ty by parties, owned third but not accordingly And the trial court conduct. repairing per- costs of defective work point. on this reached no conclusion (or by formed an insured an insured's sub-

contractors). Conclusion hypothetical To draw from the that the deploys, it would be an "occurrence" the trial court re- judgment is shingle under a CGL when a roof This cause is remanded for fur- versed. negligently that had been installed proceedings. ther injures insured's subcontractor falls and a passerby or breaks a window in passing a BOEHM, JJ., concur. DICKSON car. Why? Because it is an "accident" that SHEPARD, C.J., separate dissents with "bodily injury" causes "property dam- opinion. age." repairing But the costs of the defec- shingle tive installation and resulting dam- SULLIVAN, J., separate dissents with age to the roof is not an occurrence. Such SHEPARD, C.J., opinion joins. in which defective workmanship per- or failure to SHEPARD, Justice, dissenting. Chief according form to the terms of a construc- tion contract not an accident. To the My majority opinion a colleague's gen- person extent that wishes to insure uine force on the development tour de from damages workmanship, defective a widely-used forms of commercial general performance bond and not a liability policies interpretations provides such protection. A new case given them state and federal courts. from New York makes this clear: Still, I conclude that it leads Indiana to the A surety's performance bond and an wrong result. liability insurer's commercial short, long story To make a I think policy provide two different scopes of designed these are neither nor coverage. performance surety A is to priced whatever demands liable, upon be held the default of its may insured face in the nature of principal, completing for the costs of ordinary claims about consumer breach of or conforming principal's Contract warranty. Inquiry during argument oral defective work to the terms of the Con suggested may that there not even exist in tract, general liability whereas the insur marketplace product an insurance er is liable for accidental damage very "covers me when I don't a good do by the insured to property owned job," you if will. (see Res., parties third Inc. J.Z.G. (2d majority recognizes, Cir.1993); As the King, there is 987 F.2d country Transp. divide the case law on the v. AARK Co. Constr. writ that would permanent Relator seeks Ltd., F.Supp.2d Group grant to Relator's Respondents require Concrete, Inc. (E.D.N.Y.2007); Bonded judge, of venue from the change motion for Co., 784 12 A.D.3d Ins. v. Transcon. day the same that Relator filed a motion (2004); Plumbing Parkset N.Y.S.2d modify to child petition he filed his v. Reliance Heating Corp. & opposing A brief issuance support. (1982)). 448 N.Y.S.2d A.D.2d filed. writ was Ltd., Promo-Pro, St., v. 15th LLC opportunity has had an Each Justice *9, Misc. 2010 N.Y. 3529466 at 2010 WL of mandamus petition for writ review Sept. (N.Y.Sup.Ct. at **27-28 LEXIS 4839 filed in papers and other prohibition and 2010). square cited Each of the cases met in con- Each Justice has this matter. cover limitation on CGL for this ly stands A majority the matter. ference to discuss v. Ins. Co. does Auto-Owners age, as grant perma- has voted to of the Court Cos., Inc., 268 Neb. Pride Home prohibition. of mandamus and nent writ (2004), the court where N.W.2d GRANTS the Accordingly, the Court policy does "although a standard CGL said Respon- ORDERS the writ and permanent faulty workman coverage for provide not dents, and the the Decatur Cireuit Court resulting work damages only the ship that Westhafer, thereof, Judge A. as Hon. John workmanship causes bod if product, change motion for grant Relator's damage to some injury ily judge. Motions to recon- venue from the prod than the insured's thing other not rehearing are petitions sider or event uct, unexpected an unintended and 5(C). Original Action Rule allowed. Ind. occurred, coverage exists." and has dissent. respectfully I C.J., SHEPARD, and and DICKSON BOEHM, JJ., grant permanent vote to SHEPARD, C.J., joins. writ.

RUCKER, J., perma- votes Rela- granting requiring nent writ change of venue from motion for tor's to Re- and relation judge prospectively Gary Indiana ex rel. STATE but modify support, child petition lator's COMBS, Relator, previously in relation to other matters the trial pending and still before filed court. CIRCUIT COURT DECATUR SULLIVAN, J., deny, believing votes Westhafer, John A. The Honorable judge right provided change that the thereof, Judge Respondents. 76(B) is not of TR. the third sentence No. 16S00-1008-OR-455. right facts. The available on these entered," "after a final decree available Supreme of Indiana. not "final" within the decree here is Sept.30,2010. it is the of the rule because motion to correct subject pending of a MANDAMUS OF PERMANENT WRIT error. AND PROHIBITION counsel, Relator, peti- verified filed a prohibition for writ of mandamus

tion original actions. governing the rules

under

Case Details

Case Name: Sheehan Construction Co. v. Continental Casualty Co.

Court Name: Indiana Supreme Court

Date Published: Sep 30, 2010

Citation: 935 N.E.2d 160

Docket Number: 49S02-1001-CV-32

Court Abbreviation: Ind.