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Houseman Construction Co. v. Cincinnati Insurance Co.

April 23, 2010

HOUSEMAN CONSTRUCTION COMPANY, PLAINTIFF,
v.
THE CINCINNATI INSURANCE COMPANY DEFENDANT.



The opinion of the court was delivered by: Hon. Gordon J. Quist

OPINION

Cincinnati Insurance Company ("Cincinnati") has filed its third motion for summary judgment and Houseman Construction Company ("Houseman") has filed a cross motion for summary judgment. The Court held oral arguments on March 24, 2010, to address these motions and whether there was an "occurrence" in light of Cincinnati Insurance Co. v. Beazer Homes Investments, LLC, 594 F.3d 441 (6th Cir. 2010). For the reasons set forth below, both motions will be denied and the Court will vacate in part its prior Order interpreting "occurrence."

The facts were set forth in this Court's July 14, 2009, Opinion and will be summarized here. Houseman was the general contractor for the construction of a grocery store. Several years after the store was completed, structural defects became apparent when the store's floor began to sink. The owner of the grocery store sued Houseman in a separate state court action.*fn1 This case concerns whether Houseman has coverage for the store's claim under a commercial general liability ("CGL") insurance policy ("Policy") issued by Cincinnati. Houseman requests a declaratory judgment that the grocery store's claim arises from an occurrence covered by the Policy.

The applicable law and summary judgment standard are well-known to the parties and the Court, and need not be repeated here. In its motion for summary judgment, Cincinnati argues that there was not an occurrence to trigger coverage because either (1) there was not "property damage" as a matter of law, or (2) there was not an "accident." The specific "property damage" language at issue is "[p]hysical injury to tangible property, including all resulting loss of use of that property." "Accident" is not defined in the Policy.

Property Damage and Occurrence: The Store's Floor*fn2

1. Cincinnati's Property Damage Argument

The parties agree that in the separate state court action, the grocery store sought damages from Houseman valued at the cost of repairing or replacing the floor. Cincinnati argues that there was not an occurrence to trigger coverage because the sinking floor is not "property damage" as a matter of law. Cincinnati cites cases from Indiana and Illinois for the proposition that repair and replacement costs are economic losses, and not property damage. Cincinnati concedes that there are no Michigan cases addressing this issue. Houseman claims that the Indiana and Illinois cases are not relevant because the policy language and the facts are different from the present case. Houseman also contends that the grocery store's case was a negligence action pled as a breach of contract claim.

In Michigan, "insurance policies are subject to the same contract construction principles that apply to any other species of contract." Rory v. Cont'l Ins. Co., 473 Mich. 457, 461, 703 N.W.2d 23, 26 (2005). Insurance policies must be read as a whole to determine and effectuate the parties' intent. See McKusick v. Travelers Indem. Co., 246 Mich. App. 329, 332, 632 N.W.2d 525, 528 (2001). Finally, "a court must construe and apply unambiguous contract provisions as written." Rory, 473 Mich. at 461, 703 N.W.2d at 26. "[T]he judiciary is without authority to modify unambiguous contracts or rebalance the contractual equities struck by the contracting parties." Id.

The Policy defines "property damage" as both "[p]hysical injury to tangible property, including all resulting loss of use of that property," and alternatively as "[l]oss of use of tangible property that is not physically injured." The "physical injury to tangible property" definition of "property damage" is the most apropos.

The Court finds that there is "property damage" under the Policy. In the underlying state court action, the grocery store alleged that its floor (tangible property) sank (physical injury). When the grocery store alleged that its floor sank, the store was alleging physical injury to tangible property, which is "property damage" under the Policy. See 3 Allan D. Windt, Insurance Claims and Disputes § 11:1 (5th ed. 2007 & Supp. 2010) (stating that "[i]f the insured's work physically deteriorates in some way, the work has suffered 'property damage.' Whether or not that damage is covered should depend upon whether the damage was caused by an occurrence and whether such damage is excluded from coverage."). This quote is consistent with the way in which Michigan courts have addressed this question. See, e.g., Ahrens Constr., Inc. v. Amerisure Ins. Co., No. 288272, 2010 WL 446543 (Mich. Ct. App. Feb. 9, 2010); Amerisure Mutual Ins. Co. v. Hall Steel Co., No. 286677, 2009 WL 4724303 (Mich. Ct. App. Dec. 10, 2009); Hometowne Bldg. Co. v. Amerisure Mutual Ins. Co., No. 287336, 2009 WL 3276509 (Mich. Ct. App. Oct. 13, 2009); Liparoto Constr., Inc. v. Gen. Shale Brick, Inc., 284 Mich. App. 25, 772 N.W.2d 801 (2009). Finally, the fact that the grocery store brought the underlying action in contract does not alter this analysis because the Policy provides coverage for claims, not causes of action.

2. Cincinnati's Accident Argument and the Meaning of "Occurrence"

Cincinnati also argues that there was not an occurrence to trigger coverage because there was not an "accident." "Accident" is not defined in the Policy. Cincinnati cites Lenning v. Commercial Union Insurance Company, 260 F.3d 574 (6th Cir. 2001), for the proposition that where the underlying complaint alleges a breach of contract claim, there is no occurrence to trigger coverage because a breach of contract is not an accident. Houseman argues that Lenning can be distinguished from the facts of this case and that Cincinnati's accident argument is a reincarnation of the "your work" argument addressed in this Court's prior Order.

The Court finds that Lenning does not apply here. First, the plaintiff in the underlying action in Lenning filed suit for incomplete work, not faulty work. Lenning, 260 F.3d at 581-82. More importantly, the policy at issue in Lenning was a custom homeowner's insurance policy, not a standard CGL policy. Id. at 578. Indeed, the Sixth Circuit relied on this distinction when denying Lenning the broader protections provided by CGL policies. Id. at 584.

Cincinnati's accident argument, however, is related to the meaning of "occurrence." The Policy defines "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." At oral arguments, Cincinnati cited Hawkeye-Security Insurance Co. v. Vector Construction Co., 185 Mich. App. 369, 460 N.W.2d 329 (1990), for the proposition that there is not an occurrence under the Policy if the defective work is the work of the insured. Cincinnati argued that Cincinnati Insurance Co. v. Beazer Homes Investments, LLC, 594 F.3d 441 (6th Cir. 2010), supports this proposition by pointing to other available avenues to cover this particular loss, such as performance bonds, errors and omissions policies, and subcontractor-default insurance. Houseman responded that Capitol Reproduction, Inc. v. Hartford Insurance ...


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