In a Breach of Contract Action Between a Contractor and Property Owner, What is Covered by the Contractor’s General Liability Policy?

In Grinnell Mutual Reinsurance Co., v. Fisher, No. A-16-1047, the Nebraska Court of Appeals examines the question via interpretation of the language of the policy and how it pertains.

Robert Fisher (“Fisher”) is a contractor. Roberta Smith (“Smith”) hired Fisher to build her a house in November 2009. Fisher had a commercial general liability policy (“CGL”) through Grinnell Mutual Reinsurance Company (“GMR”), and he provided GMR notice of Smith’s claims against him.

Smith entered into an agreement with Fisher to rebuild her home, which had been destroyed in a fire. Between the beginning of the contract and June of 2010, Smith paid Fisher $85,000 of what was expected to be about $115,000 for the job. She says Fisher stopped work on the house while it was still largely incomplete. Smith filed her action against Fisher on November 29, 2010. Fisher testified that he had a contract with Smith to build her house which they agreed to in November 2009. The one-page contract did not cover all of the extras Smith asked for, but he thought they had a verbal agreement. He got into a dispute with Smith about payment for the extras on the house in July 2010, and his company quit working when she refused to pay him more money. She never contacted him again until he was served with her lawsuit on November 29.

On March 3, 2011, GMR sent Fisher a letter saying it had received the complaint filed by Smith, and there were questions as to whether Fisher’s policy covered the losses alleged in Smith’s complaint.

GMR filed a complaint for declaratory judgment on December 12, 2012, against Fisher and Smith. GMR asked the court to enter a declaratory judgment against Fisher and Smith finding that the damages in Smith’s case against Fisher were (1) not for “personal and advertising injury,” (2) not for “bodily injury,” (3) not for “property damage,” and (4) not the result of an “occurrence.” The complaint also asked the court to declare that even if there were “property damages” caused by an “occurrence,” they were not covered by the policy because of the exclusions set forth in the policy, and therefore GMR had no duty to indemnify or defend Fisher in the action brought by Smith.

Smith and Fisher filed answers to GMR’s complaint for declaratory judgment; Fisher also filed a counterclaim against GMR, seeking an order declaring that GMR has a duty to provide coverage and defend Smith’s claims against him. GMR subsequently filed a motion for summary judgment on August 29, 2014.The district court entered an order on October 11, 2016, finding GMR was entitled to judgment as a matter of law.

Fisher appealed. The Court of Appeals examined the questions. The policy covers property damage if the property damage is caused by an “occurrence,” which means an accident, including continuous or repeated exposure to substantially the same general harmful conditions. Although the district court determined Smith’s claims against Fisher may involve property damage, the court nevertheless concluded there seems to be no occurrence as defined by the policy.

Fisher argues that the district court erred by determining there was no “occurrence.” In similar cases, the majority of courts have determined that faulty workmanship is not an accident, and, therefore, not an occurrence. This Court says the controlling law requires a different conclusion. Smith’s allegations of property damage represent unintended and unexpected consequences of Fisher’s alleged faulty workmanship and go beyond damages related to Fisher’s own work product; accordingly, such claims of property damage sufficiently allege an occurrence within the meaning of the CGL insurance policy.

GMR argues the following exclusions apply: (a) contractual liability, (b) damage to property, (c) impaired property, (d) expected or intended injury, and (e) property damage to “your product” and property damage to “your work.” Of these exclusions, the controlling law similarly applies to two exclusions raised by GMR: (c) impaired property and (e) property damage to “your product” and “your work.” This Court concludes that the damage to the property of others alleged in this case cannot be “impaired property.” Therefore, the “your product” and “your work” exclusions are not applicable when the property damage is to the property of others.

Fisher does not challenge the district court’s determination that the policy excluded coverage with respect to Smith’s claims for breach of contract, and the Court agrees that this exclusion would preclude such coverage.

Some of Smith’s claims against Fisher regarding damage to property owned by Smith may represent an unintended and unexpected consequence of Fisher’s alleged faulty workmanship and go beyond damages to Fisher’s own work product. Therefore, since some of Smith’s claims against Fisher properly allege an occurrence within the meaning of the CGL policy, coverage exists. As for coverage exclusions, the Court agrees that Smith’s claims against Fisher for a breach of contract are not covered by the CGL policy. Further, any of Smith’s claims related to faulty workmanship by Fisher are not covered. However, none of the other exclusions asserted by GMR serve to exclude Smith’s allegations of damage to property owned by her or others, although, as previously noted, the endorsements may limit the amount of coverage available.

The district court concluded there were no genuine issues of material fact and that GMR was entitled to judgment as a matter of law; the court held that Fisher did not have coverage under the CGL policy “for paying or defending the Smith suit.” Summary judgment is proper when there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. The district court erred, in part, in its interpretation of the CGL policy related to property damage and whether or not there was an occurrence. As a result, the court failed to consider the materiality of certain facts related to Smith’s claim of damages to property owned by her or others. There remain issues of fact regarding what property was actually damaged and whether or not the damage was the result of faulty workmanship by Fisher. Therefore, summary judgment should not have been granted as to GMR’s request for an order declaring that the damages in Smith’s case against Fisher were not the result of an occurrence and were not for property damage. Accordingly, those portions of the district court’s order: (1) holding there was no occurrence, (2) holding that Fisher has no coverage under the policy “for paying or defending the Smith suit,” and (3) dismissing Fisher’s counterclaim, are reversed and vacated, and the matter is remanded to the district court for further proceedings.