No. 02-715
IN THE SUPREME COURT OF THE STATE OF MONTANA
2004 MT 81
GENERALI - U.S. BRANCH,
Plaintiff and Respondent/Cross-Appellant,
v.
THOMAS ALEXANDER,
d/b/a PIONEER PLUMBING & HEATING,
Defendant and Appellant.
APPEAL FROM: District Court of the Fourth Judicial District,
In and for the County of Missoula, Cause No. DV 2001-385
The Honorable John W. Larson, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Kathleen O’Rourke Mullins, O’Rourke Mullins Law Office, P.C.,
St. Ignatius, Montana
For Respondent:
William L. Crowley, Cynthia K. Thiel, Boon Karlberg P.C., Missoula,
Montana
Submitted on Briefs: February 27, 2003
Decided: March 31, 2004
Filed:
__________________________________________
Clerk
Justice James C. Nelson delivered the Opinion of the Court.
¶1 Thomas Alexander (Alexander), doing business as Pioneer Plumbing and Heating,
appeals the judgment of the Fourth Judicial District Court, Missoula County, granting
summary judgment to Generali.
¶2 We address the following issues on appeal and affirm.
¶3 1. Did the District Court err in finding that Generali did not have a duty to defend
Alexander based on Alexander’s general liability coverage?
¶4 2. Did the District Court err in concluding that Alexander’s general liability
policy excluded coverage under the Products Completed Operations Hazard
coverage he also carried?
¶5 3. Did the District Court err in failing to find that Alexander’s claims for fraud
were not specifically excluded from his general liability coverage?
¶6 Generali raises the following issue on cross appeal, which we decline to address:
¶7 4. Did the District Court correctly find that Alexander’s complaint alleged
property damage?
FACTUAL AND PROCEDURAL BACKGROUND
¶8 Alexander was insured under a Commercial General Liability (CGL) policy issued
by Generali from April 4, 1999, to April 4, 2000. In addition to this policy, Alexander also
carried a Products Completed Operations Hazard (PCOH) policy. Each policy had separate
limits.
¶9 The CGL policy stated, under Coverage A, that: “We [Generali] will pay those sums
that the insured [Alexander] becomes legally obligated to pay as damages because of ‘bodily
injury’ or ‘property damage’ to which this insurance applies. We will have the right and
duty to defend the insured against any ‘suit’ seeking those damages. However, we will have
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no duty to defend the insured against any ‘suit’ seeking damages for ‘bodily injury’ or
‘property damage’ to which this insurance does not apply.”
¶10 Property damage under the CGL policy was defined as:
(a) Physical injury to tangible property, including all resulting loss of use
of that property. All such loss of use shall be deemed to occur at the
time of the physical injury that caused it;
or
(b) Loss of use of tangible property that is not physically injured. All such
loss of use shall be deemed to occur at the time of the “occurrence” that
caused it.
¶11 Although not delineated as a separate policy, the PCOH policy for which Alexander
paid separate premiums, was separately defined as including:
[A]ll “bodily injury” and “property damage” occurring away from premises
you own or rent and arising out of “your product” or “your work” except:
(2) Work that has not yet been completed or abandoned.
However, “your work” will be deemed completed at the earliest
of the following times:
(a) When all of the work called for in your
contract has been completed.
(c) When that part of the work done at a job
site has been put to its intended use by any
person or organization other than another
contractor or subcontractor working on the
same project.
Work that may need service, maintenance, correction, repair or
replacement, but which is otherwise complete, will be treated as
completed.
¶12 Kenneth J. Hansen and Nancy C. Hansen (the Hansens) sought a proposal from
Alexander for plumbing work on heating the hot pools in their building addition at the Lolo
Hot Springs Motel. In their complaint against Alexander, the Hansens alleged in pertinent
part that Alexander failed to provide a plumbing and heating system that would perform as
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he represented.
¶13 Under the terms of his CGL policy, Alexander submitted a claim to Generali,
requesting Generali to defend and indemnify against the Hansens’ complaint. Generali then
filed a motion for summary judgment.
¶14 The District Court found that although the Hansens had suffered physical property
damage, the exclusions under Alexander’s CGL policy did defeat applicable coverage.
Hence, Generali had no duty to defend Alexander. In its findings, the District Court did not
rule on the coverage applicable to the Hansens’ claim of fraud.
¶15 Alexander now appeals the District Court’s judgment.
¶16 Additional facts will be discussed as they become applicable in the following
analysis.
STANDARD OF REVIEW
¶17 We review a district court’s grant or denial of a motion for summary judgment de
novo. Cole ex rel. Cole Revocable Trust v. Cole, 2003 MT 229, ¶ 8, 317 Mont. 197, ¶ 8, 75
P.3d 1280, ¶ 8. The movant must prove that no genuine issues of material fact exist. Once
the movant demonstrates this, the burden shifts to the nonmoving party to prove that a
genuine issue of material fact does exist. After a district court determines that no genuine
issues of material fact exist, the district court must then determine whether the movant is
entitled to judgment as a matter of law. Cole, ¶ 8. We review a district court’s legal
conclusions for correctness. Cole, ¶ 8.
DISCUSSION
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¶18 1. Did the District Court err in finding that Generali did not have a duty to
defend Alexander based on Alexander’s general liability coverage?
¶19 Alexander argues that although the Hansens did not allege “property damage” in their
complaint, the Hansens advanced claims of property damage as those words are commonly
understood and defined under Alexander’s policy. Specifically, Alexander argues that
because the heating systems he installed are “integral to the real property as a whole and are
alleged to function in such a way as to materially alter the building and render the building
and pools unsafe for occupation,”--i.e., in their complaint, the Hansens claimed lost profits
resulting from their inability to use the buildings and the hot pools because of inadequate
heat and water--damage from the system’s malfunction constitutes physical property
damage. Hence, the Hansens claimed lost profits “stem from the physical impairment to the
real property, and thus, are covered under [Alexander’s] [p]olicy.”
¶20 Generali contends that the allegations in the Hansens’ complaint do not “trigger” the
coverage Alexander claims here, as the Hansens sought damages for lost profits. As such,
Generali had no duty to defend or indemnify Alexander because Alexander’s policy
coverage did not apply. In addition, Generali contends that because it charged Alexander
only one premium, which covered his entire policy, the damage to the Hansens’ property
from PCOH comes within Coverage A of Alexander’s CGL policy. Further, Generali
contends that unless specifically excluded, the property damage alleged by the Hansens
must have been caused by an “occurrence” which took place during the policy period. Such
occurrence, Generali contends, did not take place.
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¶21 In determining whether coverage under an insurance policy exists, it becomes
necessary first to examine whether the allegations contained within the complaint set forth
facts that bring the event within the insurance policy provisions. Graber v. State Farm Fire
and Cas. Co. (1990), 244 Mont. 265, 270, 797 P.2d 214, 217.
¶22 The Hansens alleged in their complaint specifically that:
[A]s a result of Defendants [Alexander] failure and refusal to provide
Plaintiffs [the Hansens] with a heating and plumbing system that could
perform the functions Defendant Alexander represented and promised that it
could do, which failure constitutes breach of contract, breach of the implied
covenant of fitness for use, or both, all of the work performed by Defendants
was rendered useless, and Plaintiffs have been damaged in the full amount of
the sums paid by Plaintiffs to Defendants, which Plaintiffs allege to be at least
$25,788.00. Plaintiffs are entitled to a full refund of the sums paid to
Defendants.
¶23 Alexander’s CGL policy states that Generali is obligated to provide coverage “for
those sums that the insured [Alexander] becomes legally obligated to pay as damages
because of . . . ‘property damage’ to which this insurance applies.”
¶24 Property damages is defined under the CGL policy as:
(a) Physical injury to tangible property, including all resulting loss of use
of that property. All such loss of use shall be deemed to occur at the
time of the physical injury that caused it;
or
(b) Loss of use of tangible property that is not physically injured. All such
loss of use shall be deemed to occur at the time of the “occurrence” that
caused it.
¶25 As the above-quoted complaint language shows, the Hansens allege that due to
Alexander’s breaches, they were “damage[d] in the full amount of the sums paid” by them
to Alexander--an amount totaling $25,788. The Hansens seek compensation for these lost
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payments and not for physical injury to their property, nor for loss of use of that property.
¶26 Therefore, we hold that Generali had no duty to defend nor a duty to indemnify
Alexander under Alexander’s CGL policy, as the Hansens did not seek compensation for
property damage as that term was defined under the policy.
¶27 2. Did the District Court err in concluding that Alexander’s general liability
policy excluded coverage under the Products Completed Operations
Hazard coverage he also carried?
¶28 Alexander argues that because his PCOH policy carries its own limit and has its own
definition, it operates as coverage for a separate risk not included in his CGL policy or in any
CGL exclusion thereby. As such, under the “reasonable expectations” doctrine, Alexander
asserts that if Generali “purports to assume the risk of property for which [Alexander] could
be held liable, through two separate policy limits of coverage, and then works to completely
avoid the risk through exclusions, then the risk was not just limited, it was never assumed
at all.” Hence, in effect, Alexander argues that he “paid premiums for a risk that was
illusory.”
¶29 Generali contends that the exclusions listed under Coverage A of Alexander’s CGL
policy precludes coverage, as PCOH “do not have their own Insuring Agreement and
Exclusions.” In addition, Generali contends that the Hansens’ complaint indicates that
Alexander did not complete his work, thereby not bringing him within the definition of
PCOH.
¶30 We have held that “[e]xpectations which are contrary to a clear exclusion from
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coverage are not ‘objectively reasonable,’” although the “reasonable expectations doctrine”
does not apply in situations “where clear policy language excluded the coverage.” Wellcome
v. Home Ins. Co. (1993), 257 Mont. 354, 359, 849 P.2d 190, 194. We enforce the terms of
an insurance policy as written. Brabeck v. Employers Mut. Cas. Co., 2000 MT 373, ¶ 12,
303 Mont. 468, ¶ 12, 16 P.3d 355, ¶ 12.
¶31 Specifically, the Hansens’ complaint states in pertinent part that: “Despite repeated
requests by Plaintiffs that Defendants complete the project, and despite repeated promises
by Defendant Alexander that he would do so, Defendants never completed the work agreed. .
. .”
¶32 As PCOH is defined, work is completed and thereby triggers coverage under PCOH
when: (1) all of the work contracted for is completed; or (2) part of the work completed has
been put to its intended use, with the qualification that work which “may need service,
maintenance, correction, repair or replacement, but which is otherwise complete, will be
treated as completed.”
¶33 Here, the Hansens alleged in their complaint that Alexander never completed the
work for which he was hired to do. Specifically, they alleged: (1) that “in a number of
instances they were billed by Defendants for materials that were never installed, are of no
use to Plaintiffs, and, in some cases, cannot be found;” (2) that “Defendant Alexander caused
his company to bill Plaintiffs for labor not actually performed upon Plaintiffs’ project;” and
(3) that “[a]fter Defendants ceased working . . . Plaintiffs learned from a representative of
Mountain Supply Company that the system which Defendant Alexander had ‘sold’ to
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Plaintiffs was wholly inadequate for the purpose intended. . . .”
¶34 As we held in Wellcome, the reasonable expectations doctrine is not applicable where
the policy language excludes such coverage. Here, under the PCOH language, Alexander
did not “otherwise complete” the work for which the Hansens hired him to do, as materials
were never installed, labor was never performed, and the system that was installed was
inadequate for the Hansens’ intended purpose.
¶35 Therefore, regardless of reaching the question of whether PCOH constitutes its own
policy, we hold that PCOH coverage is not applicable on the facts presented here. Alexander
did not complete his work, and hence did not trigger PCOH coverage.
¶36 3. Did the District Court err in failing to find that Alexander’s claims for
fraud were not specifically excluded from his general liability coverage?
¶37 Alexander argues that the CGL policy coverage did not “specifically exclude the
fraudulent actions of Alexander as alleged in [the Hansens’] complaint.” He argues that the
page of the policy explaining the fraud exclusion did not include a listing of the CGL, as did
other policy endorsements, namely the asbestos exclusion and the lead exclusion.
¶38 Generali contends that, as the District Court found, “the acts or omissions complained
of by [the] Hansens were excluded by the [CGL] policy.” As such, “without a covered
‘occurrence’ or ‘property damage,’ no coverage existed. . . .” In addition, Generali argues
that the first page of the CGL policy “clearly and unequivocally” includes a section stating
that Generali will not pay for loss in a case of fraud.
¶39 We have held that we interpret “an insurance policy’s terms according to their usual,
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common sense meaning as viewed by a reasonable insured.” Brabeck, ¶ 12. In addition, we
“interpret any doubts in coverage strictly against the insurer,” but we do not engage in this
interpretation “where the policy’s terms are not ambiguous,” as we will not rewrite the terms
of a policy, and will instead enforce the terms as written. Brabeck, ¶ 12.
¶40 Here, the CGL policy states on the first page, “Forms applicable to all Coverage
Parts.” This section contains endorsements which the policy does not cover. One such
endorsement is entitled “Montana Changes - Concealment, Misrepresentation or Fraud,” and
states the following:
We [Generali] will not pay for loss (“loss”) or damage in a case of:
1. Concealment or misrepresentation of a material fact; or
2. Fraud
committed by you or any other insured (“insured”), whether before or after the
loss (“loss”) and relating to coverage of the loss (“loss”) under this policy.
¶41 We conclude that the District Court’s ultimate conclusion that the acts and omissions
complained of by the Hansens were excluded by the CGL policy is correct, as both the
policy language and the exclusions contained therein are clear and explicit.
¶42 4. Did the District Court correctly find that Alexander’s complaint alleged
property damage?
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¶43 Because we hold that the District Court did not err in granting summary judgment to
Generali, we do not address Generali’s cross appeal here.
¶44 Affirmed.
/S/ JAMES C. NELSON
We Concur:
/S/ KARLA M. GRAY
/S/ JIM REGNIER
/S/ W. WILLIAM LEAPHART
Justice Jim Rice concurring.
¶45 I concur with the Court on all issues but would resolve Issue 1 under the rationale set
forth by the District Court.
¶46 Hansens’ complaint alleged that “all of the work performed by [Alexander] was
rendered useless” because of Alexander’s faulty installation of the plumbing system. Section
V(15) of the CGL policy broadly defines “property damage” to include “[l]oss of use of
tangible property that is not physically injured.” I would conclude that Hansens’ claim fell
within this definition. However, though qualifying under that definition, the claim was
nonetheless removed from coverage under Section I, Coverage A(2)(m), which provides that
“insurance does not apply to”:
Damage to Impaired Property or Property Not Physically Injured
“Property damage” to “impaired property” or property that has not been
physically injured, arising out of:
(1) A defect, deficiency, inadequacy or dangerous condition in
“your product” or “your work”; or
(2) A delay or failure by you or anyone acting on your behalf to
perform a contract or agreement in accordance with its terms.
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The policy here narrowed the coverage for “property damage” involving property not
physically impaired by excluding coverages for alleged defective conditions in Alexander’s
work product and for any alleged failure by Alexander to perform as agreed in regard to such
property. These definitions include Hansens’ claim in regard to the plumbing system.
¶47 I concur in affirming the District Court.
/S/ JIM RICE
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