Case Title: Mapes Indus. v. US FIDELITY AND GUAR.

Citation: 252 Neb. 154, 560 N.W.2d 814

Docket Number: 

State: nebraska

Court: Nebraska Supreme Court

Date: 1997-03-28T00:00:00Z

Document:
560 N.W.2d 814 (1997) 252 Neb. 154 MAPES INDUSTRIES, INC., a Nebraska corporation, Appellant, v. UNITED STATES FIDELITY AND GUARANTY COMPANY, a Maryland corporation, et al., Appellees. No. S-95-469. Supreme Court of Nebraska. March 28, 1997. *815 Tyler J. Sutton and Kerry L. Kester, of Woods & Aitken, Lincoln, for appellant. Michael A. England, of Wolfe, Anderson, Hurd, Luers & Ahl, Lincoln, for appellees. WHITE, C.J., and CAPORALE, WRIGHT, CONNOLLY, and GERRARD, JJ., and SPRAGUE, D.J. CAPORALE, Justice. In this declaratory judgment action, the plaintiff-appellant insured, Mapes Industries, Inc., seeks a declaration that its insurers, the defendants-appellees United States Fidelity and Guaranty Company, Fidelity and Guaranty Insurance Underwriters, Inc., and Fidelity and Guaranty Insurance Company, hereinafter collectively referred to as USF&G, are obligated to defend Mapes in a suit brought against it by the defendant-appellee Harmon Contract, W.S.A., Inc. The district court sustained the defendants' motion for summary judgment, thereby dismissing Mapes' action. Mapes thereupon appealed to the Nebraska Court of Appeals, which, in an unpublished memorandum opinion, reversed the judgment of the district court and remanded the matter for further proceedings. See Mapes Indus. v. United States F. & G. Co., 4 Neb.App. xviii (case No. A-95-469, July 3, 1996). USF&G then successfully sought further review by this court, asserting that the Court of Appeals erred in ruling that the district court improvidently overlooked Mapes' potential liability to Harmon. We now reverse, and remand with direction. Summary judgment is proper only when the pleadings, depositions, admissions, *816 stipulations, and affidavits in the record disclose that there is no genuine issue as to any material fact or as to the ultimate inferences that may be drawn from those facts and that the moving party is entitled to judgment as a matter of law. Central Neb. Broadcasting v. Heartland Radio, 251 Neb. 929, 560 N.W.2d 770 (1997). Mapes, a manufacturer of laminated insulating panels for use in building construction, sold certain panels which were eventually installed in a building erected in Chicago, Illinois. Subsequently, Harmon filed a complaint against Mapes in an Illinois court, alleging that the panels had "delaminated and caused the exterior surface to `ripple,'" that the "defect manifested itself throughout the building," and that Harmon "was compelled to rectify the problem." Mapes tendered the defense of the suit to USF&G. USF&G denied coverage and any duty to defend the suit, writing that it had "carefully reviewed the complaint" and concluded that it was "evident that the only damages claimed [were] to `rectify the problem' of the delaminated panels manufactured by Mapes" and that the damages claimed did not arise out of an "`occurrence,'" as defined in the policy. Harmon then amended its complaint against Mapes, adding, so far as is relevant, that Harmon "was forced to correct the defect to avoid and minimize a loss of use of the building and mitigate damages which were caused by the product failure of the panels manufactured by" Mapes and the defendant-appellee Kalco Specialty Sales, Inc., "after the panels had been put to their specified use." Mapes again tendered the amended suit to USF&G, and USF&G again declined to defend Mapes. At the relevant time, the subject comprehensive general liability policy of insurance provided, so far as relevant, that USF&G would pay on behalf of Mapes all sums which Mapes shall become legally obligated to pay as damages because of "property damage" caused by an occurrence subject to certain exclusions as set forth in parts IV(2)(a) and (b) hereinafter. The policy additionally grants USF&G the right and imposes upon it the "duty to defend any suit against [Mapes] seeking damages on account of such ... property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any suit as it deems expedient...." We begin by analyzing the nature of an insurer's duty to defend a suit brought against its insured. Such a study begins with a review of Allstate Ins. Co. v. Novak, 210 Neb. 184, 313 N.W.2d 636 (1981). In the course of holding therein that an insurer's obligation to indemnify an insured could not be determined until there is a final determination of the insured's obligation to respond in damages and the basis of that obligation, we, in considering insuring language very similar to that in question here, wrote: Not only does the carrier have a right to defend but it has a corresponding duty to do so. This duty is rather broad in that the policy provides that the carrier has a duty to defend even though the suit is "groundless, false or fraudulent." That is to say, the duty to defend is greater than the obligation to pay. There is no requirement *817 that there must be a reasonable likelihood of recovery or even a good faith claim. It is possible by reason of the language of this policy that the company may be obligated to defend a groundless, false, or fraudulent claim though it may not ultimately be required to make any payment. (Emphasis in original.) Id. at 187-88, 313 N.W.2d at 638. We again noted in John Markel Ford v. Auto-Owners Ins. Co., 249 Neb. 286, 295, 543 N.W.2d 173, 179 (1996), that an insurer has a duty to defend its insured whenever the insurer ascertains facts which give rise to the potential for liability under the policy, and further wrote: As observed in Allied Mut. Ins. Co. v. State Farm Mut. Auto. Ins. Co., 243 Neb. 779, 784, 502 N.W.2d 484, 487 (1993): Thus, in determining its duty to defend, an insurer not only must look to the petition, but must investigate and ascertain the relevant facts from all available sources. Mapes' president stated that the panels which Harmon claimed presented aesthetic problems "were not replaced, but instead were covered up, and this process involved disturbing other components of the ... [b]uilding which were not manufactured, supplied or installed by Mapes, including disturbing the curtain wall and the removal of the exterior tinted glass on the outside of the building." In addition, Harmon's senior project manager stated that since the occupancy rate for the building was in excess of 76 percent and increasing, the problem with the panels had not affected the leasing of the building. The question, then, is whether the allegations or additional information establishes, or raises an inference, that there was or may be "property damage" as the result of an "occurrence," as those terms are defined in the subject policy. In making those determinations, we are bound by the rule that the construction of an insurance contract or policy presents questions of law, in connection with which an appellate court has an obligation to reach an independent conclusion irrespective of the determination made by the court below. Farm Bureau Ins. Co. v. Bierschenk, 250 Neb. 146, 548 N.W.2d 322 (1996). So far as relevant, "property damage" is defined in the policy as "(1) physical injury to or destruction of tangible property ... including the loss of use thereof ... resulting therefrom, or (2) loss of use of tangible property which has not been physically injured or *818 destroyed provided such loss of use is caused by an occurrence...." We turn our attention first to whether the allegations in the Harmon suit or the additional information set forth in subpart 1 above establishes or raises an inference that property was or may be damaged as described in clause 1 of the foregoing definition of property damage. Relevant to that determination is the policy language reading that [t]his insurance does not apply: The insurer in Thos v. Employers Mutual Cas. Co., 215 Neb. 424, 338 N.W.2d 784 (1983), had issued a comprehensive liability policy with substantially the same language as involved here. The insurer refused to defend an action brought against the insured which arose from the insured's erection of a hog confinement structure which was later wind damaged. At issue was whether the structure had been erected in a workmanlike manner and conformed to a rather general warranty. The Thos policy provided completed operations coverage by language like that contained in the policy now before us, namely, for We concluded that because loss to the insured's product itself was not covered, and because neither the petition nor the record disclosed damage to other property of the building owner, the insurer was correct in determining that there was no potential liability under the policy and, in turn, refusing to defend the underlying claim. In so reasoning, we recalled our earlier determination that completed operations language did not afford coverage for damage to the product itself, but only for damage to other property or for bodily injury, observing further that the coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss and that the policy was a liability policy, not a contract in the nature of a performance bond or guarantee of satisfactory construction. Although, unlike the policy at issue here, the policy in Hartford Acc. & Ind. Co. v. Olson Bros., Inc., 187 Neb. 179, 188 N.W.2d 699 (1971), provided products liability and completed operations coverage, the reasoning of the case is nonetheless instructive. The insurer therein had issued a policy to a roofing contractor who had furnished the materials for and constructed and installed a roof deck and covering on the owner's manufacturing plant. About a year after completion of the roof, the owner discovered that some roof panels had "cupped" or warped, causing cracks and checkmarks to appear. The warranty period of the construction contract had expired. The owner nonetheless brought an action against the contractor. In claiming coverage, the contractor urged that the damage was not confined to its product or completed work. In rejecting that contention and concluding that as there was no possibility of coverage, the insurer had no obligation to defend the contractor, we wrote: Let us analyze the language of the insuring provisions of the policy. It is clear that the "damage" which the policy covers must be "caused by an occurrence." If we then relate this language to the allegations of [the owner's] petition, we note that the "occurrence" which is the basis of [the owner's] claims is the alleged false representation [about the quality of the roof]. The "damages" for which recovery is *819 sought is the roof deterioration or damage to the building.... It seems perfectly clear that under the language of the policy the "occurrence," in this case the "alleged representations and reliance" thereon, must have resulted in the physical damage. The deterioration of the panels and the consequent damage clearly was not caused by the representations. It was not caused by reliance upon such representations. It occurred in spite of such representations or reliance thereon. There is obviously no cause and effect relationship between the representations and the deterioration and none is claimed. Id. at 184-86, 188 N.W.2d at 702-03. (Exclusions (l) and (m) in the Hartford Acc. & Ind. Co. policy were the same as the exclusions found in subparagraphs (n) and (o) of the policy at hand, as set forth above.) Harmon's amended complaint fails to allege, and the additional information set forth in subpart 1 above fails to establish or provide us with a basis to infer, the existence or possible future development of physical injury to or destruction of the building or tangible property other than to the panels manufactured by Mapes. As a consequence, the property damage otherwise covered by clause 1 of the definition falls within exclusions (n) and (o); thus, clause 1 does not impose upon USF&G an obligation to defend Mapes. We thus turn to the coverage provided by the definition of property damage contained in clause 2 of the property damage definition, which covers occurrences not otherwise excluded resulting in the loss of use of tangible property not physically injured or destroyed. The policy provides that such coverage does not apply (m) to loss of use of tangible property which has not been physically injured or destroyed resulting from (1) a delay in or lack of performance by or on behalf of [Mapes] of any contract or agreement, or (2) the failure of [Mapes'] products or work performed by or on behalf of [Mapes] to meet the level of performance, quality, fitness or durability warranted or represented by [Mapes]; *820 In other words, while exclusion (m) initially denies coverage for the loss of use of tangible property neither physically injured nor destroyed by the failure of Mapes' products or work, the language beginning with the word "but" exempts from the operation of the exclusion such loss of use resulting from the sudden and accidental physical injury or destruction of Mapes' products or work put to use by others. Here, the Harmon complaint fails to allege, and the additional information set forth in subpart 1 above fails to establish or provide us with a basis to infer, that the delamination of the panels resulted from a sudden and accidental event. As a consequence, USF&G has no obligation to defend under clause 2 of the property damage definition. Because no possibility of coverage has been either alleged or otherwise shown, we need not concern ourselves with whether the delamination of the panels otherwise qualifies as an "occurrence," as that term is defined in the policy. Accordingly, as first noted in part I above, the judgment of the Court of Appeals is reversed and the cause remanded thereto with the direction that it affirm the judgment of the district court. REVERSED AND REMANDED WITH DIRECTION.