* The Hon or abl e Wi ll ia m O. Bertels man, Unit ed States Distr ict Judge for the Eastern Dist

rict of Kentucky, sitt ing by designati on.

1 RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Six

th Circuit Rul e 206
ELECTRO NIC CIT

ATION: 2004 FED App . 0068P (6th C ir.) File Name: 04a00 68p.06


### UNITED STATES COURT OF APPEALS

FOR THE SIXT H CIR CUIT

_________________ S TANDARD C ONSTRUCTI ON C O ., I NC ., Plaintiff-Appellee,

v.

M ARYLAND C ASUALTY C O

. and N ORTHERN I

NSURANCE C O

. OF N EW Y ORK , Defenda nts-Appe llants. X - - - -> , - - - - - - N No. 02-6039

Appeal from the United States District Court for the We stern Dis trict of T ennesse e at Memphis. No. 01-02006—Diane K. Vescovo, Magistrate Judge

.

Argued: December 11, 2003 Decided and Filed: March 4, 2004
Befor e: ROGERS a

nd COOK, Ci

rcuit Judg es; BERTELSMAN, District Judge. * 2 Standard Construction Co. v. Maryland Casualty Co ., et al. No. 02-6039

_________________ COUNSEL
ARGUED: J. Robert Ha ll, ME CKLER , BUL GER & TIL SON, Chicago, Illinois, for A p pellants. J. Brooke Lath ram, BURCH, PO RTER & JOHN SON, Memph is, Tennessee, for App ellee

. ON BRI EF: J. Robert Ha ll, Michael M. M arick, MECKLER, BULGER & TIL SON, Chicago, Illinoi s, for Appe llants. J. B rooke L athram, BURCH, PORTER & JOHNSON, Memphis, Tennessee, for Appellee.
BERTEL SMAN, D. J., d elivere d the opini on of the c ourt, in which COOK, J., joined. ROGERS, J. (pp. 16-17), delivered a separate concur ring opinion.

_________________ OPINION

_________________ BERTELSMAN, District Judge. Defe ndan ts, Maryland Casualty Company

and Northern Insura

nce Company of

New York, appeal the district court’s judgment in favor of plaintiff, Standard Co ns tr uc ti on Co mp an y. The district court ruled that defenda nts owed plaintiff both a

duty to defen d and a du

ty to indemnify

under cert ai n commer cial ge neral lia bility insurance policies. For the reasons set forth, we AFFI RM the district court’s judgment.

Factual Bac

kground
Standard Construction Company is an asphalt paving contractor. Mary

land Casualty Company and Norther n Insurance Company of New Y ork i nsured Standard from January 1, 1990 through J anuary 1, 1993, unde r threeNo. 02-6039 Standard Construction Co. v. Maryland Casualty Co ., et al. 3

successive one-y ear commercial general liab ility (“CGL ”) and um br el la po li ci es , r es pe ct iv el y. InM arch 1990, Standard entered into a contract with the State of Tennessee to perform paving a nd road w ork as p art of a r oa d- wi de ni ng pr oj ec t o n H ig hw ay 64 ne ar Arlington, Tennessee. Under the contract, Standard was responsible for the clearing and

removal of cert

ain debr is, to be pe

rformed in accord with specifications issued b y the Tennesse e Department

of Transportation. These specifications required Standard to remove debris from

the construction area; to take ownersh ip of the debris and dispose of it elsewhere; to secure writtenp ermission from landowners prior to dumping the debris on any private pr

operty; and to mak

e reparations for any damage to private or public property that might occur during d isposal.
Standard s ubcontra

cted this d

isposal work to Rona

ld S. Terry Construction Company. Terry ’s superintendent, Gene A. Bobo, obtained written permission from six owners of the propert y ad ja ce nt to Hi gh wa y 64 to du mp on their propert y constructiondeb ris from the r oad-wid ening project. With res pectto a sevent

h proper ty owner, th e then 90-ye ar old Cassella Love, Bobo obtained a

similar agreement

signed by Love’s daughte

r, Louise Poole, in L ove’s name.
Te rr y, believing that it had Love’s pe rmission, procee de d t o dump constr

uction debris, including trees, corruga ted metal pipes, concret e chun ks with exposed steel, and asphalt, on Love’s property. At that time, L ove’s property , which wa s zoned commercial, was the subject of condemnation procee dings brough

t by the State

in conne ction with the widening p roj ect. William H. Fisher, an attorney representing Lovein the condemnation action, retained an enginee r to inspect Love’s property . The engineer opined tha

t the debr is dumped on

Love ’s prope

rty render ed the la nd unsuita

ble for development. 4 Standard Construction Co. v. Maryland Casualty Co ., et al. No. 02-6039

After receiving the enginee

r’s report, Fisher wrote to Standard by letter, dated Ma

y 22, 1992, dema

nding that the company cease d umping on

Love ’s property, revoking any authority Sta ndard may ha ve had for such dumping, and requestingthat Standard remove the debris. Fisher also stated that Love suffered f

rom senile dementia a

nd that her

ability to enter into a binding contract was questionable.
After attemptin g unsuc cessful ly to

locate a copy of the fir st Loveagreement, Standard obtained a sec ond dumping agree ment, signed either by

Love or by Poole in L ove’s name, dated June 17, 1992. Handwritten onthe agreement was the notation: “a gr ee to as p[ ha lt ] d ri ve wa y + dump 2 loads of dirt infront yard.”

Thereafter, Standard pa ved Love’s drivewa y and spread dirt on her land.
OnNovember 22, 1994, Love, by and throug h her daughter, filed suit in Tennessee state court against Standard, Te rr y, Bobo and the State of Tennessee. L ove asserted various claims for damag e to her prop erty , includin g a cla im for trespass. Standard tendered de fen se of the Love case to Maryland and Northern, but the insurers denied coverage on several different grounds. Following ame ndments to the Love complain t, the insurers again refused to defend Standard. Standard eventually settled the Love matter f or appro ximately $200,000.
OnJanuary 5, 2001, Standard filed the instant dec laratory judgment action a lleging that the in surers breache d their duties to defen

d and inde

mnify Standard in connec

ti on with the Love lawsuit. The parties consented to the jurisdiction of United States Ma

gistra te Judge Diane K. Vescovo, pursuant to 28 U.S.C. § 636(c).
After discovery, the

par ties filed cross-motions for summary judgmen

t. By or

der, dated May

15, 2002, Magistr ate Judge Ve scovo g

ranted s ummary judgmen t in Standard’s favor

as to the duty

to defen d, ruling that prop ertyNo. 02-6039 Standard Construction Co. v. Maryland Casualty Co ., et al. 5

damage resulting from tre spa ss would constitute a covered claim under the applica ble polic ies and that certa in “busine ss risk” exclusions relied

upon by the insurers

were ina pplicabl e to claims by a s tranger to the construction contract for damages resulting from a trespass. Magistrate Judge Vescovo denied the motions as to the duty to indemnify , h o wever, finding that there were genuine disputes of mater ial fact as to whether a contr act was entered into between L ove and Standard (through Te rry)so as to tri gger the busine ss risk exclusions

. Magistr ate Judge Vescovo conducted a bench tr ial on June 17 and 18, 2002, after w hich she entered Findings of Fact, Conclusions of Law, and a Judgment in Standard’s fav or

. Specifically, Mag istrate Judge Vescovo found that Terry ’s disposal of construction debris on Love’s prope rt y constituted

a trespass because, although Terr y (and Standard) believed it had Lo ve’s permissio n to dump the

debris, i n reality such consent was lacking because L ove herself was inc ompetent

to enter into any ag

reement and because he

r daughter, Poole, had neither actual nor implied authority to do so on Love’s behalf. Thus, no contra ct between Love a nd Standard eve r existed, a

nd Terry ’s dumping

on the pro

perty was wron gful. Magistr ate Judge Vescovo als o concluded that Standard had acted reasonably

in settling the Love case and that Standard had not imp aired th e insure rs’ subr ogation rights.
The trial court award ed St andard $ 244,750 f or its Love defense costs; $200,000 for its settlemen t costs; and $6,487.30 in pre-ju dgment i nterest. The i nsurers now appeal the grant of pa rtial summar

y judgment to Standar

d on the iss

ue of the duty to defen d, the denial of summar

y ju dgment on that issue

to the insur

ers, and the judgment in favor of Standard on the duty of indemnification. 6 Standard Construction Co. v. Maryland Casualty Co ., et al. No. 02-6039

1 T he relev ant t erms in the Maryl and and Northern pol icie s ar e identic al. Analysis
A. Standard of Review
We review the district

court’s grant

of summary judg

ment de novo , employing the sa me legal standard appl ied by the districtcourt. West

field Ins. Co. v. Tech Dry, Inc. , 336 F.3d 503, 506 (6th Cir . 2003) (c itatio n omitted) . The same standard applies w

here the district c ourt deni e s summ ary judg ment based upon purely legal grounds. Id. The district court’s finding s of fact ar e revie wed unde

r the cle arly erroneous standard. See Fed. R. Civ. P. 52(a).
B. Applicable Law
The district court held that Tennesseelaw was applicable, and neith er part y contest s thi s ruli ng. Throughout the opinion and briefs, however, citations are mad e to authorities of many jurisdict ions, s i nce the policy pr ovisions and cases interpretingthem are

reasona bly uniform. We agre e with this approach.
C. Scope of Coverage
1. “Occurrence”
The insuring ag reement of these policies 1 states, in pertine nt part:

a. We will pay those sums that the insured become s legall y obligat ed to pay

as dama

ges because of “b od il y in ju ry” or “prop erty

damage ” to which

this i nsurance applies. We will have the right and dut y to defend any

“suit” seeking those damages. . . .No. 02-6039 Standard Construction Co. v. Maryland Casualty Co ., et al. 7

b. This insurance applies to “bodi ly injury” and “property damage” only

if: (1) The “bodily

injury ” or “pr operty damage ” is caused by a n “occu rrence ” that tak

es place in the “coverage terr

itory;” and (2) The “bodily injury

” or “p roperty da

mage” occurs during the policy

period.
The policies further define “occur renc e” as an

“accid ent, inc luding co nt in uo us or re pe at ed ex po su re to su bs ta nt ia ll y th e same gener

al harmf ul conditions.” The

te rm “accident,” however, is not defined. In addition, the policy excludes from covera ge “bodily in

ju ry” or “pr

operty damage ” that is “expected or intended from the standpoint of the insured.” Appellan ts argue th at the re was n o cove rage u nder the policies because Standard intend ed to d ump the debris on Love’s land. This situation, it asserts, does not fit the policy’s definition of an “occurrence.”
The district court held that the dumping was an “occurrence”

or “acc ident” wi

thin the meaningof the policy because, while the dumping was intentional, the fact that it was done without permission, thus making it wr ongful , was not intended by the insured.
We agree with this conclusion. As pointed out by the trial court, “if the resulting damages are unintende d, the resulting damage is acc idental even though the original acts wer e intentional.” (J.A. at169) (Order) (quot ing State FarmFire and Cas. Co. v. CTC Dev e lopment Corp. , 720 So.2d 1072, 1075 (Fla. 1998)).
A Supreme Court

of Tennessee opinion relied upon by the trial court is instructive. In Tennessee Farmers Mut. Ins. Co. 8 Standard Construction Co. v. Maryland Casualty Co ., et al. No. 02-6039

v. Evans , 814 S.W.2d 49 (Tenn. 1991), the court, after noting several approaches to this issue by various courts, held:
Aft er carefully weighing the implications of the several approaches discussed in the preceding parag raphs , this Courtis persuaded that the best approach, and the one that should be adopted

in Tennessee, is that followed by
a majority of the states that have had an oppo rtuni ty to construe the lang

uage in volved in t

his case . That is, i

n order to find tha

t an inten ded or expe cted acts exclusion applies, it must be estab lishe d that the insured intended the act and

al so in te nd ed or ex pe ct ed th at in ju ry w o uld result. These a

re sepa rate an d distinct i

nquiries because many intentiona

l acts pro duce une

xpected r esults an d comprehen s ive liability insurance would be somewha t pointless if protection

were precluded if, for

example, the intent to cause harm was not an essential (and require d) showing. . . . The intent itself may be actual or inferred fr om the nature of the act and the accompa nying reasona ble foreseeability

of harm. It is immaterial that the actual harm was of a different c haracter or magnitude or nature than that intended.
Id. at 55-56 (citation omitted) (italics in original). We reject appella nts’ arg ument tha t Evans is “irre levant” because the court there was construing an exclusion rather thana coverage term. As the tria l court here noted, the “expected or intended” language of

the exclusion discusse d in Evans was historically par t of the definition of “occurrence.” Moreover, whether expressed as part of the definition of “occurrence”

or stated as a separa te exclusion, the point is the same. Moreover, this court recently r eached a similar

conclusion ina case w

here it h ad occa sion to com ment at length on the meaningof

“occ urrence/accident” in liability policies. See West field Ins. Co. v. Tech Dry, Inc. , 336 F.3d 503 (6th Cir

.No. 02-6039 Standard Construction Co. v. Maryland Casualty Co ., et al. 9

2003) (applying

Kentucky law

). There, the insur

ed, a carpetcleaningcompany

, hired a n individua

l as a carpet cleaner, but it n egl igently

failed to perfor m a backg

round ch eck on him

. Id. at 505. The individual subsequently g ained entrance to a customer’s home to clean her carpet and, using knowledge of the premises gained in that endeavor, later broke into the home and murdered the homeowner. Id. The homeowner’s es ta te su ed th e i ns ur ed ca rp et -c le an in g c om pa ny. The insuranc e compan

y a rgued that t his scenario did not constitute an“occur

rence” under the policy because both the hiring and murder were inten tiona l. The policy at issue defined “occurren ce” exactly as the policies do here : as “an accide nt, inclu ding cont inuou s or r

epea ted e xp os ure to substantially the same g eneral harmful conditions.” Id.
This court rejec te d the insur ance company ’s arg

ument. First, we held t

hat the term “ accide

nt” was not ambig

uous, observingthat the ordinary me aning of that term is “an event which. . . is unusual and not expected by the

person to whom it happens.” Id. at 507 (quoting Black’s L aw Dictionary (5th ed. 1979)). F

urther, we noted

that an “ accide

nt is generally und ers tood

as an unfortunate consequence which be falls an actor through his inatte ntion, ca reless n ess or perhaps for no explicable

reason at all .” Id. (quot ing Fryman v . Pilot Life Ins. Co. , 704 S.W.2d 205, 206 (Ky. 1986)). “The r esult is not a product of desire and is perforce accidental.” Id.
In West field , th e insured deliberately hired a person, but that act had un forseenand uninte nded con sequenc es due to the insured’ s negli gence, thus bringing the e vent within the definition of “o ccurre

nce” for purpose s of its lia bility insurance.
Inthe instan

t case, t he insure d deliber

ately dumped de

bris onLove’s property

, but that act too had unf ores een and
u nintended

consequences du

e to the in sured’s

neglig ence in failing to secure a valid agreeme nt from the property ’s owner. 10 Standard Construction Co. v. Maryland Casualty Co ., et al. No. 02-6039

We thus agree with the trial court that, as a matter of law, the act falls within the definition of “occurrence.”
2. “Property Damage ”/The “You r Work” Exclusio n Appellan ts also assi g n as error the district court’s holding that the underlying Love action sought recove ry for “pr operty damage”under these liability policies. As def ined in the policies, “proper

ty d amage ” means:

a. Ph ys ical injury

to tangi ble prope rty , includin

g all resulting loss of use of the property ; or b. Lossof u se of tangible property that is not physically

injured.
The policies exclude cov erage , howeve r, for “ propert y dama g e” to “impair

ed prope rty ” arising out of a “ defect , def ici en cy, inadequacy

or dangerous condition in ‘y our product’ or ‘y

our work.’” Appellan ts’ contention, as we understa nd it, is that bec ause Standard was performing work pursuant to a contract with the State, the tort it committed against Love - - a stra nger to that contract - - is not covered either because it wascaused merely by faulty workmanship and/or because the injury

arose out of Standard’s “work.”
We agree with the district court’s resolution of t his is sue. The trial cou

rt reasoned that, si nce Love was a third person, not a par ty to Standard’s contract with the State, the da mage to her prop erty

from the w

rongfu l dumping was not su

bject to the exclusion for “your [the insured’s] work.”
T his p rinciple was derived from the decision of the S upreme Court of Tennessee in Vernon Williams & Son Constr., Inc. v. Continental Ins. Co. , 591 S.W.2d 760 (Tenn. 1979). T here, speaking of this ty pe of coverage, the c ourt pointed ou t: “T he co ve ra ge is fo r t or t l ia bi li ty for physicalNo. 02-6039 Standard Construction Co. v. Maryland Casualty Co ., et al. 11

2 The discussion of t

he general principle underl ying bus i ness risk exclus ions, infra , is al so pertinent t o this subsect ion. da mages t o others and not for contractual liability of the insured for economic loss because theproduct or completed
w ork is not that for which the damaged person bargained

. ” Id. at 764 (citation omitted) (emphasis added). Further, “it clearly a

ppears that property damage claims of third perso ns resulting from the insured’s breach of a n im plied warran ty a re cove red unle ss the cla

imed lossi s confined to t he ins ured’s work or work product.” Id. (emphasis added).
In the instant case, it is not the manner in whichth e dumping was performed (the“work” ) that is f aulty or caused damag e, bu t rather

that the d

umping it self at the location in question was unauthorized. S o me damage to Love ’s land inevitab ly resulted. The damage was to the land, not to the insured’s “work.” Therefore, there is coverage for “proper ty damage”and th e “ you r w or k” ex cl us io n d oe s n ot ap pl y. Accord Standard Fire Ins. Co. v. Chester-O’Donley & Assoc., Inc. , 972 S.W.2d 1, 10 (Tenn. App. 1998) (“The exclusion does not apply if there is dama ge t o p roperty other

than the insured’s work.”) (d iscu ssing exte nsively the histor

y of this pol icy l angua ge and many other ca ses and te

xts); Weedo v. Stone-E-Brick, Inc. , 405 A.2d 788, 791-95 (N.J. 1979) (extensive discussion). 2

3. Exclusion 2j(5) Appellan ts als o a ssign as error the district court’s conclusionthat the exclusion foun d i n section 2j(5) of the policy does not apply to Standar d’s claim. This exclusion precludes coverage f

or property da

mage to: 12 Standard Construction Co. v. Maryland Casualty Co ., et al. No. 02-6039

That particular part of real property on which you

or any contractors or subcontractors working directly or indirec tly on your behalf

are per fo rming op eration s, if the “pro perty damage ” arise s out of tho se opera tions.
A s previously noted, at the c onclusion of the indemnificationtrial, th e district court found as a fact that there was no permission by Love for Ter ry to dump debris on her land, and that Standard thus had no cont ract with her. Therefore, it held tha

t the dumpin

g was a trespas s. This finding is not clea

rly errone ous. The district c ourt fur

ther hel d that Exclu sio n j(5) w as not applicable, since it was not int ended to apply to cla ims by third parties, but only to claims by the entity with which the insured construction contractor

hadexpressly contracte d. (J.A. at 19- 22) (Fi ndin gs of Fa ct and Conclusions of Law). Thus, the district

court further held that

whether Love was a th i rd-par ty beneficiary

of Standard’s construction contract with the Sta

te was imma

terial.
We agree with these

conclusions. Appellants cite Vinsant Elec. Contractors v. Aetna Cas. & Surety Co. , 530 S.W.2d 76 (Tenn. 1975 ), and Standard F ire Ins. Co . v. Chest

erO’Donley & Assoc., I

nc. , 972 S .W.2d 1 (Tenn. App. 1998). Neither of these cases, however , is of hel p to th e insurers because neither involved a

third par ty

. Rather, both were actions by the o wner wi th whom the insured construction company had c ontracted.
The Tennessee court describes general liability policies as follows:
General liability policies are not “all-r isk” p ol icies. . . . They provide a

n insured

with indem

nificati o n for damages up to policy lim i ts for which the insured beco mes liable as a result of tort liabi lity to a thi rd party

. . . . The r

isk insure d by

these pol icies i s th eNo. 02-6039 Standard Construction Co. v. Maryland Casualty Co ., et al. 13

possibility that the insured’s product or work will c ause bodily injury or damage to

property other than the wo rk itself for which the insured may be found liable.
Standard Fire , 972 S.W.2d at 6-7 (citations omitted) (emphasis added).
The Standard F

irecourt further cites with approval an art icl e by Pet er J. Neeson and

Phillip J. Meyer entitled “The Comprehensive Gen era l Li abil ity P olicy and I ts Busine ss Risk Exclusion s: An Overview.” Id. at 7 n. 8. There, the learned authors state:
The Business Risk exclusions do not purport to bar covera ge for per sonal inju ries or f or physical inju

ry to other property whic

h are caused by

the insured’s product or work.
Peter J. Neeson & Phillip J. Meyer, The Comprehensive General Liability Po licy and I

ts Business

Risk Exclusions: An Overview , 79-8 0, reprinted in Reference Handbook on the ComprehensiveGeneral Liability Pol icy (American Bar Ass’n 1995).
We agree with these

observa tions and a

lso with the authors’ applica tion of the se princ iples to construction projects:
Inevery c onstruction project, the owner an d contractor incur risks or exposure to l oss. Some of these risks can be shifted to

insurers -- others cannot. The owner has the risk that the contractor will fail to prope rl y pe rform his contractual obligations. This risk can be shift ed by the owner eithe r secur ing, o r requi ring t h e contra ctor to provide, a performance bond. The owner likew ise has the risk the project may be destroyed

by fire , explosion or the like during construction. The contractor may have
a similar ri sk. Either

or both ma

y sh if t t hat risk to an insurer by acquiring

a builder’s risk policy. Again, such 14 Standard Construction Co. v. Maryland Casualty Co ., et al. No. 02-6039

losses are generally

beyond the effective control

of either the contractor or owner . . . [The] risk o f third party personal injury or property d

amage cl aim[s] due to defectiveworkmanship or materials may be shi fte d by the contractor

purchasing a compreh ensive g eneral lia bility insurance policy

. . . . However, in addition to and apart fromthose risks, the contractor likewise has a contractual businessrisk that he may be liable to the owne r resulting fromfa il ur e t o p ro pe rl y c omp lete the building project itself in a manner so as to not cause damage to i t. This risk is one the general contractor e ffectively controls and one which the insurer

does not a ssume bec ause it has no effective control o ver those risks and

cannot e stablish predict able and afford able insu rance r ates. Id. at 81-82 (quot ing Knutson Cons tr. Co. v. S t. Paul Fire and Marine Ins. Co. , 396 N.W.2d 229, 234 (Minn. 1986)) (emphasis added).
Thus:
When read togethe r, t hese [business risk] provisions exclude coverage when there has been no physical injury to tangible

property other thanthe insure

d’s work

. Standard F

ire , 972 S.W.2d at 12 (emphasis added).
Inother words, ther e is cov erage where ther e has been physical injury to tangible pr

ope rty th at is not the insured’s work. As we hav e pointed out earl ier in this

opinio n, we agreewith the di strict co

urt’s vie w that L ove’s tangibl e real propert y is not the insured’s “work,” and that it was phy sic ally

damaged by

having the construction debris from the road-widening proje ct dumped on it. Ther

efore, this exclusion does not apply. See Thommes v. Milwauk ee Mut. Ins. Co. , 622 N.W.2d 155, 159-60 (Minn. App. 2001) (holding that j(5) exclusi on did not ba r cover age for claim agains tinsured by th

ird party arising out o f insu red’s d amageNo. 02-6039 Standard Construction Co. v. Maryland Casualty Co ., et al. 15

to third party’s prope

rty), aff’d , 641 N.W.2d 877 (Minn. 2002). Cf. Dewitt Co nstr. Inc. v. Charter Oak Fire Ins. Co. , 307 F.3d 1127, 1134-35 (9th Cir. 2002) (holding that j(5) exclusion did notbar cove rage f or damag e to subcontr

actors’ work because damage did not a r ise from insured’s performing operations on subcontractors’ work).
D. Other Issues
The insurers also cla

im that the

distric t cou rt erre d in holding that they were

n ot prejudiced by a

delay in notice. We find no error in this conclusion. Appellan ts further challenge the district court’s rulingthat, by refusin g to defend Standard against the underlying

action by Love, appel la nts waived any r ight to control the settleme nt. We believe, howe ver, that the district court’s ruling on this issue was correct. See, e.g., Esicorp, Inc. v. Liberty Mut. Ins. Co. , 193 F.3d 966, 970 ( 8th Cir. 1999) (noting that by refusing

to defend, the ins u rer gi ves up its contractual right to control defense, andinsured may neg ot iate reasona

ble settle ment); Cambridge

Mut. Fire

Ins. Co. , 692 A.2d 1 388, 1391- 92 (Me. 19 97) (simil ar) ; Sentinel Ins. Co., Ltd. v. First

Ins. Co. of Hawai’i , 875 P.2d 894, 913 (Haw. 1994) (by bre aching duty to defend, insurer forfeits any right to contro l defens e costs a nd strate gy ; insu

red is then entitled to negotiate reasonable settlement).
For the foregoing reasons, the district c ourt’s jud gme nt is affirmed. 16 Standard Construction Co. v. Maryland Casualty Co ., et al. No. 02-6039

____________________ CONCURRENCE

____________________ ROGERS, Circuit Judge, concurring. I concur in the majority opinion. I write separately to explain w hy, in my view, the seemingly

applicable “j(5)” exclusion does not apply in the circumstanc es of this case.
The insurance policies i

n this cas e, in

the “j(5)” exclusion, exclude coverage for “pr

operty damage” to
That particular part of real property on which you

or any contractors or subcontractors working directly or indir ec tly on your beha

lf are p erformi

ng oper ations, if the “property

damage” arises out of those opera tions.
No ta bl y, the policies do not define “performing op erati ons” or “operations.”
Two canons of constr

uctions a re cruc ial to my

resolution of this issue. First, the insurer bears the burden of showing that
anexception applies

. I nterstate Life & Acc . Ins. Co. v. Gammons , 408 S.W.2d 397, 399 (T enn. Ct. App. 1966). Second, ambiguous insurance contracts, and, in particula r, ambiguous langua ge limiting coverage, are construed in favor of the insured. American Justice Ins. Re cipro cal v. Hutchinson , 15 S.W.3d 811, 815 (Tenn. 2000); Interstat e Life & Acc. Ins. Co. , 408 S.W.2d at 399

. The insurers argue

that the j(5) exclusion applies because, under Standard’s contract with the Stat e o f Tennessee, Standard was required to dispose of construction debr

is. As explained in the majority opinion, Standard entere d into a contr act with the S tate o f Tenn essee t o perfo rm pav ing a n d road widening work as part of a state projec t to widen Highway 64 from tw o to fiv e la nes . In the contract, StandardNo. 02-6039 Standard Construction Co. v. Maryland Casualty Co ., et al. 17

agreed to “clear and grub” veg etation anddebris, to remove “structures and obstr

uctions,” and to disp ose of this material “outside the limits of view from the project.” Regarding the “clearing and gr ubbing, ” Standar

d was re quired to

“make a ll necessary arrangements with property owners for obtaining suitable disposal locations,” and the cost involved was “included in the unit price bid for other items of construction.” Regarding the removal of “ structures and obstructions,” the contr

act prov ided that , “[i]f the ma

terial is disposed of on private property , [Standard] shall secure written permission from the property owner.”
While in my view the question is close, t he term “opera tions”is am biguous in that it is not clear whether Standard was “performing operations” on M s. Love’s propert y when it dumped debris there. It is true that Standard was required under the contract to dispose of construction debris and to obtain permission from any prope rty owners on whosepropert

y Sta ndard ch ose to disp ose of the

debris. However, Standard

was not obligated

to dispose

of the de bris inany particular fashion—Standard owned the

debris on ce it was removed

and could dispose of

it in a nu mb er o f wa ys. It was not necessary

for Standard to dump debris on Ms. Love’s propert y in order to fulfill its contract to widenth e h ig hw ay. The require

ment that St

andard o btain per mission bef

ore it dumped debris on private land s i mply served to shield the State o f Tenne ssee fr

om liability

to third pa

rties. As t h e distr i ct court found, “work on Ms. Love’ s property wa s an additional duty or task that Standard was to undertake throu gh additional contracts with adjacent landowners.” Or a s Standard argues, it was “hired” to wid en a roa d—not to perform work on Ms. Love’ s land. Thus, given that the canons of construction favor coverage, and that, as explained in the majority opinion, c overag e in

the present cas e coincides with the underly ing purpose of CGL insurance, the district court properly concluded that

th e j(5) ex cl us io n d oe s n ot ap pl y.