Title: Vernon Williams & Son v. Continental Ins. Co.
Citation: 591 S.W.2d 760
Docket Number: N/A
State: Tennessee
Issuer: Tennessee Supreme Court
Date: December 27, 1979

591 S.W.2d 760 (1979) VERNON WILLIAMS &amp; SON CONSTRUCTION, INC., Appellant, v. The CONTINENTAL INSURANCE COMPANY and Continental Casualty Company, Appellees. Supreme Court of Tennessee. December 27, 1979. D.L. Lansden, Walter H. Crouch, Nashville, for appellant; Waller, Lansden, Dortch &amp; Davis, Nashville, of counsel. R.B. Parker, Jr., Henry T. Finley, Nashville, for appellees; Parker, Nichol &amp; Finley, Nashville, of counsel. FONES, Justice. The issue in this case is whether Continental Insurance Company's comprehensive *761 general liability policy provided coverage to its insured Vernon Williams and Sons Construction Company for its failure to perform a construction contract in a workmanlike manner. The Williams Company's liability to Mitchell Steel Company for faulty construction of an addition to a warehouse was established in a prior lawsuit that contestant refused to defend upon the ground that its policy provided no coverage for the claims presented by Mitchell Steel. Mitchell Steel's counter-claim to Williams' suit for the balance due on the contract price, asserted breach of the construction contract in the following particulars: The judgment in favor of Mitchell Steel provided in part: This suit by the Williams Company against Continental to enforce the alleged policy obligation to defend and pay Williams liability for work performed in an unworkmanlike manner was dismissed by the trial judge, and his action was affirmed by the Court of Appeals, with one member dissenting. We granted the writ of certiorari because several of our sister states have, in recent decisions, construed similar policies to provide coverage, criticizing the case of Haugan v. Home Indemnity Co., 86 S.D. 406, 197 N.W.2d 18 (1972), relied upon by the Court of Appeals. The insuring clause of the comprehensive general liability policy provides: The policy defines "property damages" as "injury to or destruction of tangible personal property." The exclusions relevant to this suit follow: All of the cases agree that exclusions (k), (l), and (m) clearly eliminate coverage for damages confined to the internal defectiveness of the insured's own work product, resulting from defective materials or defective, negligent or unskilled workmanship. Exclusion (a) is the source of disagreement. Arizona, Florida, and North Dakota appellate courts have held that exclusion (a) extends coverage to breach of contract damages for the performance of work in a negligent and unworkmanlike manner because such damages are expressly excepted from the assumption of liability by contract exclusion. See, e.g., Fontainebleau Hotel Corp. v. United Filigree Corp., 298 So. 2d 455 (Fla.App. 1974); Federal Insurance Co. v. P.A.T. Homes, Inc., 113 Ariz. 136, 547 P.2d 1050 (1976) and Applegren v. Milbank Mutual Insurance Co., 268 N.W.2d 114 (N.D. 1978). The reasoning of the Florida court in Fontainebleau was that exclusion (a) grants coverage and exclusion (m) takes it away, that the two clauses being repugnant, the more specific clause (a) prevails over (m), which is "general in nature." The Supreme Court of Arizona in P.A.T. Homes found ambiguity between exclusions (a) and (l). Observing that the South Dakota court in Haugan found no ambiguity between exclusions (a) and (l) whereas the Florida courts construed the same clauses as being ambiguous, the Arizona court applied the principle of construction that where various jurisdictions reach different conclusions as to the meaning of the language of an insurance contract, ambiguity is established. The Arizona court concluded that the insurer having drafted the policy, the ambiguity should be resolved in favor of the insured. In Applegren v. Milbank Mutual Insurance Co., supra, the Supreme Court of North Dakota side-stepped the question of whether a comprehensive general liability policy covers the cost of correcting faulty workmanship, but reached that result by holding that exclusion (a) created an obligation to defend the insured. Finding that the insurance company had breached its duty to defend a suit predicated on negligent and unworkmanlike performance in breach of a construction contract, the cost of defense and settlement of the suit was imposed upon the insurer. The Applegren decision did not rest "primarily on principles of law pertaining to ambiguities in insurance policies," but was bottomed squarely on the proposition that the "exception to an exception" in exclusion (a) operates to grant coverage to an insured's warranty that work would be performed in a workmanlike manner. In addition to the three cases cited above, Williams relies upon Weedo v. Stone-E-Brick, Inc., 155 N.J. Super. 474, 382 A.2d 1152 (1977). The intermediate appellate court of New Jersey held that exclusion (a) provided coverage for the cost of correcting faulty workmanship, expressly relying upon the reasoning employed in Fontainebleau and P.A.T. Homes and rejecting the rationale of Haugan. At the time of oral argument of the instant case it was known that the Supreme *763 Court of New Jersey had granted certification in Weedo, but its disposition of the case was not known. In an exhaustive, scholarly, and well-reasoned opinion, that court has reversed and dismissed the insured's action, which asserted coverage for the correction of faulty workmanship. Weedo v. Stone-E-Brick, Inc. and Pennsylvania National Insurance Co., 81 N.J. 233, 405 A.2d 788 (1979). In brief, the rationale of the Weedo decision is that a proper reading of the insuring clause and the "business risk" exclusions [(k), (l), and (m) in the Continental policy (n) and (o) in the Pennsylvania National policy], negate coverage for the contractual liability of the insured-contractor to correct, replace, or repair faulty materials or workmanship; that the interpretation of the "exception" to exclusion (a) as a grant of coverage is contrary to the basic principle that coverage is granted in the insuring clause, and that exclusions subtract from coverage, rather than grant it; that the risk intended to be insured by a comprehensive general liability policy is faulty workmanship and materials which cause a tort liability to persons other than those to whom contractual obligation of workmanlike performance is due. We quote from Weedo: Also relevant to basic insuring agreements in the standard comprehensive general liability policy is the definition of property damage: "injury to or destruction of tangible property." In St. Paul Fire and Marine Insurance Co. v. Coss, 80 Cal. App. 3d 888, 145 Cal. Rptr. 836 (1978), the court reached the conclusion that a claim limited to remedying faulty workmanship or materials does not constitute "injury to or destruction of tangible property." We agree. We return to significant excerpts from Weedo: We are convinced that the standard comprehensive general liability policy does not provide coverage to an insured-contractor for a breach of contract action grounded upon faulty workmanship or materials, where the damages claimed are the cost of correcting the work itself. The Mitchell Steel counter-complaint against the Williams Company involved that character of claim only, and thus there was no coverage and no duty upon the insurer to defend. The judgment of the Court of Appeals is affirmed. Costs are adjudged against petitioner. BROCK, C.J., and COOPER, HENRY and HARBISON, JJ., concur.