Title: Oak Crest Const. Co. v. Austin Mutual Ins. Co.
Citation: N/A
Docket Number: S42855
State: Oregon
Issuer: Oregon Supreme Court
Date: February 17, 2000

Filed:  February 17, 2000
IN THE SUPREME COURT OF THE STATE OF OREGON

OAK CREST CONSTRUCTION COMPANY,
			Petitioner on Review,
	v.
AUSTIN MUTUAL INSURANCE COMPANY,
a Minnesota corporation,
	Respondent on Review.
(CC 93C13423; CA A84861; SC S42855)

	On review from the Court of Appeals.*
	Argued and submitted May 7, 1999.
	J. Michael Alexander, of Burt, Swanson, Lathen, Alexander,
McCann &amp; Smith, Salem, argued the cause and filed the brief for
petitioner on review.
	Carl Amala, of Harris, Wyatt &amp; Amala, Salem, argued the
cause and filed the brief for respondent on review.
	Before Carson, Chief Justice, and Gillette, Van Hoomissen,
Durham, and Kulongoski, Justices.**
	GILLETTE, J.
	The decision of the Court of Appeals and the judgment of the
circuit court are affirmed.
	*Appeal from Marion County Circuit Court.
	 137 Or App 475, 905 P2d 848 (1995).
    **Leeson and Riggs, JJ., did not participate in the
consideration or decision of this case.
		GILLETTE, J.
		This is an action for breach of a standard commercial
liability insurance contract.  Plaintiff, a general contractor,
filed the action when its insurer refused to reimburse it for the
cost of removing and replacing a subcontractor's painting work
that had been applied during the construction of a custom home
and had failed to cure properly.  The trial court granted the
insurer's motion for summary judgment.  The Court of Appeals
affirmed, holding that plaintiff's claim did not fall within the
coverage terms of the policy, because the damage at issue had not
been "caused by an occurrence," as the insurance contract
required.  Oak Crest Const. Co. v. Austin Mut. Ins. Co., 137 Or
App 475, 479-80, 905 P2d 848 (1995).  Plaintiff sought review by
this court.  We allowed review to consider whether the event at
issue is one covered by the commercial liability policy.  We
conclude that it is not and affirm.
		At the time of the relevant events, plaintiff was
insured under a commercial liability policy issued by defendant. 
The policy contained two coverage provisions that plaintiff
asserts are relevant.  Coverage L, providing coverage for bodily
injury and property damage liability, stated in part: 
		"We pay all sums which an insured becomes legally
obligated to pay as damages due to bodily injury or
property damage to which this insurance applies.  The
bodily injury or property damage must be caused by an
occurrence."
(Emphasis added.)  Coverage N, providing coverage for products
and completed work, stated:
		"We pay all sums which an insured becomes legally
obligated to pay as damages due to bodily injury or
property damage arising out of the Products/Completed
Work Hazard to which this insurance applies.  The
bodily injury or property damage must be caused by an
occurrence."
(Emphasis added.)  The policy also included the following
definitions:
		"Occurrence - This means an accident and includes
repeated exposure to similar conditions.
		"Property damage - This means:
			"a. physical injury or destruction of
tangible property; or
			"b. the loss of use of tangible property
whether or not it is physically damaged.
		"Completed Work Hazard means bodily injury or
property damage arising out of your work.  It does not
include work that has not been completed, or that has
been abandoned."
Finally, the policy also included the following exclusions:
		"We do not pay for bodily injury or property
damage liability which is assumed under a contract or
an agreement.[ (1)]
		"* * * * *
		"We do not pay for property damage to work
performed by you if the damage is caused by the work or
a part of the work and included in the
Products/Completed Work Hazard.  This exclusion does
not apply if damage to the work or the part of the work
out of which the damage arises is performed by a
subcontractor on your behalf." (2)  	  
		While the foregoing policy provisions were in force,
plaintiff entered into a contract to build a custom home and
hired a subcontractor to paint the cabinets and other interior
woodwork.  After the subcontractor had completed the painting
work, plaintiff turned the home over to the owners.  It became
apparent, at that time, that the paint that the subcontractor had
used had not cured properly and that the deficiency would have to
be corrected.  Plaintiff thereafter expended approximately
$10,000 for stripping and refinishing the cabinets and woodwork.
		Plaintiff submitted a claim to defendant, seeking
reimbursement of the $10,000 spent on the cabinets and woodwork. 
When defendant refused to pay, plaintiff filed the present
action, alleging breach of the insurance contract and seeking
$10,240.00 in damages, together with attorney fees.  Defendant
answered, denying that plaintiff's claim was covered by the
policy. 
		 Defendant moved for summary judgment, appending a copy
of the insurance policy and arguing, in rather general terms,
that the policy did not allow for the recovery of plaintiff's
costs in repairing the defective painting work.  Plaintiff also
moved for summary judgment, arguing that the repair costs were
covered under the Completed Work Hazard provisions of Coverage N. 
In responding to plaintiff's motion, defendant argued, among
other things, that plaintiff's costs in repairing the defective
paint did not arise from an "accident," but, instead, arose from
the requirements of its contract with the homebuyers:  
	"Basically, plaintiff * * * has alleged that
because of its building contract with the [owners], it
was necessary for the plaintiff to repair or replace
defective painting work caused by its subcontractor. 
Plaintiff does not, and in good faith cannot, allege
that this work was made necessary because of 'an
accident.'" (3)								
(Emphasis in original.)  In reply, plaintiff cited the definition
of "accident" that appears in Finley v. Prudential Ins. Co., 236
Or 235, 388 P2d 235 (1963), and argued that, because the result
in this case was unintended by the insured, it was accidental. (4)
		The trial court granted summary judgment for defendant. 
In a letter opinion to the parties, the court stated that there
had been an "occurrence" under the facts of the case, but agreed
with defendant that coverage was excluded because plaintiff's
liability for the cost of repairing the defective paint was based
in contract, rather than tort:  
	"This liability [for which plaintiff is seeking
reimbursement from defendant] would [a]rise under a
contract. * * * Plaintiff's liability is based upon
contract and not tort or statute."
In the context of the arguments that preceded it, it appears that
the trial court was speaking to the exclusion for "liability * * * assumed under a contract." (5)
   		Plaintiff appealed, arguing that its claim was covered
under the policy's "completed work" provisions and that the
various exclusions asserted by defendant, including the exclusion
for "liability * * * assumed under a contract," were
inapplicable.  In response, defendant argued that the claimed
damage was not "caused by an occurrence" within the meaning of
the policy, because it did not result from accidental means. 
Defendant also continued to press its original point -- that
plaintiff's costs in fulfilling its obligations under its
contract were not covered:
"[P]laintiff Oak Crest repainted the woodwork in the
[owners'] new home to comply with the interior
'painting' requirement of its building contract with
the [owners]. * * * Plaintiff Oak Crest is not entitled
to have the insurer pay for plaintiff's costs in simply
completing its construction agreement with the
[owners]."
In reply, plaintiff argued that defendant's "means/results"
argument should not be considered, because defendant had failed
to cross-assign that portion of the trial court's ruling as
error.  Plaintiff did not reply to defendant's latter argument.   
		As noted, the Court of Appeals affirmed.  That court
based its decision on defendant's contention that there was no
"occurrence," because the damage at issue did not arise from
accidental means.  In deciding the case on that ground, the court
rejected plaintiff's suggestion that a challenge to the trial
court's "occurrence" conclusion was precluded in light of
defendant's failure to cross-assign error with respect to it.  In
that regard, the court noted that, under ORAP 5.57, a trial
court's rulings, and not the various reasons that it gives in
support of a ruling, are assignable as error.  Defendant's
"occurrence" argument, the court concluded, was merely an
argument that the trial court was right for the wrong reason
which, for the reasons discussed in Artman v. Ray, 263 Or 529,
532-34, 501 P2d 63 (1972), does not require a cross-assignment of
error.  Oak Crest, 137 Or App at 478 n 2.
		Plaintiff challenges the Court of Appeals' decision on
two grounds:  First, plaintiff argues that the court had no
authority to consider defendant's "occurrence" argument, because
defendant failed to cross-assign as error the trial court's
determination to the contrary.  Second, plaintiff argues that the
court erroneously focused on whether the cause of the damage,
rather than the damage itself, was accidental.  
		Concerning plaintiff's first argument, we agree with
the Court of Appeals:  The requirement of cross-assignment in
ORAP 5.57 applies to rulings (6)

 and is not implicated when the
respondent embraces the ruling and seeks only to challenge the
trial court's reasoning.      
		As noted, plaintiff's second argument is directed at
the means/results rationale used by the Court of Appeals to
conclude that the asserted damage was not "caused * * * by an
occurrence."  We conclude, however, that we need not consider the
correctness of that particular rationale because a different
rationale -- one that defendant has pressed from the beginning --
supports the Court of Appeals' affirmance and its conclusion that
the events at issue in this case did not amount to an "accident." 
		This court has indicated that there can be no
"accident," within the meaning of a commercial liability policy, when the resulting damage is merely a breach of contract.  In
Kisle Fire v. St. Paul &amp; Marine Ins., 262 Or 1, 495 P2d 1198
(1972), the plaintiff, a rancher, contracted with a company to
repair his sprinkler system.  The repair company failed to
perform the repairs in a timely manner; plaintiff's alfalfa crop
was damaged as a result.  The defendant had issued a commercial
liability policy to the repair company that contained a
definition of "occurrence" that was analogous to the one at issue
in the present case.  When the plaintiff sued the repair company,
the company tendered the defense to the defendant, which refused
it.  The plaintiff settled his action against the repair company
and took an assignment of the company's claim against the
defendant.  The trial court entered judgment for the plaintiff.
		In Kisle, this court considered whether, and when, an
"accident" might arise out of a failure to perform a contract. 
The court first acknowledged that, in some circumstances,
property damage that results from the negligent performance of a
contract can qualify as being "caused by accident."  But, as the
court explained, "'accident' has a tortious connotation" and
exists only when damage results, in some sense, from a tort,
i.e., a breach of some duty imposed by law.  Id. at 7.  The court
then explained that, although negligent performance of a contract
might cause damage by "accident," there is no tort and no
"accident" when the damage results solely from the complete
failure of timely performance of a contract, generally actionable
only as a breach of contract:
	"We find [that] there is a significant distinction
between negligent performance of a contract and a
complete failure of timely performance.  We hold that
damage caused by the latter is not caused by accident.
		 "We do not need to definitely define 'accident';
however, we do hold that 'accident' has a tortious
connotation.  Damage solely caused by failure to
perform a contract is not recoverable in tort.  A tort
is a breach of a duty created by law and not
necessarily by the agreement of the parties. * * * 
Damage caused by the negligent performance of a
contract can in certain instances be recoverable in
tort. * * * This is because by contract the parties
have entered into a relationship in which the law
requires, apart from any obligation assumed by
contract, that the obligor act with due care.  For
example, if a physician contracts to treat a patient
and treats the patient negligently, he is liable in
tort because the law, apart from contract, imposes a
duty upon the physician to treat patients with due
care.  * * * [However], [d]amages caused by a failure
to perform 'amount to mere breaches of contract, for
which no tort action will lie.'"
Id. at 6-7 (citations omitted). (7)   
		We recognize, as we did in Kisle, that the same conduct
might be actionable under both tort and contract theories. 
However, applying the foregoing principle to the facts in the
summary judgment record in the present case, we conclude that, as
alleged, plaintiff's claim arose solely from a breach of contract
and, therefore, is not covered by the policy.  Although the
record establishes that plaintiff spent approximately $10,000 for
the repair of a subcontractor's "deficient" painting work, it
cannot support a conclusion that the problem with the cabinetry
and woodwork painting resulted from the subcontractor's breach of
a duty to act with due care. (8)

  Had the facts demonstrated that the
claimed problem with the cabinets and woodwork was the result of
that kind of breach, or that plaintiff might be liable to the
owners in tort for other damage, that might have qualified as an
"accident" within the meaning of the commercial liability policy. 
But plaintiff here failed to establish that a question of fact
existed in that regard, as plaintiff was required to do to show
that there had been a covered event under the policy.  For the
foregoing reasons, we conclude that the Court of Appeals
correctly held that the problem with the cabinetry and woodwork
painting work at issue in this case was not "caused by accident"
within the meaning of plaintiff's commercial liability policy.  
		The same reasoning defeats plaintiff's alternative
argument that it was entitled to be indemnified under the
policy's "completed work" provision:  The property damage covered
by that provision must have arisen out of an "accident."  There
is no proof of an accident in the record of this case on summary
judgment.  The trial court's grant of summary judgment to
defendant therefore was proper.  
		The decision of the Court of Appeals and the judgment
of the circuit court are affirmed.

1. 	This exclusion appears in a section of the policy
entitled "Exclusions that Apply to all Coverages."

2. 	This exclusion appears in a section of the policy
entitled "Additional Exclusions that Apply to Property Damage
Liability."

3. 	Defendant also made a related argument that plaintiff's
claim was excluded under the policy exclusion for "liability * * * assumed under a contract," set out above.

4. 	Finley states that an "accident" is "an incident or
occurrence that happened by chance, without design and contrary
to intention and expectation."  Finley, 236 Or at 245.

5. 	We need not decide whether that exclusion might have
been the wrong one on which to focus.  The trial court's ruling
on this summary judgment record was correct for the reasons
discussed below.

6. 	ORAP 5.57 provides:
	"(1) A respondent must cross-assign as error any
trial court ruling described in subsection (2) in order
to raise the claim of error in the appeal.
	"(2) A cross assignment of error is appropriate:
	"(a) If, by challenging the trial court ruling,
the respondent does not seek to reverse or modify the
judgment on appeal; and
	"(b) If the relief sought by the appellant were to
be granted, respondent would desire reversal or
modification of an intermediate ruling of the trial
court."	
7. 	Courts in other jurisdictions have made similar
observations in terms of the risks covered by commercial
liability policies.  See, e.g., Knutson Const. v. St. Paul Fire &amp;
Marine Ins., 396 NW2d 229, 235-37 (Minn 1986) (distinguishing
faulty workmanship that causes business expense of repairing work
from faulty workmanship that results in tort liability); Weedo v.
Stone-E-Brick, 81 NJ 233, 405 A2d 788 (1979) (same).  See also
the following much quoted passage from Roger C. Henderson,
Insurance Protection for Products Liability and Completed
Operations -- What Every Lawyer Should Know, 50 Neb L Rev 415,
441 (1971):
	"The insured, as a source of goods or services,
may be liable as a matter of contract law to make good
on products or work which is defective or otherwise
unsuitable because it is lacking in some capacity. 
This may even extend to an obligation to completely
replace or rebuild the deficient product or work.  This
liability, however, is not what the coverages in
question are designed to protect against.  The coverage
is for tort liability for physical damages to others
and not for contractual liability of the insured for
economic loss because the product or completed work is
not that for which the damaged person bargained."       

8. 	We draw our conclusion from the affidavit filed by
plaintiff's principal.  The affidavit recites that plaintiff's
subcontractor painted cabinets and other woodwork in the home,
and that the following events then occurred:
		"Thereafter, for a period of approximately 2-3
weeks the remaining construction was completed, and the
home [was] turned over to the [owners], who moved in. 
At that time any work that would have been remaining
would have only been such tasks necessary to correct or
repair any defect or deficiency in the construction.
		"After the [owners] took possession of the home it
became apparent that the painting work performed by
[subcontractor] was not properly curing, and would
require additional expense to correct any deficiency. 
I therefore incurred expense in the amount of
$10,240.00 to correct the deficiencies in the work."
Attached to the affidavit was a bill that showed that
those work "deficiencies" were corrected by stripping and refinishing
the cabinets and woodwork.