Opinion ID: 2544476
Heading Depth: 1
Heading Rank: 6

Heading: Commercial General Liability Policy Coverage

Text: The Court of Appeals evaluated the applicability of the commercial general liability (CGL) policy exclusions, TIE's duty to defend VanPort against its customers' claims, and the reasonableness of the customers' settlements. Truck Ins. Exch. v. VanPort Homes, Inc., noted at 99 Wash.App. 1051, 2000 WL 239592. Although TIE has contended throughout the proceedings that the CGL policy does not cover the customers' claims against VanPort, the Court of Appeals failed to directly address this issue. See Am. Opening Br. of Appellant Truck Ins. Exch. at 2. Ultimately the Court of Appeals, in an unpublished decision, affirmed the trial court's grant of summary judgment in favor of VanPort and its customers, but remanded the case for evaluation of the settlements in light of several reasonableness factors enunciated in Glover v. Tacoma General Hospital, 98 Wash.2d 708, 658 P.2d 1230 (1983), and Chaussee v. Maryland Casualty Co., 60 Wash.App. 504, 803 P.2d 1339 (1991). Truck Ins. Exch., 99 Wash.App. 1051, 2000 WL 239592, at . TIE petitioned for review in this court. We granted review and then remanded the case to the Court of Appeals for reconsideration in light of Hayden v. Mutual of Enumclaw Insurance Co., 141 Wash.2d 55, 1 P.3d 1167 (2000). On remand, the Court of Appeals distinguished Hayden on its facts and adhered to its original decision. The majority also distinguished Hayden, and in doing so limited its significance to a few sentences: In section 1A of its policy, Truck Insurance agreed to pay all sums the insured becomes obligated to pay because of property damage resulting from an occurrence within the policy period. [Clerk's Papers] at 526. In Hayden, we specifically considered a policy exclusion for loss of use of tangible property, instead of a general grant of coverage. Hayden, 141 Wash.2d at 66, 1 P.3d 1167. Hayden may be helpful in analyzing a similar exclusion within a similar policy, but certainly does not limit the coverage that an insurer may agree to provide to an insured. Majority at 282-283. I find neither the Court of Appeals nor the majority's cursory distinctions of Hayden persuasive. TIE agreed to cover those sums that the insured 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 any suit seeking those damages. We may at our discretion investigate any occurrence and settle any claim or suit that may result. Clerk's Papers (CP) at 526. Furthermore, the policy clarifies, This insurance applies to `bodily injury' and `property damage' only if... [t]he `bodily injury' or `property damage' is caused by an `occurrence' that takes place in the `coverage territory.' Id. These provisions are consistent with the general policy that [i]nsurers that issue general liability policies only provide coverage for damages arising out of an `occurrence.' THOMAS V. HARRIS, WASHINGTON INSURANCE LAW 22-1 (1995 & Supp.1999-2001). The language is also nearly identical to the proposed wording from the Insurance Services Office, Inc.'s 1973 Standard Provisions for Comprehensive General Liability Insurance. [1] Similarly, in Hayden, the insurance company, Mutual of Enumclaw, had granted a comprehensive general liability policy indemnifying the insured for all damages that he became legally obligated to pay because of property damage caused by an occurrence to which the insurance applied. Hayden, 141 Wash.2d at 59, 1 P.3d 1167. Thus, for the majority to imply that TIE somehow agreed to cover more damages than the standard CGL policy, or than the policy in Hayden, is simply incorrect. By limiting our holding in Hayden, the majority undermines the significant principle that applies to all CGL policies: a CGL policy is not intended to be `a performance bond, product liability insurance, or malpractice insurance.' Hayden, 141 Wash.2d at 64, 1 P.3d 1167 (quoting Aetna Cas. & Sur. Co. v. M & S Indus., Inc., 64 Wash.App. 916, 921, 827 P.2d 321 (1992)). A general liability policy is not intended to encompass the risk of an insured's failure to adequately perform work.... Westman Indus. Co. v. Hartford Ins. Group, 51 Wash.App. 72, 80, 751 P.2d 1242 (1988). Rather, CGL policies are most often intended to cover unforeseeable accidents. Hayden, 141 Wash.2d at 59, 1 P.3d 1167. In fact, before occurrence-based policies were written, comprehensive general liability policies were accident-based. HARRIS, supra, at 21-2. The standard form was revised in 1966 to an occurrence-based policy, but occurrence was then defined as `an accident, including injurious exposure to conditions ... which resulted in a loss.' Id. (quoting Queen City Farms, Inc. v. Cent. Nat'l Ins. Co., 126 Wash.2d 50, 76, 882 P.2d 703 (1994); 891 P.2d 718 (quoting CGL)). Consistent with this latest revision to the standard form policy, TIE's Commercial [2] General Liability Policy defines occurrence as an accident, including continuous or repeated exposure to substantially the same general harmful conditions. CP at 536. These governing principles are applicable whether the court focuses on the exclusions to a given policy or the policy as a whole. In Hayden, Hayden Farms had hired a self-proclaimed grafting expert, James Krause, to assist it with grafting scion wood. 141 Wash.2d at 57, 1 P.3d 1167. A series of mishaps led Hayden Farms to eventually fire Krause and hire a replacement to perform the grafting. Id. at 58, 1 P.3d 1167. First the grafting was postponed because the buds were damaged while in Krause's care. Id. When new scion wood was provided, Krause used the wrong kind of tape, and less than 10 percent of the grafts were successful. Id. The following spring, Krause again attempted to graft a new section of scion wood, but another postponement occurred because Krause improperly stored the wood. Id. Subsequently Hayden Farms sued Krause for breach of contract and negligence. Id. at 58-59, 1 P.3d 1167. I conclude that Hayden is similar to the factual scenario presented, hence the same general principles recognized in Hayden should apply here. VanPort had contracted with various customers to complete consulting work in the construction of their respective homes. Pet. for Review by Appellant, Truck Ins. Exch. at 3. Construction defects occurred as a result of poor work by the subcontractors. Suppl. Br. of Pet'r Truck Ins. Exch. at 3-10. The customers subsequently claimed that VanPort failed in its duties and they suffered damages as a result. Id. For example, one of the customers claimed that one subcontractor had failed to properly fasten the roof deck and some of the windows were square instead of trapezoid. CP at 341, 345. VanPort is one step removed from Krause. VanPort did not perform the work that caused the physical damage. The consulting contract states that VanPort's role was limited to the advice it provided and that the homeowners were building the homes: [VanPort] is not a guarantor nor shall it have responsibility for any of the work performed by any subcontractors or materialmen retained by client, nor shall [VanPort] have any responsibility for the selection of said contractors or materialmen or for any contracts or agreements between client and said subcontractors or materialmen. [VanPort's] duties hereunder shall not result in any responsibility or guarantee as to any work performed by said parties. CP at 430-31. VanPort retained authority to give orders to the contractors concerning matters of only a minor nature. According to the contract, a matter is considered minor if a decision or order regarding such manner [sic] does not substantially affect the design or value of the home. CP at 428. If we were to hold VanPort liable for the physical damage caused by the subcontractors hired by the customers, then VanPort's CGL policy would indeed be a performance bond, product liability insurance or malpractice insurance, contrary to our express language in Hayden. Not only did VanPort not cause the damage to the customers' homes because it was a result of faulty workmanship by a subcontractor, but VanPort did not have direct control over the subcontractors. The conclusion that TIE had no duty to indemnify VanPort is bolstered by a factually similar case from Maryland, which we cited favorably in Hayden. See Reliance Ins. Co. v. Mogavero, 640 F.Supp. 84 (D.Md.1986). The Mogavero court reasoned that property damage does not include defective work performed by the insured, and, more importantly, that an `occurrence' does not include the normal, expected consequences of poor workmanship. 640 F.Supp. at 86. The VanPort customers attempt to distinguish Hayden and Mogavero by noting that in those cases the contractors themselves were sued and the insurance directly covered the contractors who performed the defective work. Resp'ts' Suppl. Br. at 11. As noted, this distinction only removes VanPort one step further from the liability. Considering that the policy would likely not cover the poor workmanship performed by the actual subcontractors, surely it would not apply to VanPort who is indirectly related to the faulty workmanship. Additionally, although Washington courts have not directly addressed the applicability of this performance bond rule for CGL policies covering construction contractors who provide advice, a recent decision in California suggests that the same exclusion may apply. See Ray v. Valley Forge Ins. Co., 77 Cal.App.4th 1039, 92 Cal.Rptr.2d 473 (1999). Adopting the reasoning from Mogavero and Ray and following the principles articulated in Hayden, therefore, the customers' claims against VanPort are not covered by TIE's commercial general liability policy.