Opinion ID: 2621612
Heading Depth: 1
Heading Rank: 3

Heading: Does the Exclusion Apply to Bar Coverage?

Text: The remaining question is whether Travelers' argument that the work product policy exclusion would have barred coverage is correct. While Travelers made this argument before the district court in its motion for reconsideration, the basis for the district court's decision overruling that motion is unclear. The court simply stated it believed Midwest Drywall had correctly set out the law in its response. Looking to that document, Midwest Drywall had asserted several alternative bases for rejecting Travelers' motion for reconsideration. Midwest Drywall argued that Travelers should be precluded from raising new arguments not briefed during summary judgment; that Midwest Drywall should not be required to prove that the policy exclusions at issue would not apply to bar coverage; and that the policy contained exceptions to the exclusions so that, in fact, there was no bar to coverage. Thus, it is not clear from the record whether the district court rejected Travelers' argument because it found that Travelers should not be allowed to litigate the coverage issue or because it found that the policy exclusions did not apply. Given the procedural history of the issue, and specifically given the policy was not part of the record of Midwest Drywall's motion for summary judgment, it appears the trial court's decision was based upon a determination that Travelers should not be allowed to litigate the coverage issue. As we have already held, that decision was erroneous. If the court's decision was based upon a determination that the policy exclusions applied, that decision was also erroneous. The policy exclusions at issue read as follows: This insurance does not apply to: . . . `[p]roperty damage' to: . . . [T]hat particular part of any property that must be restored, repaired or replaced because `your work' was incorrectly performed on it. This insurance does not apply to: . . . `[p]roperty damage' to `your work' arising out of it or any part of it. . . . In support of its argument, Travelers cites Owings v. Gifford, 237 Kan. 89, 697 P.2d 865 (1985), a case involving faulty work by a contractor/builder of residential construction, which discusses these types of insurance policy exclusions. The policy at issue in Owings excluded coverage for property damage to work performed by or on behalf of the named insured arising out of the work or any portion thereof, or out of materials, parts or equipment furnished in connection therewith. 237 Kan. at 91. The court held that the policy excluded coverage for property damage to the residence caused by the contractor's negligence in faulty construction. 237 Kan. at 93. The Owings court explained that the purpose of a general liability policy is to provide coverage where the insured's work or product actively malfunctions, causing injury to a person or damage to another's property. 237 Kan. at 94. However, the policy excludes coverage for property damage due to the insured's own faulty work. For coverage of that risk, the builder may obtain a performance bond or purchase a guarantee of contractual performance. 237 Kan. at 93. Travelers contends that $142,360 of its subrogation claim falls within the work product exclusion of the Reliance policy and thus would not have been a covered claim. If this contention is correct or Travelers is able to establish some other amount as within the exclusion, Travelers should be able to recover that amount from Midwest Drywall. However, Midwest Drywall contests this conclusion, arguing that under the facts the scope of the work product exclusion is not as far-reaching as Travelers claims. Midwest Drywall argues that once definitions and exceptions are applied under the facts, the exclusion would not apply or at most exclude only a few hundred dollars of the repairs rather than the $142,360 claimed by Travelers. These issues raise factual questions making summary judgment inappropriate. Under the facts of this case where discovery regarding the terms of the policy had not occurred and factual issues related thereto were not explored, it was an abuse of discretion to not grant the motion for reconsideration, and these issues should be considered on remand. Travelers should be allowed to proceed with its subrogation claim against Midwest Drywall for those amounts not covered by the Reliance policy. Those amounts, if any, are not a covered claim under the Guaranty Act. Accordingly, the Guaranty Act's bar against subrogation claims does not apply. Reversed and remanded.