Opinion ID: 162871
Heading Depth: 3
Heading Rank: 4

Heading: Property Damage Liability

Text: The Policy provided commercial general liability coverage to the Owners, and Part A of the Policy provided coverage for property damage liability. However, the Policy provided coverage for property damage only if the “‘property damage’ occur[red] during the policy period.” Policy, Section I, Coverage A, ¶ 1(b)(2), Aplt. App. at 58. Under the Policy, the term “property damage” was defined as including “[l]oss of use of tangible property that is not physically injured.” Id. at Section V, ¶ 15(b), Aplt. App. at 69. The Policy further provided that “[a]ll such loss of use shall be deemed to occur at the time of the ‘occurrence’ that caused it.” Id. The district court concluded that, while Falley’s petition in the Sedgwick County action sought damages resulting from its loss of use of the supermarket space, the loss of use occurred and was complete on September 13, 1996, when Falley’s executed the lease termination agreement. As the district court explained, “after Falley’s lease of the supermarket space was terminated, Falley’s no longer had any right, title, or expectation of use of the supermarket space. Quite simply, the ‘loss of use’ was complete.” Aplt. App. at 526 (footnote omitted). We agree with the district court’s analysis, and we hold that Scottsdale -7- did not have a duty to defend the Owners under Part A of the Policy since Falley’s loss of use occurred prior to the September 19, 1996 effective date of the Policy. 2 The Owners argue that the district court’s analysis is wrong because, while Falley’s loss of use began with the termination agreement and thus prior to the effective date of the Policy, the loss of use was active and continuous throughout the policy period. The Owners also argue that Falley’s was not actually harmed by the loss of use until October 31, 1996, when Christie sold the supermarket property to Albertson’s. Thus, the Owners contend that October 31, 1996, should be the trigger date for coverage because “[h]ad there been no sale of the property to Falley’s competitor, there would have been no grounds for a lawsuit.” Opening Br. at 29. Although the Owners’ arguments have a certain appeal, the arguments are inconsistent with the governing language in the Policy and the undisputed facts in this case. First, as pointed out by the district court, “the October 31, 1996 transactions did not cause Falley’s to suffer a ‘loss of use.’ Rather, the loss of use occurred when the lease termination agreement was signed, on September 13, 2 In light of our holding that Falley’s loss of use occurred prior to the effective date of the Policy, we need not address the alternative grounds relied on by the district court for granting Scottsdale summary judgment under Part A of the Policy. In addition, we need not address the additional issues and matters raised by Scottsdale in its response brief. -8- 1996.” Aplt. App. at 527. Second, while Falley’s may not have actually been harmed for purposes of asserting fraud and breach of contract claims against Christie and the Owners under state law until after the transactions on October 31, 1996, occurred, Part A of the Policy does not provide coverage for fraud or breach of contract claims. Rather, Part A of the Policy strictly limits coverage to “‘property damage’ occur[ring] during the policy period.” Policy, Section I, Coverage A, ¶ 1(b)(2), Aplt. App. at 58. Third, while the owners are correct that, in Hodgson v. Bremen Farmers’ Mut. Ins. Co. , 3 P.3d 1281, 1284 (Kan. Ct. App. 1999), the Kansas Court of Appeals held that the analysis under an occurrence liability policy must focus “on the event or events which triggered liability,” Hodgson is inapposite because it did not involve property damage or the issue we are faced with in this case concerning whether property damage occurred within the policy period. Instead, in Hodgson , the court was addressing the issue of whether a dog bite and a related slip and fall injury constituted one or two occurrences. Id. at 1283-85. Finally, the Owners argue that Part A of the Policy provides coverage for continuing harms even if the initial harm occurred prior to the effective date of the Policy, and they cite a number of cases in support of this proposition. See Opening Br. at 28-32. However, the cases relied on by the Owners are distinguishable because they involved either: (1) repeated instances of property -9- damage as a result of the property being continually exposed to some form of environmental contamination or other physical intrusion; 3 or (2) separate and repeated transactions such as multiple instances of fraud committed against different individuals or multiple cases of food poisoning; 4 or (3) occurrence liability policies which required that the “occurrence” or “accident” occur during the policy period, 5 as opposed to the Policy here which required that the “property damage” occur during the policy period. 3 See Cessna , 900 F. Supp. at 1499-1503 (analyzing property damage caused by pollutants seeping into groundwater); E & L Chipping Co. v. Hanover Ins. Co. , 962 S.W.2d 272, 275 (Tex. Ct. App. 1998) (analyzing property damage caused by releases of contaminated run-off water); Quaker State Minit-Lube, Inc. v. Fireman’s Fund Ins. Co. , 868 F. Supp. 1278, 1302-04 (D. Utah 1994) (analyzing property damage caused by discharges of hazardous wastes), aff’d , 52 F.3d 1552 (10th Cir. 1995); Borg v. Transamerica Ins. Co. , 54 Cal. Rptr. 2d 811, 817-20 (Cal. Ct. App. 1996) (analyzing property damage caused by a structural encroachment from an adjoining property); Gruol Constr. Co. v. Ins. Co. of N. Am. , 524 P.2d 427, 430 (Wash. Ct. App. 1974) (analyzing property damage caused by dry rot to the foundation of an apartment building). 4 See Maurice Pincoffs Co. v. St. Paul Fire & Marine Ins. Co. , 447 F.2d 204, 206-07 (5th Cir. 1971) (holding that each sale of contaminated bird seed was a separate “occurrence”); Mich. Chem. Corp. v. Am. Home Assurance Co. , 728 F.2d 374, 382-83 (6th Cir. 1984) (holding that each shipment of contaminated livestock feed was a separate “occurrence”); N. River Ins. Co. v. Huff , 628 F. Supp. 1129, 1133-34 (D. Kan. 1985) (holding that each loan swap transaction was a separate “occurrence”). 5 See Stillwell v. Brock Bros., Inc. , 736 F. Supp. 201, 205-07 (S.D. Ind. 1990) (holding that there was no “occurrence” or “accident” during the period the policy was in effect where, although negligent roof repairs were made during the policy period, occupants of home were not physically injured and no property damage occurred as a result of the repairs until after the expiration of the policy). -10- The cases relied on by the Owners address a number of the recurring and difficult issues that arise under occurrence liability policies, but they do not support the Owners’ claim that Falley’s sustained property damage in the form of a loss of use during the policy period. Thus, the district court correctly determined that there was no potential for coverage under Part A of the Policy, and we affirm the entry of summary judgment in favor of Scottsdale under Part A.