Opinion ID: 69778
Heading Depth: 1
Heading Rank: 5

Heading: Was There An Occurrence Under the Contract?

Text: A CGL Policy which insures against property damage resulting from an accident does not cover normal, frequent, or predictable losses. Mathis, 974 S.W.2d at 649. Rather, an event must be unexpected to be an accident or occurrence. Id. at 650. While the duty to defend doctrine applies only when an insured has been sued, the insurer is required to take into consideration all known facts or facts discoverable upon investigation. Zipkin v. Freeman, 436 S.W.2d 753, 754 (Mo.1968). An insurer's duty to defend a suit against its insured is determined by the policy's language and allegations asserted. Scottsdale Ins. Co. v. Ratliff, 927 S.W.2d 531, 532 (Mo.Ct.App.1996). A duty to defend arises if the complaint merely alleges facts that give rise to a claim that could potentially be within the policy's coverage. Stark Liquidation Co. v. Florists' Mut. Ins. Co., 243 S.W.3d 385, 392 (Mo.Ct.App. 2007) (citing McCormack Baron Mgmt. Serv., Inc. v. Am. Guar. & Liabl. Ins. Co., 989 S.W.2d 168, 170-71 (Mo.1999)); see also Truck Ins. Exchange v. Prairie Framing, LLC, 162 S.W.3d 64, 79 (Mo.Ct. App.2005) (stating that the duty to defend arises only upon comparing the policy language with the allegations in the pleadings). Because the duty to defend is broader than an insurance's company duty to indemnify, if the insurance company does not have a duty to defend, it does not have a duty to indemnify either. See Millers Mut. Ins. Assoc. of Ill. v. Shell Oil Co., 959 S.W.2d 864, 869 (Mo.App.1997); see, e.g., Willy E. Rice, The Court of Appeals for the Fifth Circuit: A Legal Analysis and Statistical Review of 2005-2006 Insurance Decisions, 39 TEX. TECH L.REV. 843, 950-51 (2007) (noting that under Farmers Texas County Mutual Insurance Co. v. Griffin, 955 S.W.2d 81, 82 (Tex. 1997), an insurer may have a duty to defend but not a duty to indemnify). Westchester argues that Maverick is foreclosed from recovery because no Missouri state court has explicitly held that an action for a breach of warranty results in an occurrence that triggers the duty to defend. However, in the only Missouri related case in which the sole cause of action was for breach of warranty, the Eighth Circuit in Koch Engineering Co. v. Gibralter Casualty Co., 78 F.3d 1291, 1294 (8th Cir.1996) applied Missouri law and determined that a breach of warranty claim could constitute an occurrence. In Koch, the insured installed a distillation tower that the court decided was reckless in its design and its installation, [6] but that Koch did not intend for the equipment to be stopped up by debris. Id. at 1293-94. The Koch court did not reach its decision based on the cause of action (breach of warranty), but based on the supporting facts, intent of the insured, and the foreseeability of the event. Id.; see Amerisure Mut. Ins. Co. v. Paric Corp., No. 4:04CV430-DJS, 2005 WL 2708873, at  (E.D.Mo. Oct. 21, 2005) (noting that the interpretation of Missouri law on the occurrence issue requires each court to make a case specific determination of whether an unintended occurrence exists). What label is used for the cause of action seems only relevant in breach of contract claims when the party fails to perform. See, e.g., Mathis, 974 S.W.2d at 650 (stating that breaches of contract for performance could not be accidents or occurrences). Indeed, Missouri courts have focused on a variety of factors in deciding the existence of an occurrence. First, did the insured intend, expect or desire the results? See Hawkeye-Security Ins. Co. v. Davis, 6 S.W.3d 419, 427 (Mo. Ct.App.1999) (noting an occurrence if the event was undesigned or unexpected); see also Koch, 78 F.3d at 1294 (finding an occurrence in the absence of intent for reckless design and installation). Second, was the event simply a business risk not covered by the insurance policy? See Mathis, 974 S.W.2d at 649 (noting that general liability coverage by insurer does not serve as a performance bond); see also Columbia Mut. Ins. Co. v. Schauf, 967 S.W.2d 74, 77 (Mo.1998). Third, would the exclusion leave the insured without coverage? See Missouri Terrazzo Co. v. Iowa Nat'l Mut. Ins. Co., 566 F.Supp. 546, 552 (E.D.Mo.1983) (stating that policies construed to cover only accidents not involving breach of warranty or negligence would result in no protection for the insured). Westchester summarizes several failure-to-perform cases that allege a variety of causes of action to argue that Maverick's case fails under similar reasoning. In Mathis, the contractor had hired a subcontractor to install the electrical system. Mathis, 974 S.W.2d at 648. The subcontractor improperly constructed the trenches and duct banks and failed to install rebar which later had to be removed and properly installed. Id. The subcontractor requested its insurance company to defend it against damages filed by the contractor for negligence, negligent misrepresentation, and breach of contract. Id. The Mathis court stated that breaches of contract for performance could not be accidents or occurrences. See id. at 650 (citations omitted). The court concluded that because performance of duct construction was in the control of the sub-contractor and was not undesigned or unexpected and because the breach did not cause unintended damage to other property, an accident did not occur. Id. at 650. Similarly, in Hawkeye-Security, the causes of action were for breach of contract and breach of express and implied warranties because the insured had constructed a defective home and then left before finishing. 6 S.W.3d at 421. The court determined that this failure to perform could not be unexpected and thus, not an accident. Id. at 426. In Charles Hampton's A-1 Signs, Inc. v. American States Insurance Co., 225 S.W.3d 482, 489 (Tenn.App.2006), the court applied Missouri law to decide that the insured's defective product used to create another structure and the insured's failure to perform according to contract specifications was not an occurrence. In St. Paul Fire & Marine Ins. Co. v. Building Construction Enterprises, 484 F.Supp.2d 1004 (W.D.Mo.2007), the insured's failure to perform its contractual obligations could not be an occurrence. Finally, in a negligence cause of action, the court in Cincinnati Insurance Co. v. Venetian Terrazzo, Inc., 198 F.Supp.2d 1074 (E.D.Mo.2001) determined that an accident did not occur when the contractor was merely negligent in the pouring of concrete because this action was a failure to perform under the contract, not an unexpected event. Relevant to the discussion of cases not already summarized in the previous paragraph is Stark Liquidation Co. v. Florists' Mutual Insurance Co., 243 S.W.3d 385, 394 (Mo.Ct.App.2007). In Stark, the causes of action alleged were for negligence, intentional misrepresentation, and breach of express and implied warranties. Id. at 389. The court focused on the negligence and negligent misrepresentation aspects of the facts, that Stark neither intended nor expected a crop loss, and that the resulting bacterial damage caused to the trees constituted an occurrence. Id. at 392-93. Westchester relies on the Missouri courts that try to determine with a bright-line rule those causes of action that exclude the existence of an occurrence. Maverick relies on the Missouri courts which focus on the failure of these contractors to perform and the lack of foreseeability of the actions  the non-performance and breach of these parties are not unexpected nor unforeseen and are within the control of the actors (they merely need to do or not do something)  and not the label. Maverick's interpretation is preferred by Missouri state courts and the Eighth Circuit. For example, the Mathis court was not focused on the fact that the petition alleged negligence or negligent misrepresentation  labeled claims that other Missouri courts have found an occurrence to exist. By focusing on the breach of contract label, the Mathis court was simply noting that it was not an accident for someone not to properly perform. Here, Maverick's breach to Dominion was not simply non-performance, such as failure to deliver the casing; rather, it involved an unforeseen and unexpected event (the defective casing production which resulted in Dominion's gas wells failure). The final question in determining if an occurrence exists is whether property damage has occurred. The relevant portions of the CGL and Umbrella Policies define property damage as physical injury to tangible property, including all resulting loss of use of that property. Here, Dominion suffered property damage. The facts from the Eighth's Circuit case of Missouri Terrazzo, in which the flooring suffered physical damage to tangible property which met the definition of property damage under the insurance policy and triggered the insurer's duty to indemnify, 740 F.2d at 650, 653, are similar to the instant case. The pipes and casing are tangible property that were physically injured because of the brittle spots on the defective casing. The casing resulted in catastrophic failure for four gas wells in north Texas that caused physical damage to the drilling operations and wells. Because the wells were damaged beyond use, Dominion had to drill four new wells. Furthermore, Westchester's agent acknowledged in a deposition that Dominion had lost the use of its well, stated that it had no opinion on the property damage issue, and has offered no evidence on this issue. Under the definition of the insurance policy, this event would qualify as property damage. Therefore, Dominion's claim constitutes an occurrence.