American Modern Home Insurance v. Reeds at Bayview Mobile Home Park, LLC , 176 F. App'x 363 ( 2006 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 05-1149
AMERICAN MODERN HOME INSURANCE COMPANY,
Plaintiff - Appellee,
and
CONTINENTAL INSURANCE COMPANY; NIAGRA FIRE
INSURANCE COMPANY,
Third Party Defendants - Appellees,
versus
REEDS AT BAYVIEW MOBILE HOME PARK, LLC;
ARUNDEL MOBILE VILLAGE, INCORPORATED; BAYWOOD
MOBILE HOME PARK, LLC; DARLINGTON, LLC; P&B
PARTNERSHIP DUNDALK MOBILE HOMES; ELKRIDGE
MOBILE HOME PARK, INCORPORATED; PENWOOD MOBILE
HOME PARK, INCORPORATED; SOUTHEAST MOBILE HOME
PARK, INCORPORATED,
Defendants - Appellants,
and
PARKWAY VILLAGE ASSOCIATES LIMITED PARTNERSHIP,
Defendant,
and
CNA INSURANCE GROUP,
Third Party Defendant.
Appeal from the United States District Court for the District of
Maryland, at Baltimore. William D. Quarles, Jr., District Judge.
(CA-03-1869-WDQ)
Argued: February 1, 2006 Decided: April 14, 2006
Before WILKINS, Chief Judge, and WILKINSON and LUTTIG, Circuit
Judges.
Affirmed in part and reversed in part by unpublished per curiam
opinion. Chief Judge Wilkins wrote an opinion concurring in part
and dissenting in part.
ARGUED: Andrew David Levy, BROWN, GOLDSTEIN & LEVY, L.L.P.,
Baltimore, Maryland, for Appellants. Robert Edward Scott, Jr.,
SEMMES, BOWEN & SEMMES, Baltimore, Maryland; William Joseph Carter,
CARR MALONEY, P.C., Washington, D.C., for Appellees. ON BRIEF:
Shelly Marie Martin, BROWN, GOLDSTEIN & LEVY, L.L.P., Baltimore,
Maryland, for Appellants. Sean P. Edwards, SEMMES, BOWEN & SEMMES,
Baltimore, Maryland, for Appellee American Modern Home Insurance
Company.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
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PER CURIAM:
Appellants, mobile home park owners, argue that appellees,
their liability insurers, must defend a class action suit brought
by park residents seeking damages stemming from improperly
installed foundations. For the reasons stated below, we hold that
the insurers were under no obligation to defend the class action
but that the insurers have no right to reimbursement for their
contribution to a fund to settle the claims against the parks.
I.
In August of 2002, residents of mobile home parks owned by
appellants filed a class action suit in a Maryland state court,
complaining about the parks’ alleged complicity in the faulty
installation of the foundations for their mobile homes. J.A. 271-
304. The residents claimed that the parks employed a company that
defectively installed mobile home foundations, that the parks knew
of the installer’s defective workmanship, and that the parks
required residents to use this installer. Id. The complaint
alleged violations of Maryland consumer protection and real
property laws, breach of contract, fraud, negligent
misrepresentation, conspiracy, unjust enrichment, fraud in the
inducement, negligence, and breach of warranty. Id. at 293-303.
The parks tendered the residents’ complaint to their liability
insurers, American Modern Home Insurance Company (American Modern),
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Continental Insurance Company, and Niagra Insurance Company, for
defense, see id. at 259-60, but the insurers denied coverage
because “the Complaint does not seek damages for liability covered
under the terms of the policies for ‘property damage’ caused by an
‘occurrence,’” id. at 391-409.* The residents’ third amended
complaint, however, included allegations that their homes were
damaged as a result of the parks’ alleged conduct. See, e.g., id.
at 529 (“The home . . . is un-level with doors and windows out of
square.”). Because American Modern concluded that the third
amended complaint might allege property damage covered by its
policies, it agreed to defend the parks against it subject to a
reservation of its rights to dispute whether the residents’ claimed
losses were, in fact, covered under the policies. Id. at 582-600.
Prior to trial, the residents’ class action settled. See id.
at 601. In order to facilitate the settlement, which capped its
potential liability, see id. at 630, American Modern agreed to pay
$240,000 into the settlement fund, id. at 837. In letters sent to
the parks before the insurers’ payment, American Modern made clear
that it was paying into the settlement fund “under a complete
reservation of rights to recover back its contribution for damages
*
The parties dispute whether the subsequent amended complaints
were properly tendered to Continental and Niagra for defense.
Because we hold that none of the damages claimed in any of the
complaints was covered by the policies, this possible distinction
between these insurers and American Modern is of no moment.
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that are not covered by its insurance policies with the various
insureds.” Id. at 655.
American Modern filed this action in the district court after
the residents filed their first amended complaint. It sought a
declaration that the policy did not obligate the insurers to defend
the residents’ suit against the parks. Id. at 24-39. The district
court, deciding the case after the residents’ suit settled, held
that the insurers were under no obligation to defend the parks
because there was “no potentiality that the [residents’] tort
claims could be brought within the coverage of the policy.” Id. at
58. Without analysis, it also ordered the parks to “refund to
American Modern Home Insurance Group the funds that American Modern
paid to satisfy the terms of the class action settlement
agreement.” Id. at 60. We affirm the district court’s holding on
coverage but reverse its order requiring the parks to reimburse
American Modern for their contribution to the settlement fund.
II.
A.
The district court characterized the residents’ allegations as
claims for “breach[es] of their [the parks’] contractual duties to
the mobile homeowners by failing to properly install their mobile
homes.” J.A. 57. The district court then concluded that because
the definition of “property damage” under Maryland law “does not
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include the normal, expected consequences of poor workmanship,”
there was no potential that the residents’ claims could be
considered claims for property damage covered by the policy. Id.
It therefore held that the insurers were not required to defend the
suit. Id. at 58.
The Maryland Court of Appeals has stated the test for deciding
whether an insurer has a duty under Maryland law to defend a tort
suit against its insured:
[T]wo types of questions ordinarily must be answered: (1)
what is the coverage and what are the defenses under the
terms and requirements of the insurance policy? (2) do
the allegations in the tort action potentially bring the
tort claim within the policy’s coverage? The first
question focuses upon the language and requirements of
the policy, and the second question focuses upon the
allegations of the tort suit.
St. Paul Fire & Marine Ins. Co. v. Pryseski, 438 A.2d 282, 285 (Md.
1981). In this case, the policies provide that the insurers have
“the right and duty to defend any ‘suit’ seeking” damages from the
insured due to “property damage” that is caused by an “occurrence.”
J.A. 109. The policy defines “property damage” as “physical injury
to tangible property” and defines “occurrence” as “an accident,
including continuous and repeated exposure to substantially the
same general harmful conditions.” Id. at 120-21. The policy does
not define “accident.”
According to the dictionary, an accident is “an event or
condition occurring by chance or arising from unknown or remote
causes.” Webster’s Third New International Dictionary 11 (1993).
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None of the damage the residents allege can be characterized as
having been caused by an accident under this definition because
none of it occurred by chance or arose from unknown or remote
causes. The parks’ alleged failure to carry out contractual and
statutory obligations to assure that the foundations were properly
installed could not possibly be considered accidental. Indeed,
some of the damage alleged could arguably be characterized as
having been an expected or intended consequence of the parks’
actions, which damage the policy explicitly excludes from coverage.
J.A. 110.
The Maryland Court of Appeals has applied a broader definition
of “accident” to allegations of negligence, holding that negligence
can be deemed accidental if it “causes damage that is unforeseen or
unexpected by the insured.” Sheets v. Brethren Mutual Insurance
Co., 679 A.2d 540, 548 (Md. 1996). Sheets held that a negligent
misrepresentation suit against the insured triggered the insurer’s
duty to defend because it was “conceivable” that the insured did
not anticipate the damage that resulted from the insured’s
negligent misrepresentation. Id. at 551. Unlike Sheets, in this
case it is not conceivable that the parks’ alleged conduct “may
have taken place without [the parks’] foresight or expectation” of
the damage caused. Id. Negligent interactions with residents
regarding obligations relating to the foundations and negligent
interactions with companies responsible for installing foundations
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foreseeably and expectedly lead to damage to the mobile homes
sitting on the foundations.
Even if the parks’ conduct was not accidental, the parks argue
that the damage alleged was caused by an occurrence because the
policy defines “occurrence” to include “continuous or repeated
exposure to substantially the same general harmful conditions,” see
J.A. 120, and the damage alleged resulted from continuous or
repeated exposure to the defective foundations. This argument is
premised upon a misunderstanding of the term “occurrence,” which
the policy defines as “an accident, including continuous or
repeated exposure to substantially the same general harmful
conditions.” Id. The continuous-or-repeated-exposure clause does
not, as the parks contend, expand coverage to include all damage,
whether accidental or not, that results from continuous or repeated
exposure. Rather, the clause is most naturally understood as
modifying “accident” to prevent temporal limitation. In other
words, the clause renders an accidental event that spans some
period of time as much a covered occurrence as an accidental event
that happens in a moment’s time. Under all circumstances the
requirement that the damage-causing events or actions be
accidental, which requirement has not been satisfied here, remains.
Because the damage alleged in the residents’ complaint was not
caused by an occurrence, it was not potentially covered by the
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insurers’ policies. Accordingly, the insurers had no duty to
defend the suit.
B.
Having concluded that the policies did not cover the
residents’ alleged damages, the district court apparently assumed
that the parks had to reimburse American Modern for its
contribution to the settlement fund and ordered the parks to do so.
See J.A. 60.
Neither the policy nor the endorsements contains any provision
that gives American Modern a right to reimbursement for settlement
payments made in cases in which there is no coverage, and the parks
never agreed to grant American Modern any such right in the
correspondence that preceded American Modern’s contribution.
Nevertheless, American Modern asks the court to hold that it has
right to reimbursement. As proof of the existence of its right to
reimbursement, American Modern principally relies upon its repeated
reservation of that right.
Because neither the policy nor any subsequent agreement
between American Modern and its insureds grants American Modern a
right to reimbursement, we cannot conclude that American Modern has
such a right. American Modern’s repeated reservation of its
asserted right to reimbursement is entirely inconsequential.
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Assiduous reservation of a non-existent right does not bring that
right into existence.
CONCLUSION
For the reasons stated herein, we affirm the judgment of the
district court that the insurers were under no obligation to defend
the suit against the parks. We reverse the district court’s order
requiring the parks to reimburse American Modern for its settlement
payments.
AFFIRMED IN PART AND REVERSED IN PART
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WILKINS, Chief Judge, concurring in part and dissenting in part:
I concur in the majority opinion to the extent that it holds
that the district court erred in requiring the parks to reimburse
American for the money it contributed toward the settlement of the
underlying suit. But I respectfully dissent from the portion of
the opinion affirming the grant of the insurers’ motion for summary
judgment on the issue of their duty to defend.
I.
The parks argue that the district court erred not only in
granting summary judgment to the insurers on the issue of their
duty to defend the parks but also in denying their own partial
summary judgment motion on the same issue. I agree on both
accounts.
We review the grant of summary judgment de novo, viewing the
disputed facts in the light most favorable to the nonmoving party.
See Edelman v. Lynchburg College, 300 F.3d 400, 404 (4th Cir.
2002). Summary judgment is warranted when the admissible evidence
forecasted by the parties “demonstrates that no genuine issue of
material fact exists and that the moving party is entitled to
judgment as a matter of law.” Williams v. Staples, Inc., 372 F.3d
662, 667 (4th Cir. 2004).
The parks first contend that the district court erred in
determining that they did not face potential liability under the
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complaints for “property damage” caused by an “occurrence.”
Indeed, they argue that such damages were within the scope of the
complaints as a matter of law. I agree.
“As a court sitting in diversity, we have an obligation to
interpret the law in accordance with the Court of Appeals of
Maryland, or where the law is unclear, as it appears that the Court
of Appeals would rule.” Wells v. Liddy, 186 F.3d 505, 527-28 (4th
Cir. 1999). Under Maryland law, the obligation of an insurer to
defend its insured is determined by the allegations in the
underlying claims against the insured. See Brohawn v. Transamerica
Ins. Co., 347 A.2d 842, 850 (Md. 1975). If the plaintiffs in the
underlying case “allege a claim covered by the policy, the insurer
has a duty to defend.” Id. In addition, even if the plaintiffs in
the underlying case do not “allege facts which clearly bring the
claim within or without the policy coverage, the insurer still must
defend if there is a potentiality that the claim could be covered
by the policy.” Id. If the coverage issue depends upon policy
language that is ambiguous, the court “must resolve that ambiguity
in favor of the insured before it can conclude that the insurer has
or had an obligation to provide a tort defense.” St. Paul Fire &
Marine Ins. Co. v. Pryseski, 438 A.2d 282, 286 (Md. 1981).
Each of the policies here (the Policies) requires the insurer
to “pay those sums that the insured becomes legally obligated to
pay as damages because of ... ‘property damage’ ... to which this
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insurance applies.” J.A. 211. They place upon the insurers “the
right and duty to defend any ‘suit’ seeking those damages.” Id.“Property damage” is defined to include “[p]hysical injury to
tangible property.” Id. at 223. The Policies provide coverage
only if the property damage is “caused by an ‘occurrence.’” Id. at
211.
All of the complaints requested compensation for property
damage. For example, the first Ellerbe complaint alleged in a
section labeled “Facts Applicable to All Counts,” that the
challenged installation procedure
causes minimally the home to sink and separate due to the
undue structural forces on the walls of the home. In
extreme scenarios, a home can collapse suddenly and
without warning. Accordingly, this defective workmanship
results in a wide pattern of foundational problems with
resultant damages, some of which are so material a
rescission of the contract is the only appropriate
remedy.
Id. at 286. This complaint further alleged that with regard to
Plaintiff Ellerbe’s home, there was “evidence of settling which ...
caused interior doors to no longer be square in the door frame.
The concrete pillars under the home ... cracked and are sinking
inward toward the center of the home.”1 Id. at 280 (internal
1
The insurers argue that the subsequent Ellerbe complaints do
not specifically make this allegation with regard to Ellerbe.
However, the subsequent complaints make similar allegations. See,
e.g., J.A. 445 (wherein first amended complaint alleged that “each
respective class member” had suffered damages “in the amount of the
purchase price of the home, un-leveling of the home, separation of
walls, doors and windows not being square and ... other damages”).
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quotation marks & emphasis omitted). This complaint sought
equitable relief and “all other remedies that equitably and
reasonably flow from Defendants’ breaches of statutory, common law
and contractual obligations.” Id. at 304. It also sought
compensation for violation of the relevant building code as well as
“such other and further relief as the Court appears just, equitable
and proper.” Id. Thus, the first Ellerbe complaint clearly
created the potential for the parks to be liable for property
damage caused to the homeowners, and the subsequent complaints
contained materially similar allegations.
Furthermore, the complaints created potential liability on the
part of the parks for property damage “caused by an ‘occurrence.’”
Id. at 211. The term “occurrence” is defined in the Policies as
“an accident, including continuous or repeated exposure to
substantially the same general harmful conditions.” Id. at 222.
Under Maryland law, “an act of negligence constitutes an ‘accident’
under a liability insurance policy when the resulting damage was an
event that takes place without the insured’s foresight or
expectation.” Sheets v. Brethren Mut. Ins. Co., 679 A.2d 540, 548
(Md. 1996) (internal quotation marks & alteration omitted).2
Regarding foresight or expectation, the test is a subjective, not
an objective one: That the damage “should have been foreseen or
2
The policy in Sheets defined “occurrence” exactly as do the
policies in the case at bar. Just as in the policies before us,
the policy there did not define “accident.”
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expected by the insured” does not disqualify it from having been
caused by an accident. Id. at 549. Indeed, were the law
otherwise, liability policies would be largely useless because they
would almost never cover any negligence liability, since a
defendant is liable only for the foreseeable results of his
breaches of duty. See id.
The majority opinion holds that the complaints did not allege
facts that even potentially could constitute an occurrence,
reasoning that “it is not conceivable” that the parks failed to
foresee or expect the damage caused by the installations of the
foundations. Ante, at 7-8. I do not believe that this is correct.
The complaints allege that the failure to satisfy code
requirements regarding the footers may not have been intentional.
See, e.g., J.A. 277, 289-90 (first Ellerbe complaint alleging that
“[t]he defective footers” may be “due to and based upon a
systematic and fundamental misunderstanding [of] ... the
requirements for footers in the State of Maryland”). And, although
the complaints allege some intentional torts, they also allege
causes of action against the parks for, among other things,
negligent misrepresentation, violation of building code,
negligence, breach of warranty, and torts arising from breach of
contract. See Brohawn, 347 A.2d at 850 (holding that liability
insurer had duty to defend insured against complaint that alleged
intentional tort and negligence in the alternative even when policy
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excluded coverage for intentional torts); Minnick’s, Inc. v.
Reliance Ins. Co., 422 A.2d 1028, 1030 (Md. Ct. Spec. App. 1980)
(“Once it is determined that the insurance policy creates a duty to
defend against claims made within the policy’s coverage and it is
further determined that the complaint alleges the cause of action
within the policy's coverage, the company is obligated to defend
the suit, notwithstanding alternative allegations outside the
policy's coverage, until such time, if ever, that the claims have
been limited to ones outside the policy coverage.” (internal
quotation marks omitted)).
If the failure to install the homes correctly amounted only to
negligence, the parks may not have known that the homes were being
installed incorrectly. In that event, there simply would be no
basis for concluding that the parks actually expected that the
installations would damage the homes; thus, the damage could
possibly have been caused by an occurrence. The unexpected nature
of the liability is the reason that this sort of claim, in which a
company has accidentally caused damage to other property by
negligently performing its work, is exactly the sort that
commercial general liability (CGL) policies are designed to cover.
See, e.g., Haynes v. Am. Cas. Co., 179 A.2d 900, 903-04 (Md. 1962)
(holding that when contractor hired to do excavation work cut down
trees that turned out to be on a third party’s property, damage was
“caused by accident” (internal quotation marks omitted)).
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But even assuming for a moment that all of these claims
alleged that the parks knew that the installations did not satisfy
the building code--and therefore were negligent--the parks still
may have believed that the installations were sufficient to keep
the homes from sagging and separating. To conclude otherwise would
be to assume that the code requirements were the absolute bare
minimum necessary to prevent such damage and that the parks knew
that, but there is no support whatsoever for either assumption.
Considering that the complaints are silent regarding whether the
parks realized that their installations would cause the homes to
separate, the majority has no basis for concluding that the parks
necessarily realized this.
Relying primarily on Lerner Corp. v. Assurance Co. of America,
707 A.2d 906 (Md. Ct. Spec. App. 1998), the insurers argue that the
property damage alleged here was not even potentially caused by an
occurrence because it necessarily was “foreseen” by the parks. In
Lerner, the plaintiffs were a developer and a firm that provided
the developer with construction management services. See Lerner
Corp., 707 A.2d at 907. The developer built and sold a building to
the United States pursuant to a contract providing that acceptance
of the work performed under the contract was deemed to be final
except as to latent defects. See id. at 907-08. After the
building was sold, GSA discovered latent defects in the building’s
exterior facade. See id. at 908. The plaintiffs undertook to
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repair the facade and then sued their CGL insurers for indemnity.
See id.Some of the CGL policies at issue in Lerner defined
“occurrence” to require that any resulting property damage be
“neither expected or intended from the standpoint of the Insured.”
Id. at 909 (internal quotation marks omitted). The Court of
Special Appeals concluded that
[i]f the damages suffered relate to the satisfaction of
the contractual bargain, it follows that they are not
unforeseen. In other words, and in the context of this
case, it should not be unexpected and unforeseen that, if
the Building delivered does not meet the contract
requirements of the sale, the purchaser will be entitled
to correction of the defect.
Id. at 912. The Lerner court went on to explain, however, that
if the defect causes unrelated and unexpected ...
property damage to something other than the defective
object itself, the resulting damages, subject to the
terms of the applicable policy, may be covered. For
example, if a collapse of the veneer had injured a user
of the facility or damaged property other than the veneer
itself, these may well be covered.
Id.; see 9A Steven Plitt et al., Couch on Insurance § 129:4 (3d ed.
2005) (“[A]lthough a commercial general liability policy does not
provide coverage for faulty workmanship that damages only the
resulting work product, the policy does provide coverage if the
faulty workmanship causes bodily injury or property damage to
something other than the insured’s work product.”).
The case at bar is distinguishable from Lerner because here,
the complaints seek primarily to impose liability for damage not to
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the foundations themselves, but to the rest of the homes. That
damage was allegedly caused by the “harmful condition[]” of
“continuous ... exposure to” an incomplete foundation, the
incompleteness of which was allegedly the parks’ legal
responsibility. J.A. 222.
Indeed, that the scope of the product or work for which the
parks were responsible was limited to, at most, the installation of
the homes and did not include their construction is the critical
point in this case. The insurers attempt to blur this distinction
by essentially blending the parks with the companies that sold them
the homes (“the Retailers”), as if they were one entity. See,
e.g., Appellee’s Br. at 46 (“The uncontradicted allegations were
that plaintiffs had a contract with the Parks to deliver a non-
defective home that had a proper foundation, which is the gravamen
of the Complaint(s).”). The bottom line, however, is that none of
the Ellerbe complaints allege that the Ellerbe plaintiffs
contracted with the parks for purchase of the homes.
The insurers point out that the Ellerbe plaintiffs’ purchase
contract with the Retailers allegedly included both construction of
the homes and their installation. In other words, the complaints
alleged that they purchased installed homes. That is true, and
that would be relevant if the Retailers were the insureds here.
Because the Retailers were responsible for constructing each entire
installed home, under Lerner, they necessarily would have foreseen
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that they would be liable for repairing the entire home to the
extent they did not deliver what they promised. But since the
parks at most had the duty to install the homes, they are
considered to have foreseen only the cost of repairing the
installation. The complaints therefore created the potentiality
that the parks would become liable for property damage they had not
foreseen.3
II.
The insurers also maintain that selected Policy exclusions
demonstrate that the claims in the complaints necessarily fell
outside the scope of the Policies. The parks argue that the
3
The insurers contend that even if the complaints created some
potential liability for property damage caused by an occurrence,
the summary judgment should be affirmed as to Continental Insurance
Company and Niagra Fire Insurance Company because they did not
insure any parks after 1995. I disagree. The Policies cover
liability for “property damage” only if the damage “occurs during
the policy period.” J.A. 211. But because the Ellerbe plaintiffs
alleged that the improper installations dated back to 1993, nothing
in the complaint rules out the possibility that some of the alleged
property damage had occurred by 1995.
The insurers also maintain that, all other issues aside, they
are entitled to summary judgment against three parks in which none
of the named plaintiffs reside. That is incorrect as well. Each
of the parks named in the class action suit was at risk of a
judgment in favor of its residents regardless of whether its
residents were named. Because the insurers could have been
required to indemnify the parks for such a judgment, they were
required to defend their insureds.
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exclusions, as a matter of law, do not preclude the insurers’ duty
to defend here. I agree with the parks.
The exclusions cited by the insurers are among those
collectively known as the “business risks exclusions.” Century I
Joint Venture v. United States Fid. & Guar. Co., 493 A.2d 370, 374
(Md. Ct. Spec. App. 1985). In Century I, the Maryland Court of
Special Appeals noted:
Courts have uniformly held that the purpose of exclusions
such as these, for damages to the insured’s work product
or work project out of which an accident arises, is to
remove any obligation of the insure[r]4 to pay for the
repair or replacement of the policyholder’s own defective
work or defective product. Conversely, it is equally
well established that such business risk exclusions
permit coverage for damages to other property or for
other accidental loss caused by the defective product or
defective work.
Id. at 374-75 (citations omitted). I will address seriatim the
exclusions identified by the insurers.
The first concerns liability for property damage to “[t]hat
particular part of any property that must be restored, repaired or
replaced because ‘your work’ was incorrectly performed on it.”
J.A. 214-15 (exclusion 1(k)(6)). The language of this exclusion
begs the question, “On what ‘particular part’ of the property were
the installations here performed? Was it simply the bottom
surfaces of the homes, or should the installations be considered to
4
Although Century I says “insured” rather than “insurer,” it
is clear from the context and the authorities cited that that was
simply a typographical error.
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have been performed on the homes in their entirety?” The former
construction is at least reasonable, and the record contains no
extrinsic evidence clarifying the parties’ intentions. Thus, the
“particular part” exclusion does not necessarily bar coverage here.
See Frankel v. J. Watson Co., 484 N.E.2d 104, 105-06 (Mass. App.
Ct. 1985) (holding that “particular part” exclusion precluded
coverage only for foundation itself and not for rest of the
property when insured was retained to move farmhouse and construct
new foundation for it but negligently constructed foundation,
causing damage to the superstructure of the farmhouse).
The insurers next rely on exclusion 1(l), which applies to
liability for “‘Property damage’ to ‘your product’ arising out of
it or any part of it.” J.A. 215. Even if the parks had a product
here, it certainly cannot be said that the entire homes were their
product. Thus, this exclusion is not dispositive.
The insurers also rely on exclusion 1(m), which concerns
liability for “‘Property damage’ to ‘your work’ arising out of it
or any part of it and included in the ‘products-completed
operations hazard.’” Id. The Policies state that “[t]his
exclusion does not apply if the damaged work or the work out of
which the damage arises was performed on your behalf by a
subcontractor.” Id. Here, because the complaints do not specify
whether the installers of the homes were the parks’ subcontractors,
this exclusion is not dispositive.
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The insurers finally identify exclusion 1(n), which excludes
coverage for:
“Property damage” to ... property that has not been
physically injured, arising out of:
(1) A defect, deficiency, inadequacy or dangerous
condition in “your product” or “your work”; or
(2) A delay or failure by you or anyone acting on your
behalf to perform a contract or agreement in
accordance with its terms.
This exclusion does not apply to the loss of use of other
property arising out of sudden and accidental physical
injury to “your product” or “your work” after it has been
put to its intended use.
Id. (emphasis added). Here, the complaints alleged that the homes
were physically injured. Thus, this exclusion would not apply.
For all of these reasons, the allegations of the complaints
show that the Ellerbe plaintiffs’ claims had the potential to fall
outside all the business risks exclusions identified by the
insurers. As a matter of law, the exclusions did not preclude the
insurers’ duty to defend.
III.
In sum, I would hold that the district court erred not only in
granting the insurers’ motion for summary judgment but also by
denying the parks’ motion for partial summary judgment. I
respectfully dissent from the majority opinion to the extent that
it holds otherwise.
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