BITUMINOUS CASUALTY CORP. V. KENWAY CONTRACTING, INC.
INSURANCE: CGL POLICY; EXCLUSIONS FOR INTENTIONAL ACTS; DUTY TO DEFEND, INDEMNIFY
MAJORITY OPINION BY CUNNINGHAM; MCANULTY AND MINTON NOT SITTING
LOWER: WARREN COUNTY
DATE RENDERED: 6/21/2007
Bituminous appeals COA’s opinion affirming Warren Circuit Court’s Summary Judgment entry in favor of Kenway Contracting that Bituminous owed a defense and indemnity to its insured Kenway for property damage claims being alleged by Kenway’s customers Turner. This coverage action arose from these facts: Kenway contracted with the Turner’s to demolish a carport attached to their home. One of Kenway’s employees was sent to the Turner’s home with a trackhoe to meet Kenway’s foreman, and upon arriving began the demo work. To the foreman’s dismay, the employee had torn down not only the carport but half of the home as well by the time he arrived. Kenway submitted the claim to Bituminous who first issued a reservation of rights before before denying coverage outright within a month primarily on the basis that the loss did not result from an ‘accident,’ but instead from faulty workmanship. Kenway filed a declaratory judgment action and ultimately prevailed, the TC reasoning that the damages resulted from a miscommunication between Kenway’s employee and foreman (the foreman/VP and president both testified that the employee had specifically been told that only the carport was to be torn down ), not shoddy work. On appeal, the COA recognized that while the act causing the damages was intentional, the consequences were unintended unexpected by the insured Kenway.
At the SC level, Bituminous made a 2-part argument: 1) the damages did not constitute an ‘occurrence’ under Kenway’s CGL policy; and 2) notwithstanding, one or more business risk clauses in the policy excluded coverage. The SC began began its opinion (authored by Cunningham) by reiterating the SC’s prior holding in James Graham Brown Found. v. St. Paul FIre & Marine Ins. that the primary purpose of a "comprehensive" general liability policy is to provide broad comprehensive coverage, and that an insured is entitled to all coverage he may reasonably expect under the policy. Justice Cunningham wrote that the SC adopted the majority rule when it concluded in that case that if the damages were not actually and subjectively intended or expected by the insured, coverage exists even if the action causing the damages was intentional and the damages ultimately foreseeable.
As to Part I of Bituminous’ argument, the SC analyzed whether the resulting damages were an ‘accident’ as that term is used in the policy definition of ‘occurrence.’ While the SC agreed with Bituminous that the damage was not unintended or unexpected from the demo employee’s viewpoint, it noted that coverage must be determined from the insured Kenway’s perspective since claim was made against Kenway alone. The SC noted that the damages did not result from the any plan, design or intent on the part of Kenway’s officers, and found a lack of any evidence to show that Kenway’s officers otherwise expected them.
As to Part II of the argument, the SC reviewed 2 business risk exclusions cited by Bituminous (the ‘Damage to Property’ subsections), the first excluding damage to that particular part of real property on which the insured is performing operations, and the second excluding damage to that particular part of any property that must be restored, repaired or replaced because the insured’s work was incorrectly performed on it. As to Exclusion 1, the SC noted that neither "that particular part of real property" nor "operations" were defined in the CGL policy, and that Kenway had suggested operations be limited to the carport since that was the original scope of the work while Bituminous argued operations should extend to any part of property that actual work occurred. As the SC found both arguments reasonable under the plain meaning of the policy words, it ruled that this exclusionary clause was ambiguous and strictly construed the clause against the drafter Bituminous. As to Exclusion 2, the SC found this clause also to be ambiguous and subject to 2 opposing interpretations under the particular facts of this case since the exclusion could be read as relating to the manner of the work (Kenway arguing that the demo work itself was not conducted improperly) v. the location of the work (Bituminous countering that the work was performed on the wrong part of the property). This second exclusion was also construed in favor of the insured Kenway.
The SC having found both parts of Bituminous’s argument without merit (as applied to these particular case facts), it affirmed the COA’s opinion requiring Bituminous to defend and indemnify Kenway for the damages sought by the Turner’s.